Deputy Commissioner of Taxation v Hartman

Oral evidence of Mr Hartman

1. The defendant, Mr Hartman, gave oral evidence and was extensively cross-examined by the legal representative for the plaintiff. No transcript was ordered by the parties so the summary of what follows is based on the court's notes.
2. In further evidence in chief, Mr Hartman indicated that he began to take steps to put Support into administration at the end of July 2019.
3. In cross-examination, Mr Hartman accepted that he was appointed a director of Holdings on 15 March 2018. Mr Hartman agreed that when he was appointed a director of Holdings that he informed himself of its business. He also agreed that as Holdings had a number of subsidiaries he also informed himself in relation to the businesses of the subsidiaries. He agreed that he attended board meetings of Holdings which were held on a monthly basis.
4. Mr Hartman said that the corporate group had approximately 25 employees with those employees being employed by the subsidiaries of Holdings and not Holdings itself. He stated that the group had an accounting and administration team including a chief financial officer who had three assistants. An external accountant was also appointed. He stated that the chief financial officer prepared some financial documents including cash flow projections.
5. Mr Hartman agreed that he had attempted to place in his evidence all relevant documents before the court. He later referred to the fact that the liquidators of Support had provided him with approximately 6,000 electronic documents which he had not all reviewed: see paragraph 3 of his first affidavit. Mr Hartman stated that the documents were provided in a computer format which was difficult to read. However, he accepted that he had put some documents provided before the court and had not asked the liquidators to provide them in an alternative version. He also said that he was aware that he could subpoena the liquidators to produce relevant documents if necessary. Mr Hartman later gave evidence that there was extensive correspondence between him on behalf of Holdings and Mr Maxwell and ATEK. However, none of this correspondence was before the court. The only material relating to the two subscription loans constituting interchanges was the extensive text messaging annexed to Mr Hartman's affidavit.
6. Mr Hartman agreed that he had been a director of other companies before and understood his legal obligations as a director including that there should not be insolvent trading. He also agreed that he understood his obligations to the Australian Taxation Office.
7. Mr Hartman agreed that Holdings was the shareholder of Support and at the time he had been appointed a director of Holdings, Support was not incorporated but was incorporated approximately two months later. He agreed that Support provided labour services to Holdings including administration support. He said that he expected Holdings to provide necessary funding to Support to enable it to provide its services to its parent. He agreed that Support was not "touting" for business and that he participated in the decision of the board of Holdings to incorporate Support. Mr Hartman accepted that at all relevant times he was the sole director of Support.
8. Mr Hartman stated that although he did not know whether Support provided invoices to Holdings for its services, he thought that was unlikely. He agreed that he expected Holdings to provide funds to pay the expenses of Support in providing its services.
9. Mr Hartman was taken to the administrators' report for Support which indicated a loan from Holdings to Support of nearly $3 million. He said he had no evidence to establish the contrary of this conclusion and agreed that he had no evidence of Support seeking loans from Holdings in order to pay its taxation obligations to the Australian Taxation Office.
10. Mr Hartman was then extensively cross-examined in relation to the affairs of Cozero Pty Ltd. He said he was not a director of Cozero but understood that the employees of the corporate group had previously been employed by Cozero and were then employed by Support. He accepted that Cozero was then wound up in October 2018 with a debt of about $600,000 to the Australian Taxation Office including in relation to superannuation guarantee obligations. Mr Hartman agreed that Support was incorporated by Holdings in order to take over the functions of Cozero with the staff of Cozero being employed by Support. Mr Hartman agreed that Cozero had gone into liquidation with significant debts to the Australian Taxation Office. Mr Hartman agreed that Support was wholly reliant on Holdings for funding and was aware in the light of the debts owed by Cozero that it was important to secure funding for Support's activities from Holdings. He agreed that at the time of his appointment as a director of Support he was aware that Cozero as a subsidiary of Holdings had not discharged its taxation obligations.
11. Mr Hartman was then cross-examined in relation to the running balance sheet of the Australian Taxation Office relating to Support. He agreed that Support lodged its first BAS document two months after its incorporation with BAS documents continuing to be lodged until 2019. He accepted that Support had only ever paid $5,000 to the Australian Taxation Office in relation to its taxation liabilities although evidence established that Support had obtained certain credits in relation to GST (described in paragraph 8 of the Statement of Claim as "payments"). I accept that evidence. He agreed that the position of Support only paying $5,000 towards its taxation obligations continued until an administrator was appointed to Support. Mr Hartman also agreed that in the entire period he was a director of Support, Support never made a super guarantee payment to the Australian Taxation Office.
