Deputy Commissioner of Taxation v Australian Securities and Investments... [2010] FCA 1411 | Case summary

Deputy Commissioner of Taxation v Australian Securities and Investments... [2010] FCA 1411 | Case summary | Zoe

[15]

STATUTORY PROVISIONS 4 The statutory power on which the Commissioner relies for reinstatement is s 601AH(2) of the Corporations Act 2001 (Cth). Section 601AH includes the following provisions: (2) The Court may make an order that ASIC reinstate the registration of a company if: (a) an application for reinstatement is made to the Court by: (i) a person aggrieved by the deregistration; or (ii) a former liquidator of the company; and (b) the Court is satisfied that it is just that the company's registration be reinstated. (3) If the Court makes an order under subsection (2), it may: (a) validate anything done between the deregistration of the company and its reinstatement; and (b) make any other order it considers appropriate. … (5) If a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. A person who was a director of the company immediately before deregistration becomes a director again as from the time when ASIC or the Court reinstates the company. Any property of the company that is still vested in the Commonwealth or ASIC revests in the company. If the company held particular property subject to a security or other interest or claim, the company takes the property subject to that interest or claim. 5 In respect of the proposed winding up of Advance and Civic, the Commissioner relies on s 459A of the Corporations Act (winding up in insolvency) on the basis that the Commissioner is a creditor or contingent creditor of the companies. Section 459P(1)(b) permits a creditor or, with leave (see s 459P(2)), a contingent creditor to apply to the Court for a company to be wound up in insolvency. If leave is required s 459P(3) provides that the Court may grant leave "if satisfied there is a prima facie case that the company is insolvent, but not otherwise". 6 The Commissioner, as a creditor or contingent creditor of Advance and Civic, also seeks the winding up orders on the alternative ground under s 461(1)(k) of the Corporations Act which provides that the Court may order the winding up of the company if "the Court is of opinion that it is just and equitable that the company be wound up". Insofar as the alternative application is based on the Commissioner's status as a contingent creditor of the companies, s 462(4) applies (that is, the Court must not hear the application unless and until "such security for costs has been given as the Court thinks reasonable" and "a prima facie case for winding up the company has been established to the Court's satisfaction").

[16]

