Consideration
14 In my view, both submissions should be accepted. They stand as cogent reasons why the applications for adjournment should be refused.
15 The inevitable consequence of each defendant failing to comply with the demand served on it is that, by operation of s 459C(2)(a) of the Act, it is presumed to be insolvent. That is so, regardless of the nature or character of the debt on which the statutory demand is based. In short, it makes no difference, for this purpose, that the debt is a tax debt.
16 Further, the presumed state of affairs is not qualified by the amount of the debt. In other words, the presumption is not that, but for that debt, the company would be solvent. Rather, the presumption is simply that the company is insolvent, rendering it liable to be wound up in insolvency in accordance with ss 459P and 459Q of the Act. The grounds on which a company, in those circumstances, can oppose the application for winding up are limited and subject to leave being granted: s 459S(1). The court is not to grant leave unless it is satisfied that the ground is material to proving that the company is solvent: s 459S(2). Thus, establishing the solvency of the company assumes particular importance in defending proceedings of the present kind.
17 The defendants submitted that the question of their solvency was "not an issue". They submitted that the only issue was the question of their respective entitlements to pursue the appeal proceedings.
18 In this connection the defendants relied on the "Ahern principle" (Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137), namely that a sequestration order (here, a winding up order) should not be made where an appeal is pending against the judgment relied on as the foundation for the bankruptcy proceedings (here, the winding up proceedings) if the appeal is based on genuine and arguable grounds. The defendants relied on Shmee Pty Ltd v Bresam Investments Pty Ltd [2009] VSC 657 for the application of that principle in the case of winding up proceedings.
19 They also emphasised the character of the debt, in each case, as a tax debt. They drew attention to s 177(1) of the Income Tax Assessment Act 1936 (Cth) (the ITAA) which provides that:
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.
20 They also drew attention to s 14ZZR of the TAA which provides that:
The fact that an appeal is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no appeal were pending.
21 The defendants drew attention to these provisions to illustrate the practical impossibility of challenging the statutory demands that had been served on them. Also, although the provisions of s 14ZZR of the TAA do not deprive a court of the jurisdiction to grant a stay in an appropriate case, great weight must be attached to the policy inherent in those provisions in relation to the recoverability of tax debts: Deputy Commissioner of Taxation v Mackey (1982) 45 ALR 284 at 286.
22 While the existence of the appeal proceedings is plainly a relevant and important factor to be taken into account in considering the adjournment applications, it is not the only factor. I do not accept the defendants' submission that the question of their solvency is "not an issue". In my view, it too is a relevant and important factor to be taken into account. Indeed, it is at the forefront of considerations.
23 In this regard, there is little point in putting off the winding up applications to a time after the determination of the appeal proceedings, or even for a shorter period of time, if the defendants are insolvent, regardless of the tax debts they owe. In the absence of appropriate evidence establishing their solvency, or their solvency but for the tax debts, the Court is required to presume, in the present circumstances, that the defendants are insolvent.
24 By way of amplification of the circumstances in the present case, none of the defendants was able to provide any evidence of solvency by way of financial records that recorded or explained its transactions and financial position and performance: see s 286(1) of the Act. I simply have no idea of the financial circumstances of each defendant other than that it is presumptively insolvent and owes a significant debt to the plaintiff.
25 The defendants' own evidence is that it would take approximately eight months to gather information and prepare financial statements for all of them. The defendants' evidence was that, after that was done, it would take, approximately, another four months to obtain reports from a tax expert and a solvency expert (a period, in total, of approximately one year). Quite apart from indicating that the defendants have failed to comply with their obligations under s 286 of the Act with respect to the keeping of financial records, this evidence shows that none of the defendants is in any realistic position to establish, and cannot establish, its solvency. And yet, apparently, the defendants continue to trade.
26 Furthermore, even though the defendants' respective statements of facts, issues and contentions are due to be filed in the appeal proceedings by 20 October 2011, the defendants did not seek to advance, in the adjournment applications, the matters which they say indicate that they have a reasonably arguable case in those proceedings. The only material I have before me is evidence of the fact that the appeal proceedings have been commenced and that the defendants have filed the evidence on which they propose to rely. However, those facts alone provide no basis on which I could conclude that each defendant has a reasonably arguable case in respect of its appeal in the AAT.
27 In this connection, the defendants submitted that the plaintiff had not adduced evidence that the appeals were "in any manner frivolous or vexatious or otherwise misconceived or lacking in substance". It is true that the plaintiff has not adduced evidence to that effect. But the defendants' submission simply misses the point that it was incumbent on each of them to satisfy the Court that it had a reasonably arguable case on its appeal before the AAT.
28 In the absence of each defendant articulating the basis for its appeal, such as by tendering and relying on its statement of facts, issues and contentions, or by making submissions before me to the same effect, I place little weight on the fact that the plaintiff itself has not adduced evidence of the kind to which the defendants refer.
29 Indeed, given that the defendants are currently required to file their statements of facts, issues and contentions in the appeal proceedings by no later than 20 October 2011, it is telling that the defendants were apparently unable to, or otherwise decided not to, articulate the basis of their appeals in the course of arguing the adjournment applications.
30 At the conclusion of argument, I enquired of the defendants' counsel whether, should an adjournment not be granted, the defendants wished to raise any additional arguments on the hearing of the winding up applications. I was informed that the defendants did not intend to raise any additional argument.
31 Finally, during the hearing of the adjournment applications, I deferred ruling on paragraph 9 of the affidavit of Peter Papadopoulos sworn 7 September 2011. The effect of that paragraph was that, as the solicitor for the defendants, he had been instructed that the matters in dispute involving the defendants Capital Holdings Australia Pty Ltd and Rose Corporation Pty Ltd were presently awaiting listing for a directions hearing in the AAT. Objection was taken to that evidence on the basis that it was hearsay. I have considered that objection and reject it on discretionary grounds: s 190(3)(b) of the Evidence Act 1995 (Cth). I have taken that evidence into account along with the other evidence tendered by the defendants in considering their adjournment applications.