12. Mr Hartman was then cross-examined in relation to the extract from ATEK's website which became Exhibit B in the proceedings. He agreed that he had reviewed the website of ATEK and had attended meetings with representatives of ATEK. He accepted that ATEK was a tax accounting firm which provided tax and book-keeping services and had two principals. He accepted that he had no dealings with ATEK before July - August 2018 and that ATEK had been referred to him. He agreed that most of his dealings with ATEK were with Mr Mahfooz Ali who he understood to be a representative of ATEK. He agreed that the accounting firm related to ATEK was situated in the suburbs of Adelaide. In relation to the subscription agreement with ATEK, Mr Hartman stated that he drafted it based on a template. He understood that ATEK had lawyers acting for them but he had no dealings with ATEK's lawyers and never received any correspondence from them. He agreed that this was the only executed agreement entered into between Holdings and ATEK and accepted that there were errors in the warranties of the subscription agreement between Holdings and ATEK in Clauses 1.4 and 1.5 of the warranties. He agreed that the subscription amount to be paid by ATEK of approximately $12.5 million was to be paid to Holdings by 24 March 2019 but was never paid by it and ATEK is currently defending Supreme Court proceedings brought by the liquidators against it. Mr Hartman agreed that the text messages annexed to his affidavit showed that he had to follow up with ATEK in relation to the subscription agreement, both before and after execution, with Mr Mahfooz Ali.
13. Mr Hartman was then taken to a number of texts sent by him to Mr Mahfooz Ali or received by him from April 2019, criticising ATEK's failure to settle the moneys owed under the subscription agreement. Despite in those text messages describing the failure to pay by ATEK as being "embarrassing", "beyond a joke", being a "disappointment", having "fallen apart" and there being a "constant failure to deliver", Mr Hartman maintained that at all times he regarded the funding as being a matter of "when not if" thereby suggesting that the funding was certain but delayed. Mr Hartman stated that he was not aware that Mr Mahfooz Ali was not a director of ATEK at the time of his dealings with him. He stated that he had some dealings with Ms Ashrun Ali, a partner of the accounting firm, but only by telephone. Mr Hartman agreed that he did not consider checking that Mr Mahfooz Ali was a director of ATEK at the time despite the loan being for nearly $12.5 million as he (Mr Ali) had always been held out as being responsible for the subscription.
14. Mr Hartman was then cross-examined in relation to the subscription agreement by Holdings with Mr Charles Maxwell. He agreed that the agreement was dated 23 October 2018 and provided for a completion date of 31 October 2018 when $2.5 million in subscription funds was to be paid. He agreed that Mr Maxwell never paid those funds and was in default prior to the entry into the subscription agreement by Holdings with ATEK. He stated that his experience was that if a party was in default in funding then the best course was to attempt to manage the agreement if the investor was active. Despite that, he agreed that Mr Maxwell did not comply with his obligations under the agreement to provide the funds on the relevant date.
15. Mr Hartman was then cross-examined in relation to a number of his texts with Mr Maxwell. In the texts, Mr Hartman had used strong and critical language but denied that he had any doubts at the time that the funds would be provided. He said the use of strong language was not reflective of doubts, as all correspondence with Mr Maxwell had been unequivocal. He did not attach any correspondence with Mr Maxwell to his affidavit evidence allegedly due to the difficulty of obtaining it from the liquidators.
16. Mr Hartman was taken to a letter from Holdings' external solicitors, Gillis Delaney, to Mr Maxwell dated 22 May 2019 which he accepted was a notice of termination of the agreement with Mr Maxwell if Mr Maxwell had not completed the agreement by 31 May 2019. He agreed that Mr Maxwell did not settle the agreement and provide the funds by 31 May 2019. When he was asked whether he had doubts that the money would be provided as at 22 May 2019, Mr Hartman said it was a board decision to send the letter. He agreed that he continued to have text correspondence with Mr Maxwell seeking to obtain the funds even after the agreement was formally terminated by Holdings.