THE COMMISSIONER'S CASE 7 The Commissioner's case arises from the following facts and propositions. (1) Advance was incorporated on 21 April 1997. Its income tax returns for the financial years 1997 to 2006 each showed nil taxable income and Advance paid no income tax. (2) Civic was incorporated on 17 May 1999. Its income tax returns for the financial years 1999 to 2006 each showed nil taxable income and Civic paid no income tax. (3) Emil Binetter and members of his family (including Emil's brother Erwin Binetter and son Gary Binetter) had been directors and controllers of Advance and Civic and other companies for a number of years including: Ligon 159 Pty Ltd (Ligon 159) and the EBC Investment Trust of which Ligon 159 was trustee, Milgerd Nominees Pty Ltd (Milgerd Nominees) and the Emil Binetter Family Trust of which Milgerd Nominees was trustee, Erma Nominees Pty Ltd and BCI Finances Pty Ltd. (4) On 31 July 2006 and 8 September 2006 the Australian Taxation Office (the ATO) wrote to Mark Douglass of MDA Lawyers (later Argyle Lawyers), the solicitors for Advance and Civic, advising that the ATO intended to audit a number of entities associated with Emil Binetter. (5) On 13 September 2006 Advance and Civic each lodged an application with ASIC for administrative deregistration under s 601AA of the Corporations Act. (6) In accordance with those requests Civic was deregistered on 25 November 2006 and Advance on 26 November 2006. (7) On 16 April 2007 the ATO issued a notice under s 264 of the Income Tax Assessment Act 1936 (Cth) requiring Emil Binetter to attend for an interview concerning the affairs of Ligon 159, Milgerd Nominees, Advance and Civic. The interview took place on 27 April 2007. At this time the ATO first became aware that Advance and Civic had been deregistered. (8) Although Advance and Civic had been deregistered the former directors, including Emil and Gary Binetter, and MDA Lawyers continued to deal with the ATO in respect of the audit of Ligon 159, Milgerd Nominees, Advance and Civic. (9) On 15 July and 23 September 2009 the ATO issued position papers in respect of Advance and Civic respectively. The ATO concluded that the returns of both companies for the financial years 1998 to 2004 were incorrect and that substantive assessments should be made of their taxable income and tax payable thereon. The ATO was (as it set out in written submissions): … not satisfied that funds received from those companies from offshore were advances of loans, nor that claims made by those companies for alleged offshore interest expenses were truly payments of interest on loans, nor that they were outgoings incurred in earning or producing assessable income or necessarily incurred in carrying on a business for that purpose within the Income Tax Assessment Act 1997… s 8-1. (10) The ATO asked ASIC to reinstate the registration of Advance on 21 July 2009. ASIC did so on 31 July 2009. (11) Between 24 September and 14 October 2009 the Commissioner issued to and served on Advance notices of assessment for the financial years 1998 to 2006 (effective service being in dispute in these proceedings). The notices of assessment identified the total income tax payable as $1,359,099.54 with penalties totalling $815,643.25. (12) Gary Binetter challenged the validity of the reinstatement of the registration of Advance. On 20 November 2009 Emmett J made orders setting aside ASIC's decision to reinstate the registration of Advance and requiring the rectification of the register of companies to remove the name of Advance from the date of its deregistration. (13) On 26 February 2010 the Commissioner assessed Civic for the financial years 1998 to 2004. The notices of assessment cannot be served as Civic is deregistered. The notices of assessment identified the total income tax payable as $372,938.30 with penalties totalling $169,826.76. 8 According to the Commissioner: (1) The assessments made in relation to both companies are legally valid and effective. Subject to service (or validation of service the Commissioner contends was effected on Advance during the period in which its registration was reinstated under s 601AH(3) of the Corporations Act), they give rise to present debts to the Commonwealth recoverable by the Commissioner. (2) Subject to service, the validity and effectiveness of the assessments are conclusive other than in appeal or review proceedings under Pt IVC of the Taxation Administration Act 1953 (Cth). On service being effected (which the Commissioner intends to do upon reinstatement, except if the earlier service is validated in the case of Advance), ss 175 and 177 of the Income Tax Assessment Act (and the equivalent provisions with respect to the penalties in s 298-30 of Sch 1 to the Taxation Administration Act) will operate. Sections 175 and 177(1) are as follows: Section 175 The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with. Section 177(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. (3) The Commissioner is a person aggrieved by deregistration of Advance and Civic. The exercise of the Commissioner's functions under the income tax legislation, including the recovery of tax related liabilities, is being impeded by deregistration of the companies. The Commissioner, by reason of the assessments, is a contingent creditor of the companies but cannot, by reason of the