Deputy Commissioner of Taxation v Allodium Holdings Pty Ltd

REASONS FOR JUDGMENT 1 This is an application pursuant to subs 440A(2) of the Corporations Act 2001 (Cth) for the adjournment of a hearing of applications for winding-up orders against two companies, Allodium Corporation Pty Ltd and Allodium Holdings Pty Ltd. In each case the plaintiff is the Deputy Commissioner of Taxation. The statutory demands were served on 30 March 2006, winding-up applications filed on 22 May 2006 and administrators were appointed on 16 June 2006. 2 Two offers were made by a director of each corporation, Mr Hunt, which offers involved the payment from other sources of funds for the benefit of creditors pursuant to a proposed deed of company arrangement. When the hearing of the applications for winding up came on before the Registrar on 22 June 2006, an adjournment was sought pursuant to s 440A to enable the administration to continue, so that a decision could be made as to the best course, having regard to the interests of the creditors. The Registrar referred to me both contested applications for adjournments. 3 The Commissioner, according to an affidavit filed by the Administrator, is owed something over $900,000, which figures appear in the statutory demands. In fact their tax liability is now in the vicinity of $1.13 million. The principal creditor of both companies, other than the Commissioner, is Hunt Property Group Pty Ltd, which is owed something over $1.3 million. That company is associated with Mr Hunt, the sole director of these companies. Other creditors are few in number and in quite small amounts. 4 The asset position of each company is theoretically complicated by the fact that they apparently operate as the trustees of separate trusts. Allodium Holdings, as trustee of the Palm Horizon unit trust, has assets of $170,000 which appear to be trade dollars. It is sufficient to say of trade dollars that their realizable value may be significantly less than their face value. The other company, Allodium Corporation, is trustee of the Sunset Horizon Unit Trust. It appears to have assets of something in excess of $2 million. However the vast bulk of those assets are also in trade dollars. 5 The first offer, made on 20 June 2006 by Mr Hunt, was as follows: '. The director, Mr Joshua Hunt, offers to inject into the company the sum of one hundred and fifty thousand dollars ($150,000.00) to assist the companies in entering into this DOCA for the benefit of the creditors. . Three payments are offered of fifty thousand dollars ($50,000.00) each, being payable at the three months six months and nine months from the date of execution of the final DOCA. . The director, Mr Joshua Hunt, is prepared to offer real estate security for this DOCA in the form of a mortgage over a property at Dickie Beach. . These funds are to be divided between creditors of both these companies on a pro rata basis, excluding the creditors listed in the following points. . The following creditors agree to be excluded from the dividends arriving to the company from this DOCA - · Hunt Property Group and all inter-related companies; · Smart Steps Accounting; · Mallawa Pty Ltd; · Any Beneficiaries of either Allodium Corporation Pty Ltd or Allodium Holdings Pty Ltd; · Abbott Tout Lawyers.' 6 The second offer, made on 21 June 2006, was as follows: '. The director, Mr. Joshua Hunt offers to inject into the company the sum of one hundred and fifty thousand dollars ($150,000.00) to assist the companies in entering into this DOCA for the benefit of the creditors. . Three payments are offered of fifty thousand dollars ($50,000.00) each being payable at three months six months and nine months from the date of execution of the final DOCA. . The director, Mr. Joshua Hunt is prepared to offer real estate security for this DOCA in the form of a mortgage over the property at Dickie Beach. . These funds are to be divided between creditors of both these companies on a pro rata basis.' 7 It can be seen that the primary effect of the change in offer is to include all creditors in the proposal, whereas previously it was designed primarily for the benefit of the Commissioner of Taxation. 8 The primary external creditor is the Deputy Commissioner. I should give significant weight to the Deputy Commissioner's perceptions as to his own best commercial interests. However, I should not, in so doing, lose sight of the interests of the other creditors, including Hunt Property Group. The Deputy Commissioner stands to benefit only to the extent of about half of any amount injected into the companies, the other half going to Hunt Property Group. The other creditors will benefit only to a some small extent. 9 Neither company is trading. It is difficult to identify any benefit in allowing them to continue on foot, other than the possible injection of $150,000. Realisation of trade dollars may not be a simple task, may take some time, and therefore may involve additional expense, whether it be undertaken by the Administrator or by a liquidator. The proposed injection of funds is to take place over a period of nine months from the ultimate agreement as to a deed of company arrangement. That, almost inevitably. means the continuing involvement of the Administrator over that period, with the possibility that in the event of default it will still be necessary to proceed to liquidation. There is to be security for the payment of the amount, but that security is, as I understand it, to be a mortgage offered by another company, presumably controlled by Mr Hunt. 10 Two immediate difficulties arise. Given the financial embarrassment to which these companies are presently exposed, one wonders whether or not any other company associated with Mr Hunt is likely to be able to give a guarantee which is not liable to be set aside in any insolvency. No evidence is supplied as to the financial position of the proposed mortgagor. 11 More importantly, in the event that it is necessary to enforce the security, the creditors would again be delayed and exposed to the risk of further expense. It also seems that evidence as to the value of the property and, more particularly, as to the owner's equity in the property, is far from conclusive. 12 The decision is very much a commercial decision. The Commissioner's approach is a rational one. I accept that the best commercial interests of the Commissioner as a creditor would not be served by the further adjournment of the proceedings to see what might come of this proposal and its implementation. The only question, then, is whether or not the interests of other creditors may lie in a different direction. I am unable to see that the other external creditors would be better served by an adjournment than would the Commissioner. 13 They are going to get very little in any event. The additional return to them would probably not be worth the delay. It is true that the Hunt Property Group company may also stand to derive some benefit from the proposal, but if Mr Hunt is inclined to benefit that company from his own resources, he can do so in any event. 14 I am not satisfied that it is in the interests of the creditors that the administration continue. In those circumstances I decline to adjourn the hearing of the applications. 15 In each case, there will be an order in terms of the draft. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.