17. It was put to Mr Hartman that he understood that Mr Maxwell could only provide Holdings with funds as at November 2018 if he had sourced the funds from other investors. He said this was not his understanding. Mr Hartman said his conversations with Mr Maxwell had indicated that money would be available and was secured. Mr Hartman said he was not aware that it was Mr Maxwell's state of mind at the time he executed the subscription agreement that he could only complete the subscription agreement if he had funds from an external source.
18. Mr Hartman agreed that he had not put forward any documents suggesting that he undertook due diligence in relation to Mr Maxwell or ATEK but suggested that there were relevant documents in the hands of the liquidators of Holdings.
19. Mr Hartman agreed that he had no formal agreement with Holdings which would compel it to provide financial support to Support but understood that it would provide the necessary funding for the group. He agreed that he permitted the tax debt of Support to continue to escalate during his time as a director. In relation to the documentation with the liquidators, Mr Hartman said he had made "a couple of attempts" to obtain relevant documents from the liquidator but was unable to use them in the format provided and had otherwise followed the advice of his counsel as to the steps he should take.
20. In re-examination, Mr Hartman was asked about the person identified as "Meraj". He identified the person as Mr Syed Merajuddin who was a person who was the source of funds for agreements which ATEK had entered into previously. Mr Hartman said he understood that Meraj had been used as the funder for various transactions. These included trades by ATEK in soft and hard commodities. He understood that Meraj had also funded a significant investment in Vietnam in 2018 relating to a woodchip plant. Mr Hartman said he had been informed that the amount involved was in the region of $10 million.

Submissions of the parties

1. The defendant, Mr Hartman, made, in summary, the following submissions in his written and oral submissions: 1. For each claim it was a complete defence for Mr Hartman if he took all reasonable steps to ensure that the directors of Support either caused Support to pay the taxation liabilities in question or have an administrator appointed or caused Support to be wound up; 2. In determining what are reasonable steps for these purposes, the court is to have regard to when and for how long Mr Hartman was a director and took part in the management of the company and all other relevant circumstances; 3. The onus of proof was on Mr Hartman in the proceedings to prove that he took all reasonable steps; 4. Mr Hartman not only had a reasonable expectation of securing third-party capital injections, he actually secured two substantial agreements for the investment of a total of about $15 million which would readily have cleared the tax debts and all other debts of Holdings and Support; 5. When Mr Hartman was appointed a director of Support the group was indebted and one of his primary duties was the raising of capital via equity or loan. The board proposed a capital raising substantially in excess of group debt to pay off the debts and to allow two years of working capital. Mr Hartman made "assiduous" efforts to raise capital from many potential sources. In doing so, he succeeded with the subscription agreements as well as personally investing certain funds in October 2018; 6. Following the failure of ATEK and Mr Maxwell to complete the subscription agreements, Mr Hartman made extensive efforts personally to follow up and press Holdings' rights against those parties. This is proved by the extensive text messages in evidence. External lawyers were also retained to pursue the rights; 7. Even though the agreements with Mr Maxwell and ATEK were terminated by Holdings' liquidators, the rights under the agreements turned into rights to sue for damages; 8. The two subscription agreements were for substantial sums. Mr Maxwell's agreement was with an individual. It would not be expected that an individual would expose themselves to suit and potential bankruptcy unless they believed they could fund the amounts. The ATEK agreement was with a professional firm. It is to be expected that they would not have entered into it with the resulting potential professional difficulties as to their reputation unless they believed they could fund the amounts. What Mr Hartman knew about Mr Maxwell and ATEK, particularly Mr Maxwell and his substantial financial connections with his family, was relevant. ATEK itself also had substantial transactions including with funders with substantial resources; 9. It is not expected that the liquidators would sue Mr Maxwell and ATEK unless they believed that there was a proper basis for doing so and with a likely return on the legal fees and accounting fees invested; 10. The robust text exchanges of Mr Hartman in evidence suggest that he believed the funding would occur and were designed to force the issue; 11. Mr Hartman's experience as a director was relevant and his conduct must be seen as someone operating in "real-time" where he judged that the opportunities for funding were worth pursuing. His conduct remained reasonable until 13 August 2019; 12. Mr Hartman made further attempts at raising funds from other sources as set out in his affidavits; 13. No Jones v Dunkell inference should be drawn by the failure to call witnesses or provide further documents; 14. Mr Hartman has discharged the onus of demonstrating that he took all reasonable steps to cause Support to meet its obligations to pay the taxation liabilities. A voluntary administrator was appointed, notwithstanding his efforts when the funds were not obtained. Holdings had an apparently vested right to a payment of $15 million which would clearly cover on any view the debt of Holdings and the taxation liabilities of Support as well as providing comfortable working capital. At all times, Mr Hartman was taking reasonable steps to enable Support to pay the amounts due to the Australian Taxation Office. There were secured legally binding agreements obtained by Mr Hartman on behalf of Holdings for the payment of $15 million. In addition, judgment has been obtained against Mr Maxwell and a sequestration order has been obtained; 15. Mr Hartman moved with appropriate promptness to appoint a voluntary administrator once his concerted efforts to enforce the rights of Holdings against the investors had failed. He has discharged his onus of proving the defence to the plaintiff's claim for the "whole of the period" in question. Mr Hartman's defence of taking reasonable steps should be held to have been established.