deregistration, perfect or complete service of the notice of the assessments, recover the assessed tax from either company, procure the benefits of a winding up, liquidator's investigation and the potential exercise of consequential remedies including under Pt 5.7B of the Corporations Act (recovering property or compensation for the benefit of creditors of insolvent company) or otherwise against the former directors. The submissions of Gary Binetter to the contrary attempt to create a "Catch 22" situation - without reinstatement of the registration of the companies the notices of assessment cannot be served but without service of the notices of assessment the Commissioner cannot seek reinstatement. If accepted this would be contrary to the public interest, including the public interest in enabling the Commissioner to perform the statutory functions vested in him. (4) It is just that the registration of Advance and Civic be reinstated. Reinstatement will enable the Commissioner to pursue recovery of the assessed tax related liabilities, including the pursuit of remedies which are available for the benefit of creditors of companies in liquidation. Relevant factors include that: - (i) the companies were dissolved by administrative deregistration and not on a winding up; (ii) the Commissioner had no notice of the proposal to deregister the companies; (iii) before the companies were deregistered they were on notice of the proposed audits; (iv) the reinstatement of the registrations will enable the substantial liabilities of the companies to the Commonwealth to be the subject of recovery; (v) although the companies have nil or negligible assets to satisfy those liabilities they can be wound up and a liquidator appointed to investigate their affairs, the Commissioner being willing to fund the liquidator for that purpose; (vi) the Commissioner has not been guilty of unwarranted delay. Upon becoming aware of deregistration of the companies the Commissioner had to complete the audit process before being satisfied that reinstatement would serve a useful purpose. Throughout the audit process the former directors and MDA Lawyers continued to represent the companies' interests as if they were registered. Having concluded the audit process and made the assessments the Commissioner immediately applied to ASIC for Advance's registration to be reinstated, with a similar request in respect of Civic on 26 October 2009. When the reinstatement of Advance's registration was set aside on 20 November 2009, the Commissioner thereafter commenced these proceedings on 20 January 2010; and (vii) there will be no relevant prejudice caused by the reinstatement of the registration of the companies as: the former directors and MDA Lawyers continued to represent the companies after deregistration throughout the audit process; reinstatement will not remove the right of objection and appeal under Pt IVC of the Taxation Administration Act. Moreover, if a winding up order is made a liquidator can exercise those rights. It is not for the Commissioner to fund a challenge to the assessments. The fact that Gary Binetter has indicated a willingness to fund the pursuit of those rights by the companies but not by a liquidator is a matter for him. His attitude to funding cannot be a proper reason for not making the winding up order. (5) As to the winding up applications: (i) the Commissioner is a contingent creditor of Advance and Civic. A contingent creditor is "a person towards whom under an existing obligation, the company may or will become subject to a present liability upon the happening of some future event or at some future date" (Re William Hockley Ltd [1962] 2 All ER 111 at 113, and see Austin and Ramsay, Ford's Principles of Corporations Law (LexisNexis Butterworths) at [27.080]). The existing legal obligation is that of Advance and Civic in the form of taxation liabilities which pre-date the assessments and which will mature into an obligation to pay a finite and quantified debt on service of the notices of assessment. The contingency is service of the notices of assessment which is practically certain to occur; (ii) each company has substantial tax liabilities that it cannot pay and thus each company is deeply insolvent. Section 459D(1) of the Corporations Act provides that when determining the solvency of a company for the purpose of a winding up application "the Court may take into account a contingent or prospective liability of the company"; (iii) other than the nominal share capital of $2 disclosed in the 2006 income tax returns the companies have no assets. Further, the shareholders and directors have no evident business purpose for the continued existence of the companies. There is no likelihood of any payment to discharge the tax liabilities of either company outside liquidation. There are substantial issues for investigation by a liquidator having regard to the transactions of the companies with related and offshore parties and anomalies in and paucity of available documents and records; (iv) the opposition of the former directors to the reinstatement of the registration of the companies and the companies' lack of assets also support the winding up; and (v) the same considerations establish a prima facie case for a winding up of the companies on the basis that it is just and equitable to do so.

