Supreme Court of Tasmania|1994-09-13|Before: Zeeman J

Deputy Commissioner of Taxation v Guy Holdings Pty Ltd [1994] TASSC 126; (1994) 14 ACSR 580, (1994) 12 ACLC 966 (13 September 1994)

THE DEPUTY COMMISSIONER OF TAXATION v GUY HOLDINGS PTY LTD

Corporations - Companies - Winding up - Inability to pay debts - Neglect to pay after statutory demand - Payment before hearing of application - Continuation of proceedings by creditor who made the application. Deputy Commissioner of Taxation v Cye International Pty Ltd (No 2) (1985) 10 ACLR 305; De Montford v Southern Cross Exploration NL (1987) 17 NSWLR 468, considered.

Solicitors for applicant: Australian Government Solicitor

ZEEMAN J This is an application by the Deputy Commissioner of Taxation for an order that the respondent, Guy Holdings Pty Ltd, be wound up in insolvency. The application is resisted by the respondent on a number of grounds. One of those grounds may be dealt with immediately. The respondent has submitted that the applicant has failed to comply with the Rules of the Supreme Court, PtX, r48(7) and with a number of orders of a procedural nature made at the first directions hearing. Whilst those failures have been established, there is no suggestion that any of them could cause any possible injustice to the respondent. Accordingly, the Corporations Law ("the Law"), s467A precludes the dismissal of the application merely by reason of such failures.

2. On 15 November 1993 the applicant caused to be served on the respondent a statutory demand under the Law, s459E. That demand related to a debt of $60,316.98 then said to be owing by the respondent to the Commonwealth of Australia in respect of group tax deductions made by it from the wages of its employees between 1 September 1991 and 31 August 1993 and not remitted by it as required by law. The respondent not having complied with the terms of that statutory demand in the meantime, on 2 March 1994 the applicant filed an application seeking an order that the respondent be wound up on "the grounds appearing in the accompanying affidavit". I note that there was no accompanying affidavit, the document which has been treated as being the accompanying affidavit not being filed until 4 March 1994. It follows that the application, when filed, did not comply with the Law, s459Q. No point was taken about that irregularity. Once the affidavit was filed, it became clear that the applicant was relying upon the failure of the respondent to comply with the statutory demand. Notice of the application was advertised in the Tasmanian Government Gazette and the Mercury newspaper on 26 and 28 May 1994 respectively. By advertising in the Tasmanian Government Gazette, and not in the Commonwealth of Australia Gazette, the applicant failed to comply with the provisions of r49(2) (see r107(1) and the definition of "gazette" contained in r1(1)). Once again, no point was taken about that failure.

3. The application was served on the respondent on 22 July 1994. That late service constituted a failure to comply with a direction given at the directions hearing. It was a failure relied upon by the respondent, albeit a failure which I have determined ought not to have any consequences adverse to the applicant. Nevertheless, I deprecate such a long delay in serving an application after it has been publicly advertised, in circumstances where there is no suggestion that there could have been any difficulty in service, the registered office of the respondent being at the offices of a firm of chartered accountants. It is intolerable that a company unnecessarily should be the subject of an advertised winding up application which is not served for some months after the advertisements appear. Advertising an application to wind up a company in insolvency, without then intending to serve it upon the company, gives rise to the suspicion that the court's process is being used for inappropriate purposes. Although service was effected long after the time fixed by order at the directions hearing, the applicant proffered no explanation for its failure to comply with that order.

4. The application was adjourned from time to time and finally came on for hearing yesterday, an order under s459R(2) having been made in the meantime. The extended time fixed by that order expires today. On or about 6 September 1994 the respondent paid to the applicant the sum of $60,368 in payment of the amount stated in the statutory demand, although in fact the sum paid was greater than that stated in the demand. That payment was made subject to the applicant agreeing to accept it on certain conditions. There is no suggestion that those conditions were accepted by the applicant, but yesterday, before the application was called on for hearing, the respondent advised the applicant that it no longer insisted on those conditions. The hearing before me proceeded upon the basis that there had been an unconditional payment of the amount referred to in the statutory demand. The respondent submitted that in all the circumstances, including the circumstance that the amount the subject of the statutory demand had been paid in full, the application ought to be dismissed.