2. The plaintiff's submissions, in general summary, were as follows: 1. The agreed position between the parties was that the court must look at the reasonable steps which could have been taken by Mr Hartman to ensure that one of the matters set out in s 269-35(2) of Schedule 1 of the TAA happened in the period 13 August 2018 to 13 August 2019; 2. However, Mr Hartman could not ignore the period before the "due date" when setting out to prove the defence: Simpson v Deputy Commissioner of Taxation (1996) 132 FLR 459. As at the first relevant due date (here commencing 13 August 2018), in determining whether all reasonable steps were taken by Mr Hartman, the court could look at his knowledge and the information available to him before 13 August 2018 in relation to the corporate group. Senior counsel for Mr Hartman did not appear to disagree with that approach. This was particularly the case where s 269-35(3) of Schedule 1 of the TAA provided that in determining what are reasonable steps for the purposes of s 269-35(2), the court must consider "all other relevant circumstances"; 3. Upon incorporation, Support had no debts to the Australian Taxation Office. Fifteen months later it was indebted to the Australian Taxation Office for more than $1 million dollars. That debt was accumulated consistently from the moment it was incorporated. Support was incorporated to take over the role of employing the employees in the group and Cozero was wound up. However, Support and Holdings were independent companies with Mr Hartman was the sole director of Support. As a director of Holdings, he must have been in the position to be aware of Cozero's financial position and its tax liabilities; 4. A reasonable person in the position of Mr Hartman, as the director of Support, would have required a more formal arrangement of funding with Holdings before he permitted Support to incur taxation liabilities. If that was not from the commencement of the directorship, then it was certainly after the first month when withholding tax was not paid for the first month's taxation liabilities. Further, there was no contract in evidence which obliged Support to continue to supply services to Holdings in the absence of proper funding. If Holdings was not going to provide adequate funding to pay for the services including taxation liabilities, then Mr Hartman did not take all reasonable steps to ensure that he caused the company to comply with its tax obligations or have one of the other steps taken. By the time of the date of the subscription agreement between Holdings and ATEK, 27 February 2019, Support was already heavily indebted to the Australian Taxation Office. There was no basis to believe that ATEK could have provided the funding under the subscription agreement by 24 March 2019. ATEK was a suburban accounting firm. Mr Hartman took no steps to verify that ATEK had the investment funds available whether by itself or through an external source. There was no evidence available to Mr Hartman that ATEK had a reasonable capacity to pay on the due date. In addition, the subscription agreement had a number of errors which one would not expect to see. The agreement was not negotiated through lawyers despite the size of the transaction and Mr Hartman agreed that he had prepared the agreement. Mr Hartman took no reasonable steps to establish a reasonable possibility of payment. 5. In addition, Mr Hartman took no steps to establish that Mr Mahfooz Ali was a director of ATEK or had authority from the board to negotiate on its behalf. This should reasonably have been done having regard to the size of the amount being invested. Mr Hartman also had no documentary evidence of its transaction dealings. No evidence of his discussions with the director of the company who signed the subscription agreement, Ms Ashrun Ali, was placed in his affidavit. In substance, no evidence was provided of a due diligence as to ATEK's capacity; 6. When ATEK failed to complete and pay the subscription moneys on 24 March 2019, Mr Hartman reasonably should have required more evidence then of ATEK's capacity to pay. There was nothing in the text messages which provided appropriate reasonable comfort. The default by ATEK should have raised serious doubts as to whether ATEK could complete the provision of funding at all or certainly within a reasonable time. In particular, the absence of action at that time on the evidence by Mr Hartman, shows that he did not take all reasonable steps to ensure ATEK could provide funding such that Mr Hartman could cause Support to comply with its taxation obligations. Following