[17]

Person aggrieved 9 The first issue under s 601AH(2) of the Corporations Act is whether the Commissioner is a person aggrieved by the deregistration of Advance and Civic. As Tamberlin AJ summarised in Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800 at [22]-[23]: [22] The expression "person aggrieved" is of wide import and should be construed liberally and includes a person who has been damaged or injured in a legal sense: Callagher v Australian Securities and Investments Commission (2007) 239 FLR 749. [23] It excludes a person who is a mere busybody, who has no genuine interest in the outcome of a decision. A person aggrieved has a genuine grievance as a result of a decision which prejudices his or her interest: see Australian Competition and Consumers Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 at [24]-[25] per Austin J; Newfront Pty Ltd (Deregistered) [2008] SASC 127 and the cases cited therein. This interest must be real and direct and can result from a person being subject to legal burden by a decision: Callagher v Australian Securities and Investments Commission (2007) 239 FLR 749. 10 In Re James Hardie Australia Finance Pty Ltd (Deregistered) (2008) 170 FCR 545; [2008] FCA 1181 Lindgren J considered an application for reinstatement with a view to making amended assessments. At [13]-[16] Lindgren J said: [13] An application under s 601AH for reinstatement of the registration of a company may be made by "a person aggrieved by the deregistration". According to s 601AH(2)(b), it is a condition of the enlivening of the Court's power to order reinstatement that the Court be "satisfied that it is just that the company's registration be reinstated". The Court has a residual discretion whether to make an order. These three matters will need to be considered. [14] It has been said that the expression "a person aggrieved by the deregistration" should not be narrowly construed: see Re Proserpine Pty Ltd [1980] 1 NSWLR 745 at [15]; Pacanowski v Australian Securities Commission (1995) 57 FCR 173 at 175. It does not matter that the person's interest in the decision to deregister arose after the deregistration: Proserpine [1980] 1 NSWLR 745 at [15]. [15] The Commissioner is charged with the responsibility of administering, relevantly, the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). The Commissioner wishes to make a determination under s 177F of the ITAA 1936, and, consequentially, to make an amended assessment of the amount of JHAF's taxable income and of the tax payable on it under ss 166 and 170 of that Act in respect of the year ended 31 March 2002. The Commissioner wishes to do so as a result of his investigation consequent upon his receipt of information from an overseas regulatory authority. The Commissioner considers that he may not be in a position to act as proposed while JHAF is deregistered. I agree that he cannot do so because, as noted earlier, upon deregistration of a company it ceases to exist. [16] In my view, the facts recounted above show that the Commissioner is a person aggrieved by the deregistration of JHAF and has standing to apply for reinstatement of its registration. The public responsibilities of the Commissioner can be compared with those of the Australian Competition and Consumer Commission, which was acknowledged to have standing to apply for a reinstatement under s 601AH in Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688. 11 Gary Binetter submitted that the Commissioner was not a person aggrieved by deregistration of Advance and Civic. On his behalf it was said that the Commissioner cannot rely on ss 175 and 177 of the Income Tax Assessment Act as the notices of assessment have not been served (Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 at 251-255 and Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 at 13). As the Commissioner cannot rely on the conclusive evidence provisions, the Commissioner must prove the existence of an actual tax debt underlying the assessments before it can be concluded that the Commissioner is a creditor or contingent creditor. However, the Commissioner cannot prove the existence of an actual tax debt. To the contrary the extensive evidence adduced by Gary Binetter (from Emil Binetter amongst others), which was not challenged in the proceedings, establishes that the offshore loans were genuine and that there is no underlying tax liability. 12 According to the submissions for Gary Binetter the Commissioner is not able to rely on the "possibility that once the companies are reinstated he might serve an assessment" so as to bring into play the conclusive evidence provisions. The Commissioner's task of proving the underlying tax debt, it was said, depends on proof of fraud or tax evasion. However, the seriousness of these allegations meant that they would be difficult for the Commissioner to establish (Briginshaw v Briginshaw (1938) 60 CLR 336), particularly having regard to the delay of 10 years since the events underlying the assessments occurred which has affected the ability of the companies to answer the Commissioner's allegations. Further, it was submitted that even if a creditor, the Commissioner is not a person aggrieved by the deregistration of Advance and Civic as even if the companies are reinstated there is nothing to suggest any possibility of the Commissioner benefiting from the reinstatement. 13 I accept that the evidence Gary Binetter adduced is not irrelevant to the statutory conditions specified in s 601AH(2) of the Corporations Act. Nevertheless, and as the Commissioner submitted, neither the scheme of the taxation legislation nor the practical reality of the Commissioner's intention to serve the notices of assessment may be disregarded. There is not a mere possibility of service on reinstatement of the registration of Advance and Civic. The Commissioner intends to serve the notices as required in order to complete the process of assessment. Deregistration of each company is preventing the Commissioner from completing the exercise of these statutory functions. This circumstance, of itself, is sufficient to establish the Commissioner as a person aggrieved by deregistration of Advance and Civic. Moreover, the Commissioner is a contingent creditor of each company. The contingency is service of the notices of assessment. On service, the Commissioner's assessments will be conclusive but for the opportunity the taxpayer will have to exercise rights of objection, review and appeal under Pt IVC of the Taxation Administration Act. The exercise of those rights is also contingent on reinstatement of the registration of the companies. 14 The companies, on reinstatement, may well have a case for the making of objections under Pt IVC of the Taxation Administration Act. However, and as recognised in Pilarinos v Australian Securities and Investment Commission (2006) 24 ACLC 775; [2006] VSC 301 at [22]-[27] it is often not appropriate in an application for reinstatement to go into factual matters which may be the subject of dispute. The Commissioner did not have to prove the debt underlying the assessments or disprove the evidence adduced by Gary Binetter disputing any such underlying debt in order to be a person aggrieved. The Commissioner declined to engage in these issues of proof in these proceedings, relying instead on the assessments and the statutory provisions to establish his status as a contingent creditor and person aggrieved by deregistration of Advance and Civic. I accept the Commissioner's submissions in this regard as follows: The Court is not required to close its eyes to the circumstance that, but for their deregistration, Advance and Civic would have been served with notices of assessment after the conclusion of the audits in 2009 and that, if they are reinstated, they will (save to the extent that a s 601AH(3) order may validate earlier service on Advance) in fact be served with notices of assessment. In either such case, it is uncontroversial that ss 175 and 177(1) will be fully operative, and preclude challenge to the assessed tax liabilities save through [Taxation Administration Act] Part IVC. Their existence and the legislative scheme of which they are part, including the onus that rests on a taxpayer under [Taxation Administration Act] s 14ZZK or s 14ZZO in a review or appeal under [Taxation Administration Act] Pt IVC, make it inappropriate to require proof aliunde by the Commissioner of the correctness of the assessment or to make findings about it such as to deny the Commissioner status as a "person aggrieved". Acceptance of Mr Binetter's submission would undermine the legislative policy and purpose of [Income Tax Assessment Act] 1936 ss 175, 175A and 177(1). 15 Further, and as the Commissioner submitted, the companies lodged nil returns under the self-assessment procedures for the relevant tax years. The onus of disproving fraud or evasion would be on the taxpayer not the Commissioner in any objection, review or appeal (McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263). 16 It is not the case, moreover, that the Commissioner is denied status as a person aggrieved because he has not shown any possibility of benefit from reinstatement of the companies. As the Commissioner noted, this submission "attempts to second-guess something that cannot presently be known, namely, the outcome of a prospective winding up, including the liquidator's investigation of the companies' affairs". 17 For these reasons I am satisfied that the Commissioner is a contingent creditor of Advance and Civic and is a person aggrieved by the deregistration of these companies.