5. The applicant sought to prove, as a relevant circumstance, that the respondent remained indebted to the Commonwealth in respect of debts other than those the subject of the statutory demand. It sought to establish such indebtedness by the affidavits of various deponents. The respondent objected to the admissibility of the relevant paragraphs of those affidavits. I received those affidavits de bene esse, indicating that I would rule upon their admissibility when I finally dealt with the application.

6. It is unnecessary to consider separately the relevant paragraphs of each affidavit because most employ a similar form of words. By way of example, I refer to the affidavit of Diana Hale sworn 29 August 1994. By par4 of that affidavit Ms Hale deposed to the following:

"As at the date of this affidavit, the Respondent is

indebted to the Applicant in the sum of $137,811.05."

7. The only material contained in any of the affidavits sought to be relied upon by the applicant to establish other debts of the respondent which is any more informative than par4 of the affidavit of Ms Hale is contained in the affidavit of Tracie Ann Crowden sworn 3 March 1994. That material is as follows:

"5 As of 3 March 1994, the amount of $93,684.84 is due

and payable by the Respondent to the Applicant in

respect of tax instalment deductions and penalty tax.

6 This debt arose from the failure of the Respondent to

remit to the Applicant tax instalment deductions

deducted from employees of the Respondent"

8. I need not consider what weight I am able to attach to Ms Crowden's affidavit to establish what now might be owing by the respondent, having regard to the fact that it was sworn many months ago. There is no need to pursue a comment made by counsel for the applicant which suggested that as to any further indebtedness the applicant may well be relying upon estimates made under the Income Tax Assessment Act 1936 (Cth), s222AGA(1). If that is so, then the statement contained in par6 of Ms Crowden's affidavit is wrong. It illustrates the danger of acting on statements of the type contained in the affidavits which the applicant submits ought to be received to prove a continuing indebtedness.

9. In each case the amount referred to in a particular affidavit as being an amount owing by the respondent to the Commonwealth at a particular date includes the amount which has been paid by the respondent. To prove that the respondent now owes the Commonwealth a debt other than the debt the subject of the statutory demand, the applicant must establish that fact by admissible evidence. At least where no dispute as to its existence is raised, proof of the existence of the debt the subject of a statutory demand is not required on the hearing of an application under s459P. That is for the very good reason that the existence of such a debt can be raised on an application to set aside the notice under s459G(1). On an application to wind up in insolvency the only evidence required concerning that debt is evidence that the statutory demand was served and not complied with within the specified period. The fact which the applicant wishes to prove, namely the existence of another indebtedness, must be proved by admissible evidence in the usual way. Neither the Law nor the Rules of the Supreme Court make any provision as to proof of such a fact, no doubt for the very good reason that it is not raised as an issue by the application.

10. The relevant statements made by the deponents are conclusions drawn by those deponents from facts, presumably known to them, but which have not been put in evidence. It is not for a witness to draw such conclusions. They are conclusions which are for the Court to draw upon the basis of admissible evidence. Unless there is evidence of facts on the basis of which it is open to me to find that the respondent remains indebted to the Commonwealth I cannot find that the respondent is so indebted. Bases upon which the respondent may be indebted to the applicant are to be found in the Income Tax Assessment Act, ss221F and 222AGA. Before such indebtedness may be found the facts required to exist before those provisions operate to create an indebtedness must be proved. At least in the case of s222AGA further facts must be proved, namely compliance with s222AGB which is required by s222AHA(1) before there is any liability to pay an estimated amount. The relevant statements contained in the various affidavits relied upon to prove the continuing indebtedness are inadmissible and will not be received. The applicant did not seek any adjournment to enable him to put further evidence before me. It follows that I have no evidence that the respondent owes anything to the Commonwealth and that the application is to be determined upon that basis. No creditor, other than the applicant, has sought to be heard.