the default, Mr Hartman should have reassessed the position including obtaining independent accounting and legal advice as to his position: Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722 at [36]; [2002] NSWCA 390. Despite this lack of advice, Support continued to provide services to Holdings without appropriate funding. If steps were taken, there was no satisfactory evidence of this. No documents were provided and no directors of Holdings were called. There were gaps in the evidence provided by Mr Hartman; 7. A similar position existed in relation to the Maxwell agreement. Following the default by Mr Maxwell as early as 31 October 2018, Mr Hartman should have reassessed the position of Mr Maxwell as a funder. Texts provided by Mr Maxwell suggested that his ability to pay was dependent on him sourcing funds from third parties. There was no satisfactory due diligence conducted by Mr Hartman either before the Maxwell agreement was entered into or following the default; 8. Similarly, Mr Hartman should have concluded that ATEK was reliant on external sources of funds. If ATEK had the funds it would be assumed that it would have completed the agreement. The absence of completion, suggested it did not have the funds or was relying on external sources. Mr Hartman was obliged to follow up the position regarding ATEK's funds; 9. The suggestion that Mr Hartman could not provide appropriate documentation of contacts with the funders because of the way the documents were provided by the liquidators was an unsatisfactory answer. Further steps should have been taken by him to secure these documents if they provided any relevant assistance; 10. The history of the dealings between Holdings and Support showed that Mr Hartman as the director of Support had permitted it to continuously incur and increase tax liabilities without an ability to pay; 11. Mr Hartman as the director of Support did not inherit financial problems, he effectively designed them by taking no steps to ensure that Support would be able to pay its taxation liabilities. The only payment made was $5,000 and inadequate funding was secured and confirmed from Holdings. The conduct of Mr Hartman as the director of Support in relation to taking reasonable steps to ensure that he caused Support to comply with its taxation obligations was not reasonable but reckless; 12. Not sufficient detail was provided as to any of the other funding sources referred to in Mr Hartman's affidavit to provide a reasonable basis that funds would be likely from them; 13. It is inappropriate to speculate as to why the liquidators have sued Mr Maxwell and ATEK. It may well be that some recovery is hoped for although not the entirety of the sum being sought; 14. Holdings was placed into voluntary administration in July 2019. There is no explanation by Mr Hartman as to why he took an entire month to place Support into administration where Support relied on funding from Holdings; 15. The test to be applied in considering Mr Hartman's conduct was a purely objective test: Deputy Commissioner of Taxation v Saunig [2002] NSWCA 390; (2002) 55 NSWLR 722 at [25]; 16. The comments of the Court of Appeal in Saunig at [29] emphasise that a director has a very short period of weeks not months to consider the alternative steps which he or she should take. It was not reasonable in those circumstances for Mr Hartman to pursue the Maxwell and ATEK funding for many months. 17. There was no evidence which would permit a conclusion that it was reasonable for Mr Hartman to expect that Support could continue to trade solvently while pursuing investors in Holdings, particularly in the absence of due diligence; 18. The affairs of Support were structured in a way where Support had no ability to raise revenue independently of Holdings; 19. The existing indebtedness of Holdings to EFIC and its two largest shareholders was relevant. This is particularly where creditors had not been paid anything for an extensive period. Mr Hartman was aware of this early in his appointment as a director of Support; 20. There was no evidence that Holdings would provide any funds received pursuant to the share subscription agreements with Mr Maxwell and ATEK to Support for the purposes of paying its tax related liabilities; 21. It was at all times available to Mr Hartman to place Support into administration or liquidation as an alternative to pursuing payment; 22. For all of the above reasons Mr Hartman has failed to establish that he took all reasonable steps within s 269-35 of Schedule 1 of the TAA; 23. The plaintiff's claim should be upheld.