[18]

Just to reinstate 18 The second issue under s 601AH(2) of the Corporations Act is whether it is just to reinstate the registration of Advance and Civic. 19 Gary Binetter submitted that it is not just to reinstate the companies. According to these submissions reinstatement would be futile because: - (i) on a fair construction of events Advance and Civic have no outstanding tax liabilities, (ii) the Commissioner has not demonstrated any basis for a liquidator to investigate the activities of Advance or Civic or that a liquidator might have a right of recovery against any person despite the extensive audit and issuing of s 264 notices, and (iii) there will be prejudice if the registration of Advance and Civic is reinstated and a liquidator appointed as the Commissioner has not offered to fund the liquidator to pursue Advance and Civic's Pt IVC rights. 20 Further, in respect of other forms of prejudice said to be caused by reinstatement, Gary Binetter submitted that: - (i) the alleged tax liabilities arise from activities of Advance between 1997 and 2007 and Civic between 1999 and 2005, (ii) many source documents are no longer available due to the passage of time, (iii) several witnesses are now elderly or retired, (iv) the former directors will be left to fund the pursuit of Pt IVC rights and may be the subject of investigation by the liquidator, and (v) one of those directors, Emil Binetter, is elderly and in frail health with these proceedings putting a further strain on him in circumstances where 12 years have elapsed since the relevant transactions. 21 Consistent with the Commissioner's submissions I do not accept that reinstatement of the companies will be futile. The scheme of the relevant legislation involves the vesting in the Commissioner of the capacity to make final and conclusive determinations of tax liabilities subject only to the objection, review and appeal process provided for in Pt IVC of the Taxation Administration Act. The Commissioner has assessed the companies as having substantial tax liabilities. Reinstatement is the only means by which the Commissioner can complete his statutory functions and the companies access their rights under Pt IVC. Insofar as it is necessary or appropriate to go into the merits or otherwise of the Commissioner's position the evidence, including that adduced by Gary Binetter, does not manifestly undermine the Commissioner's position. There are unanswered questions in respect of the foreign loans and an apparent lack of documents that ordinarily would be associated with such transactions including, for example, bank statements. For present purposes it is sufficient to say that it is by no means certain that the companies would succeed in having the assessments (once served) set aside. 22 For similar reasons it cannot be concluded that the liquidator's investigation will be fruitless. The function of the liquidator will be different from that of the Commissioner and the audit process undertaken in discharge of the Commissioner's statutory functions. The liquidator will exercise the rights and remedies of the companies, which is important in dealings with foreign banks. The outcome of that investigation cannot be known. As the Commissioner submitted, deregistration of the companies: … should not prevent that scrutiny to which they would otherwise have been subjected in the normal course of events, had they continued in existence and received notices of assessment at the conclusion of the Commissioner's audit of them. 23 Nor can the classes of prejudice on which Gary Binetter relies be seen as rendering the reinstatement of the registration of Advance and Civic other than just. Gary Binetter has indicated willingness to fund the companies' pursuit of Pt IVC rights if their registration is reinstated but not the liquidator for the same purpose. This is Gary Binetter's choice. By his choice, however, he cannot create prejudice such as to make it other than just to reinstate the companies. Further, on reinstatement of registration the directors would face a substantially similar situation to that they would have faced had the companies not been deregistered. But for deregistration the Commissioner would have completed the audit and served notices of assessment. Emil Binetter, who is elderly and does have health problems, would then have been in much the same position as he presently faces on reinstatement. 24 There has not been unwarranted delay by the Commissioner. The tax returns showing offshore loans and nil income were the result of self-assessments. The accountants had no source documents and relied on information provided by Emil Binetter to complete the returns. While some documents may have been destroyed or lost over time there is also evidence indicating that the documents that might ordinarily be expected in relation to such transactions never existed in the first place. All of these considerations, moreover, may be resolved in the processes contemplated by Pt IVC of the Taxation Administration Act. When assessing the alleged delay, it is not the case that there has been delay since the returns were lodged from the late 1990s to 2005. As noted, the Commissioner notified the companies of the audit of entities associated with Emil Binetter on 31 July 2006 including in respect of offshore loans (when Advance and Civic were the only companies who obtained such loans). It is not to the point that Emil Binetter had instructed the accountant for the companies to deregister them before that date. The fact is that applications for deregistration were not completed until after notice of the audit was given. The applications for deregistration were lodged thereafter on 13 September 2006. They were lodged without notice to the ATO. Moreover, they were lodged without giving ASIC notice of the audit that was underway. 25 In Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688; [2000] NSWSC 316 at [27] Austin J said: The wording of the section is very broad, and the cases confirm that it gives the Court a wide discretion. The Court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v ASC (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494. 