11. Notwithstanding the submissions made by counsel for the respondent, I am of the opinion that I am required to presume that the respondent is insolvent. During the period of three months ending on the day when the application was filed the respondent failed to comply with the statutory demand, so that I am required by s459C(2) to make that presumption. The respondent did not put any material before me in an endeavour to rebut that presumption. It could have endeavoured to do so as authorised by s459C(3).

12. For the submission that I was not required to presume the respondent to be insolvent, counsel for the respondent relied upon observations made by Young J in Deputy Commissioner of Taxation v Cye International Pty Ltd (No 2) (1985) 10 ACLR 305. That was a case under the Companies (New South Wales) Code in which the applicant sought a winding up order, relying on a deemed inability of the company to pay its debts by reason of a failure to comply with the requirements of a notice under s364(2)(a). There had been a long delay from that failure until the making of the application. Young J said, at 306:

"Although there are no time limits given on a s364

demand, the longer that goes by after the making of a

demand to the issue of a summons for winding up, the

less likelihood there will be that the court will be

able to draw the inference from it that the company was

insolvent as at the date of presentation of the summons

or as at the date of hearing."

13. Those observations have no application to a winding up application under the Law, s459P. The Companies Codes, s364(2)(a) operated so as to deem a failure to satisfy a demand to be an inability of the company to pay its debts. The reasoning adopted by Young J appears to assume that the insolvency was deemed to exist at the moment of non-compliance but not thereafter, so that on an application under s364(1)(e), which empowered the court to order the winding up of a company if it was unable to pay its debts, proof of a failure to satisfy the requirements of a notice under s364(2)(a) could not establish that at the time of the hearing the company was unable to pay its debts unless it was possible to infer that fact from the fact that on an earlier date it was unable to pay its debts. Naturally, the longer the interval of time between the date upon which the company was deemed to be unable to pay its debts and the date as at which the court was required to find that the company was unable to pay its debts, the less safe it would become to infer the latter from the former. That reasoning does not appear to be consistent with other cases in which it was held that the deemed insolvency under s364(2)(a) continued so long as there was a failure to pay in terms of the notice (Club Marconi of Bossley Park Social Recreation Sporting Centre Ltd v Rennat Constructions Pty Ltd (1980) 4 ACLR 883; Forsayth NL v Juno Securities Ltd (1991) 4 WAR 376). In any event it cannot be applied to the Law, s459C because that section requires the court hearing the application to make the presumption of insolvency in defined circumstances rather than presuming insolvency on the happening of a certain event.

14. The presumption that the respondent is insolvent does not require that the application be granted. The company being insolvent, s459A authorises me, but does not require me, to make an order that it be wound up in insolvency. There can be no doubt but that s459A confers a discretion (FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) (1988) 14 NSWLR 643; Re Concrete Pipes and Cement Products Ltd, ex parte Cox [1926] VicLawRp 5; (1926) VLR 34; Forsayth NL v Juno Securities Ltd (supra) at 398-400).

15. The status of the applicant to seek a winding up order is unaffected by the payment of the amount the subject of the statutory demand. That status is to be determined as at the time when the application was filed (s459P(1), and see In re William Hockley Ltd (1962) 1 WLR 555). The question is whether it is appropriate to order that the respondent be wound up in insolvency when by s459C(2) it is deemed to be insolvent but the amount of the statutory demand has been met and there is no evidence as to what the actual financial position of the respondent might be.

16. As the relief sought by the applicant is a discretionary remedy, there must be established some matter which makes it appropriate that the discretion be exercised in favour of granting that remedy before it is appropriate to grant it. In the usual case, where the debt the subject of the statutory demand has not been paid at the time that the application is determined, the non-payment of that debt will be a sufficient basis to justify or even to require the making of the order (Re London Suburban Bank (1871) 6 Ch App 641, per Mellish LJ at 643), although even in such circumstances there may be countervailing considerations making it appropriate that the relief be refused. An example of such considerations may be found in Re Redhead Coal Mining Co Ltd (1893) 3 BC (NSW) 50.

