Deputy Commissioner of Taxation v Arizcorp Pty Ltd

EX TEMPORE REASONS FOR JUDGMENT 1 I have before me an application this morning for termination of an order for the winding up of the first defendant, Arizcorp Pty Ltd, pursuant to an order made, in fact, by me on 29 February 2008. The application was the subject of orders made by Lander J on 26 March 2008, one of which was an order that the winding‑up order be stayed until 4pm today. The application for termination has been listed for hearing this morning. However, a preliminary matter has been raised as to whether an adjournment ought to be granted for a period of four weeks. 2 The question to be determined on the application for termination goes to the solvency of the company at the date of the hearing of the termination application. 3 The history of the matter involves a statutory demand made by the Deputy Commissioner of Taxation (which I will refer to as the 'ATO') in relation to taxation liabilities due to the Commonwealth by the first defendant company. Taxation returns under the PAYE regime had not been lodged in 1999 and 2000, and after the introduction of the BAS protocols, taxation returns were not lodged throughout a number of years. The end result of the ultimate lodgement of returns and assessment of the unpaid tax was that an amount of $631,955.71, among, perhaps, some other moneys, became payable to the Commissioner. 4 The company has fully paid that amount of money. 5 Earlier undertakings given to the Court required further returns for particular years to be lodged by 16 April 2008 as a condition of the stay order. Those returns, I understand, were lodged on 9 April 2008. Those returns resulted in an amount of tax due to the Commonwealth of $87,635.37, and apparently the balance payable to the Commonwealth, as at this morning, is $84,169.06. The application for the adjournment is made on the footing that the director, Mr Wilkie, has taken steps to firstly deal with the earlier outstanding taxation liabilities and has made arrangements for the payment of a substantial amount of money and secondly, has taken steps to make an application to the Bank of Queensland for finance so that the balance moneys due to the ATO might be paid in a reasonably timely way. 6 The application to the Bank of Queensland resulted in a letter, dated 23 April 2008 to Mr and Mrs Wilkie, which is exhibited to the affidavit of Mr Robert Alexander Wilkie, sworn 23 April 2008. In that letter the bank responds to a recent inquiry regarding an increase in a line of credit from the bank to Mr and Mrs Wilkie and notes that the normal credit criteria of the bank can not be satisfied because there is a reference in a credit reference search to two matters. First, a Magistrates Court summons in favour of the Deputy Commissioner of Taxation claiming an amount of $143,309.00 which was said to be still then outstanding and secondly, the question of the external administration of Arizcorp Pty Ltd. The bank concludes its letter by noting that: Given that there has been an increase in the value of your private residence, which the bank holds as security for current borrowings, and following finalisation of the above matters - being the reference to the two points - the bank would be in a position to reconsider our decision in relation to your recent application for additional finance. 7 That letter is described as a conditional approval. It seems to me that really it is not a conditional approval. It is a statement of intention to reconsider an application should it be satisfied about those two matters. As to those matters, it is common ground that the amount of $143,309.00 has been paid and fully discharged and Mr Bell, on behalf of the ATO, has said that the ATO would be prepared to issue a letter to Mr Wilkie which confirms simply that fact. The question of the external administration of Arizcorp is, in fact, the very matter that is to be determined in the application for termination. 8 The company appears not to have any other external creditors other than creditors in the ordinary course of business. There is one question in relation to an extension of the terms of a loan to the company and Mr Bell makes the point that that extension seems, on its face, to be inconsistent with an element of an order of Dowsett J, made on 19 March 2008, in the sense that the order then made was conditioned upon the first defendant undertaking through its counsel not to dispose of any assets or incur any liabilities other than in the usual course of business. The extension of the terms and conditions of that loan are said on one view to constitute incurring a liability other than in the usual course of business. It seems to me that that element is fraught with some controversy. It may or may not be inconsistent with the undertaking. 9 A further matter that is agitated on the application for the adjournment is that there is said to be no real prejudice flowing to either the liquidator of the company, represented by Mr Humzy‑Hancock this morning - the liquidator does not oppose the stay, but has an interest in, of course, securing his fees and expenses, or the Deputy Commissioner. The Deputy Commissioner of Taxation opposes the application for the adjournment on a number of grounds, but, fundamentally, on the basis that Mr Wilkie, as director, has presided over the company since 1998 and has had the governance of the company during the period during which the company has failed to lodge taxation returns and has failed until relatively recently to discharge tax debts due to the Commonwealth. 10 Secondly, Mr Bell says that the company was insolvent at the moment in time when the order was made on 29 February 2008. It remains insolvent today. The question of the solvency of this company is the central, material matter to the application for the termination and that question will be determined on all the evidence and, in particular, in the light of an expert's report which has been filed in support of the termination application. There is said to be no prejudice to any party in adjourning the matter, because debts are only being incurred in the ordinary course of business. The Commissioner has been substantially paid. 11 There are steps being taken to try and secure loans to discharge the residual interest of the Commissioner and, on the company's side of the equation, the fundamental asset of the company is a 'rent‑roll' which, if the application is proceeded with and lost, then the rent roll will be sold and individuals will be displaced from employment. That, by itself, is not significant on the merits of the primary application, because it will simply follow the event of the resolution of the primary application. 12 For the purposes of the adjournment application, though, it seems to me that the position ought to be preserved in the meantime and what I propose to do, therefore, is grant an adjournment of the application for termination of the winding‑up order until 11.00am on 21 May 2008. I will order that the first and second defendants pay the costs of the Deputy Commissioner of Taxation of the adjournment. I will further order that the applicants on the present application, being the first and second defendants in the proceeding, pay further security to the liquidator of $5,000.00. The parties will have liberty to apply by re‑listing the matter on two days notice. There are two further matters. First, the first defendant by its counsel undertakes that it will not on or before 4.00pm on 21 May 2008 dispose of any assets or incur any liabilities other than in the usual course of business. Secondly, the winding‑up order made on 29 February 2008 will be stayed until 4.00pm on 21 May 2008. The application for termination of the winding‑up will be adjourned until 11.00am on 21 May 2008. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.