26 In Blazai at [25]-[26] Tamberlin AJ referred to other decisions identifying relevant considerations to the question whether reinstatement was just as follows: [25] The expression "satisfied that it is just that the company's registration be reinstated" confers wide discretion on the court. In Promnitz v Australian Securities and Investments Commission [2004] FCA 22 ; (2004) 22 ACLC 108, Goldberg J at [20] stated: The requirement that the Court be satisfied that it is just that the company's registration be reinstated is not constrained by any particular criterion. However, the cases make it clear that there are a number of matters which ought to be taken into account, namely the circumstances in which the company came to be deregistered, the future activities of the company if an order be made and also whether any particular person is likely to be prejudiced by the reinstatement. [26] In Callagher v Australian Securities and Investments Commission (2007) 239 ALR 749, Lander J at [55] stated: ACMF came to be deregistered because of the default of its direction in failing to pay an ASIC fee. It has by its director undertaken to remedy that default. ASIC does not object to the reinstatement of the registration of ACMF. ASIC's attitude should be taken into account. It should be clearly understood that a company which has been deregistered for failing to comply with its statutory obligations could not be expected to be reregistered as of right. More is required. The court must be satisfied that it would be just to order the reinstatement of the registration. The words of the section give the court a very wide discretion. In exercising that discretion, which must remain unfettered, the court will ordinarily have regard to the circumstances in which the company's registration lapsed; the party seeking the order; the reasons for seeking the order; the utility of making any order; the prejudice which any party including the company which is sought to be the subject of the order for reinstatement of the registration might suffer; and any other circumstances which would bear upon the making of an order which in all the circumstances would be just … In making the order it must also be steadily borne in mind that the company's registration is not to be reinstated for a particular purpose but the company's registration will be reinstated for all purposes… 27 In the present case: - (i) ASIC does not object to the reinstatement of the registration of Advance and Civic, (ii) deregistration was achieved by administrative process in circumstances where those controlling the companies were on notice of the audit into the affairs of companies related to Emil Binetter including offshore loans (Advance and Civic being the only companies which engaged in this activity), (iii) no notice was given to the ATO of the applications for deregistration or to ASIC of the audit, (iv) deregistration is preventing the Commissioner from completing the process of assessment in circumstances where substantial tax liabilities have been assessed but service (leaving aside the validation of the earlier service on Advance) cannot be effected, (v) the evidence is not such as to make manifest any proposition that the companies would necessarily succeed on objections under Pt IVC of the Taxation Administration Act, particularly given the lack of documents that would ordinarily be expected to have existed at some time in relation to such transactions but which, on the evidence, apparently never existed, (vi) the Commissioner has indicated a willingness to fund investigations by the liquidator, the results of which and potential remedies arising from which cannot be known at this time, but which are sufficient (at least based on the available evidence) to infer that there is real utility in allowing the process of assessment to be completed, (vii) it is not surprising that the Commissioner will not fund objections to his own assessments, (viii) the position of Gary Binetter as to funding involves a choice by him and the former director cannot, by his own choice, create a class of prejudice (inability to pursue Pt IVC rights) that otherwise would not exist, (ix) there is no basis to infer that the liquidator would not pursue any properly arguable objection under Pt IVC if funded to do so. The fact that the former directors would not control that process is not sufficiently prejudicial to create any material injustice in all of the circumstances, (x) the age and health of witnesses and one of the former directors is substantially the same as it would have been had the companies not been deregistered in the face of the ongoing audit, and (xi) the time taken for the audit to be completed did not constitute unjustified or unreasonable delay by the Commissioner in seeking reinstatement. The audit involved numerous entities and complex transactions. The Commissioner could not properly take these proceedings before the audit had been completed and acted with reasonable promptitude thereafter. 28 The present case is not analogous to those cases in which reinstatement of registration has been refused because of delay in circumstances where a limitation defence would otherwise apply (such as Blazai and Herbert v Nozala Pty Ltd [2006] NSWSC 1437). In the present case, as noted, deregistration precludes the Commissioner from completing his statutory function in circumstances where, on the available evidence, there is a clear public interest in that function being completed. No sufficiently material countervailing prejudice has been identified to support the conclusion that the reinstatement of the registration of Advance and Civic would be other than just. 29 For these reasons I am satisfied that it is just for the registration of Advance and Civic to be reinstated. 30 I am also satisfied that there is no other reason weighing against the exercise of discretion so as to reinstate the registration of Advance and Civic. 31 For orders to be made it is necessary, however, for procedural issues to be addressed. First, since deregistration, the names of both Advance and Civic have both been taken by other companies. To avoid confusion it is appropriate that an order be made (in reliance on s 601AH(3)(b) of the Corporations Act) that Advance and Civic be known by their ACN numbers on and from the dates of their reinstatement. Second, it was agreed that if orders for reinstatement of their registration were made the registered address for service of all documents should be deemed to be that the address of the current solicitors for the former director, Argyle Lawyers.