17. Counsel for the respondent referred to De Montford v Southern Cross Exploration NL (1987) 17 NSWLR 468. That case concerned an application to wind up a company in reliance upon its failure to comply with a demand for payment under the Companies (New South Wales) Code, s364 in respect of a sum equal to the amount of a dishonoured cheque. The amount demanded was paid on the day that the application was to be heard. Nevertheless, the applicants sought to proceed with the application on the basis that they were creditors of the respondent in other respects, namely by virtue of an order that the respondent pay certain costs to the applicants (which costs had not yet been taxed) and for interest in respect of the dishonoured cheque pursuant to the Bills of Exchange Act 1909 (Cth), ss60 and 62.

18. In dismissing the application, Needham J, at 471, made the following observations, upon which the respondent sought to rely:

"It would, I think, be quite unacceptable for a

creditor to serve a notice upon a debtor specifying a

sum in that notice, then, when the debtor failed to

comply with that notice, take proceedings, be paid the

full amount claimed, and then seek to wind the

defendant up none the less.

Whether the principles relating to s364 and the deemed

insolvency of companies applies to such a situation or

not, I would not, in the exercise of my discretion,

permit the creditor to proceed with the claim for

winding up in those circumstances. In my opinion, the

principle set out in those decisions (Motor Terms Co

Pty Ltd v Liberty Insurance Ltd (In Liq) (1967) 116 CLR

177 at 194-195; Deputy Commissioner of Taxation v Sun

Heating Pty Ltd (1983) 2 NSWLR 78; DMK Building

Materials Pty Ltd v CB Baker Timbers Pty Ltd (1985) 2

NSWLR 711 which held that payment of the applicant's

debt does not put an end to the application) applies to

creditors who seek to be substituted. I would not, as

at present advised, consider that the principle would

apply to the very same creditor who had taken the

proceedings on the s364 notice. Counsel for the

plaintiffs has said that there is nothing inequitable

about the application of the plaintiffs, because there

was no holding out to the defendants (sic) that this

was the only sum owing to them (sic). Undoubtedly the

evidence indicated that the plaintiffs have other

claims against the defendant, but the only claim, as I

understood it, which the plaintiffs could make the

subject of a s364 notice was the claim which they did

make the subject of this notice."

19. I would not wish to be taken as necessarily agreeing that a creditor, who has served a statutory demand under the Law and who has been paid the debt the subject of that demand, ordinarily ought not to be granted an order for the winding up of the company even though it establishes that the company is indebted to it in some other amount. Particularly if such other debt arose after the service of the statutory demand, its existence, in the absence of other relevant considerations, might well be sufficient reason to make the order. I observe that in De Montford the nature of the other alleged debts was such that none of them were actually payable because the costs had yet to be taxed and damages under the Bills of Exchange Act had not been awarded. In one sense the circumstances existing in that case may be equated with those existing in the present case, namely a deemed insolvency with no evidence of any other debt being due and payable by the company to any person. It is implicit from De Montford that in a case such as the present there must be some positive reason for ordering that the respondent be wound up going beyond the mere deemed insolvency. To the extent that that case relies on that principle I follow it.

20. Adopting the principle that, in the case of an application under s459P where the debt the subject of the statutory demand has been paid after the filing of the application, the application ought to be dismissed unless there is established some positive reason that a winding up order ought to be made, I conclude that this application ought to be dismissed. It has not been established that the respondent owes anything to the applicant or any other creditor, no other creditor has applied to be substituted for the applicant and no other matter has been established making it appropriate to exercise my discretion against the respondent.

Tax Assessment Act 1936

Deputy Commissioner of Taxation v Guy Holdings Pty Ltd [1994] TASSC 126;

At a glance

Court

Decision date

Before

Source

Judgment (30 paragraphs)

Deputy Commissioner of Taxation v Guy Holdings Pty Ltd [1994] TASSC 126; (1994) 14 ACSR 580, (1994) 12 ACLC 966 (13 September 1994)

Parties

Legislation Cited (2)

Cases Cited (4)