3. In reply, Mr Hartman made the following submissions, in summary; 1. The facts in the Saunig case were substantially different to the facts in the present case; 2. Mr Hartman did arrange for external lawyers to send a letter of demand initially to Mr Maxwell and then to ATEK; 3. Accordingly, he did obtain legal advice. There was no foundation for a suggestion that there was an absence of professional advice; 4. The position of Cozero is irrelevant to the defence; 5. The ATEK agreement was not unreal. No sham has been pleaded. Whilst there were errors in the agreement they are not suggested to be relevant. Whilst ATEK was a firm of accountants the evidence shows that it had prior significant dealings and that Mr Mahfooz had authority to act on its behalf even though there was no authority signed by the directors. Ms Ashrun Ali, the director of ATEK, signed the subscription agreement, thereby establishing that Mr Mahfooz Ali had authority; 6. When ATEK defaulted, the evidence shows that Mr Hartman approached other potential funders including EFIC.

Credit

1. The various affidavits read on behalf of the plaintiff raised no credit issues. The deponents were not required for cross-examination.
2. As set out above, Mr Hartman was extensively cross-examined. I found Mr Hartman overall to be an honest witness who was doing his best to answer questions correctly and fully. He made concessions where appropriate. These included conceding matters which did not assist his case.
3. I accept that Mr Hartman believes now that at all relevant times he would secure funding or was likely to secure funding from Mr Maxwell and ATEK sufficient to pay the liabilities in question. I also accept that the text exchange with Mr Maxwell and representatives of ATEK was robust and was designed to force the issue of bringing on the funding which had been agreed.
4. However, in reviewing the text exchanges with Mr Maxwell and Mr Ali, it appears to me that Mr Hartman became progressively frustrated and even annoyed with the inaction of those people and had doubts at various times as to whether the funding would be forthcoming from Mr Maxwell and ATEK.
5. In the end, the test to be applied to the defence advanced is an objective one and the belief of Mr Hartman at the time is not decisive.

Legal principles applicable

1. The defendant has pleaded a defence under s 269-35(2) of Schedule 1 of the TAA. Under that section the defendant is not liable for a penalty if he took all reasonable steps to ensure that one of the following matters set out in the section happened. The step in issue in these proceedings was taking all reasonable steps to ensure that the directors of Support (Mr Hartman) caused Support to comply with its relevant obligations. It is noted that the section requires "all reasonable steps to be taken". Section 269-35(3) provides that the court must have regard to when, and for how long, Mr Hartman was a director and took part in the management of the company and "all other relevant circumstances".
2. Having regard to s 269-35(4) of Schedule 1 of the TAA, the onus rests on Mr Hartman to prove the matters in s 269-35(2). This was accepted by senior counsel for Mr Hartman in submissions.
3. The test to be applied under s 269-35(2) is an objective one. In Saunig, above, Heydon JA (with whom Sheller JA and Gzell J agreed) stated as follows at [25]: "25 In In Re A Solicitor [1945] 1 KB 368 at 371 Scott LJ, delivering the judgment of the Court of Appeal, said: "The word `reasonable' has in law the prima facie meaning of reasonable in regard to those existing circumstances of which the actor, called on to act reasonably, knows or ought to know." The better construction of s 222AOJ(3) is that the test is an objective one, corresponding to that of Scott LJ. There is nothing in any of the relevant sections suggesting that all that matters is the actual knowledge of the director or that a director who is ignorant of the law or of any fact of which he ought to know is in a better position than a director aware of the law and aware of facts which he found out. In other words, there is nothing in the legislation to displace the prima facie meaning of "reasonable" in s 222AOJ(3) which adoption of Scott LJ's approach would ascribe to it. Hence, on its true construction, s 222AOJ(3) gives a defence to a defendant to proceedings for the recovery of a penalty imposed by s 222AOC if the defendant proves that he or she took all steps which were reasonable, having regard to the circumstances of which the defendant, acting reasonably, knew or ought to have known, to ensure that the directors complied with s 222AOB(1). It is not necessary to decide in this case whether the qualification to the test propounded by the appellant, namely that it was legitimate to take into account the knowledge and abilities of a particular director which were superior to those of an ordinary reasonable director: Mr Saunig did not have knowledge and ability superior to those of an ordinary reasonable director."