[19]

Validation of service 32 In reliance on s 601AH(3) of the Corporations Act the Commissioner also sought an order that upon the reinstatement of the registration of Advance, the service of any notices of assessment served by the Commissioner between deregistration and reinstatement be validated. The Commissioner contended that this order should be made because between the reinstatement of the registration of Advance on 31 July 2009 by ASIC and the Court orders setting that decision aside on 20 November 2009 the Commissioner served on Advance (by forwarding to the post office box of the accountant for the companies before deregistration) notices of assessment as required by s 174 of the Income Tax Assessment Act. Section 174(1) provides that: As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax. 33 Assuming there is power to make the order sought (which was in dispute), I am not satisfied that the power should be exercised in the circumstances of this case. Although the Commissioner contended that the submissions for Gary Binetter about the potential adverse consequences for Advance in terms of objection rights and interest were wrong, it is apparent from the Commissioner's response that (at the least) the calculation of interest on penalties would be affected by the making of such an order. The Commissioner's offer to "seriously consider" any request to remit this interest is insufficient to outweigh this potential prejudice. This potential prejudice is real. At the time of purported service, ASIC's decision to reinstate the registration of Advance was voidable. The subsequent orders of 20 November 2009 set aside that decision for all purposes and required the register to be rectified to reflect the fact of Advance's deregistration from 26 November 2006. Accordingly, at the time of purported service Advance was deregistered, had no registered office and no capacity to exercise Pt IVC rights in respect of the notices of assessment. Further, the Commissioner has indicated his intention to serve notices of assessment on Civic and (if necessary) Advance as soon as the orders for reinstatement of their registration takes effect. Gary Binetter has provided an address for service to enable that to be done if orders for reinstatement of their registration are made. 34 In other words, there are no discretionary factors supporting the making of the order sought. There is the real potential for prejudice to Advance, once its registration is reinstated, if the order is made. It follows that, in the exercise of discretion, the order for validation of service should not be made.

[20]

Winding up 35 For the reasons given above I am satisfied that the Commissioner is a contingent creditor of Advance and Civic. Insofar as leave under s 459P(2) and (3) of the Corporations Act is relevant, I am satisfied that there is a prima facie case that the companies are insolvent. Each has substantial tax related liabilities that it cannot pay. The tax liabilities are contingent in the sense that they accrue on service of the notices of assessment and are subject to objection under Pt IVC of the Taxation Administration Act. The evidence discloses the Commissioner's intention to serve the notices of assessment as soon as the orders for reinstatement take effect. On service the tax liabilities will become present debts of the companies to the Commissioner. Sections 175 and 177 of the Income Tax Assessment Act will also operate. Further, and as the Commissioner submitted: - (i) there is no likelihood of any payment being made to discharge the tax liabilities outside the liquidation, (ii) there are substantial issues about the offshore transactions which are appropriate for investigation by a liquidator, (iii) apart from the tax liabilities, there is no evident business purpose for the companies to exist, and (iv) the former directors opposed the reinstatement of the registration of the companies. 36 Contrary to the submissions for Gary Binetter, the collection of tax liabilities and a liquidator's investigation are a bona fide purpose for the seeking of the winding up orders. In this regard, it must not be overlooked that a former director of the companies procured their administrative deregistration at a time when he knew that companies associated with him were subject to a tax audit and, in so doing, did not advise the ATO of the proposed deregistration or ASIC of the tax audit. The winding up orders will not be futile. They will permit the liquidator's investigation into the dealings of the companies in circumstances which call for such investigation. Those powers are different from those able to be exercised by the Commissioner in the audit process. The fact that Gary Binetter has indicated a willingness to fund the Pt IVC rights of the companies if their registration is reinstated, but not if a liquidator is appointed, cannot dictate the position on the winding up applications. There is no basis for any suggestion that the liquidator, if funded, would not pursue rights of the companies as considered proper and appropriate at the time. Further, the various options presented by Gary Binetter as precluding any finding of insolvency (such as requesting a deferral of the due date for payment, reaching an agreement that the Commissioner not take recovery proceedings pending the completion of the Pt IVC process, or seeking a stay of recovery proceedings) are unpersuasive. None of those steps involve a challenge to the assessments. In any event, if proper and appropriate at the time, those steps may be taken by the liquidator if Gary Binetter decides to provide funding for those purposes. 37 All of these considerations confirm that this is an appropriate case for the grant of leave under s 459P(3) of the Corporations Act and the making of winding up orders under s 459A. 38 The same considerations indicate that the conditions in s 462(4) (hearing of an application by a contingent creditor) and s 461(1)(k) (the Court is of the opinion that it is just and equitable that the companies be wound up) are satisfied. It is sufficient in this regard to record my agreement with the Commissioner's submissions as follows: It is in the public interest that these companies be wound up and investigated by a liquidator. They no longer have any disclosed commercial substance or purpose beyond their tax liabilities, they were deregistered at the request of a director in circumstances where entities associated with him were under tax audit, they have had substantial international transactions which were within the focus of the audit, their record-keeping has been inadequate, there are substantial questions to be answered in a liquidator's investigation, the investigation of those questions is in the public interest, and the public officer charged with administration of the relevant tax legislation is willing to fund a liquidator's investigation. The opposition of former directors (Gary Binetter with the evident support of Emil Binetter) to reinstatement of the companies and the companies' lack of assets further makes it just and equitable that they be wound up (Vero Insurance Ltd v Nicejade Pty Ltd [2010] NSWSC 556, [25]). 39 Max Donnelly, official liquidator, has given his consent to be appointed as liquidator of both companies and confirmed that he is unaware of any conflict of interest. There is no objection to his appointment. Moreover, as both companies have been deregistered and all former directors served with the notice of originating process of these proceedings, orders should also be made dispensing with the requirements for service and advertising under s 465A(b) and (c) of the Corporations Act. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

Deputy Commissioner of Taxation v Australian Securities and Investments Commission; in the matter of Civic Finance Pty Limited

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