4. Heydon JA stated that there was a certain "harshness" in the speed of action required by the legislation. His Honour stated: "The harshness was no doubt seen as appropriate, because the evils of tax payers deducting taxation payments from employees' wages and not passing them to the authorities are considerable and perhaps widespread": at [29].
5. Unlike in Saunig, in the present case Mr Hartman was the only director of Support.
6. I accept the submissions of the parties that the relevant period in the present case to consider in relation to the steps taken by Mr Hartman is 13 August 2018 to 13 August 2019: that is the period between the "due date" of the first tax payment and the date Support was placed into administration: see Canty v Deputy Commissioner of Taxation [2005] NSWCA 84; (2005) 63 NSWLR 152 at [42]; Shaw v Deputy Commissioner of Taxation [2016] QCA 275 at [52]; Snell v Deputy Commissioner of Taxation [2020] NSWCA 29 at [96].
7. However, I accept the submission made on behalf of the plaintiff that reasonable steps should be assessed from the point of view of the knowledge of a reasonable person in the position of Mr Hartman as at 13 August 2018. The knowledge of such a reasonable person included what had occurred before the due date to his knowledge: Simpson v Deputy Commissioner of Taxation, above, at page 463.
8. It seems that the test which is accepted by appellate authority as to the defence is that stated by the Court of Appeal in relation to a previous version of the taxation legislation in Canty, above. There, Handley JA (with whom Beazley JA agreed) stated as follows at [37]-[41]: "37 The defence under para (a) is that the person "took all reasonable steps to ensure that the directors complied with subs 222AOB(1)". Compliance would be achieved if any one of those events were to occur. Thus if payment was made there is no need for an agreement, an administrator, or a liquidator. If payment was being pursued the other courses would for the time being be unnecessary and counterproductive. If payment is out of the question or cannot be achieved the person bound must address the other steps. If winding up then becomes the preferred option there will be no need for the time being to seek the appointment of an administrator. 38 The defences under para (a) and para (b) are cumulative not mutually exclusive. A defendant may establish that there was nothing that could reasonably be done to achieve payment. He or she may also establish that there was no point in attempting to negotiate an agreement with the Commissioner. In such a case the defence under para (b) would succeed pro tanto leaving the defence under para (a) to address the remaining options. 39 In other cases the defence under para (b) may succeed in relation to all options, so that the defence under para (a) need not be considered. If the only feasible options are the appointment of an administrator or a liquidator a person under the duty, acting reasonably, may decide to seek a winding up. If so, he or she will not be acting unreasonably by doing nothing to secure the appointment of an administrator at that stage. The converse will also be true. 40 Thus a person under the duty, who acted reasonably in choosing one of the possible events and took all reasonable steps to bring it about would, to that extent, make out the para (a) defence although no attempt was made at that stage to achieve compliance in any other way. A person who acted reasonably in choosing between the alternatives but failed to take all reasonable steps to bring about the selected event would fail, as would a person who acted unreasonably in choosing the option to be pursued. 41 If reasonable steps taken in pursuit of one option fail, non-compliance and the obligation of the director or former director will continue. The director or former director will therefore have to take reasonable steps to achieve compliance in another way. If non-compliance continues long enough before a notice is served each of the four options will eventually have to be addressed and the subs (3) defences will have to cover all options. Compare D C of T v Solomon (2003) 199 ALR 325 CA, 335-7."
9. Accordingly, Mr Hartman, who chose to seek funding, must establish that he acted reasonably in choosing that path and took all reasonable steps to bring the funding about. If he acted reasonably in choosing to obtain funding but failed to take all reasonable steps to bring about the event, he would not establish the defence including if he acted unreasonably in seeking the funding in the circumstances. Further, if reasonable steps taken to pursue funding fail, non-compliance and the obligation of the director would continue including to take reasonable steps to achieve compliance with the section in another way such as appointing an administrator.
10. In Snell, the Court of Appeal appeared to adopt the reasoning of Justice Handley in Canty: at [52]. The Court of Appeal appeared to accept that the obligation of a director was a continuing one that applied throughout the period commencing on the breach of the director's obligation on the due date and continuing until, in the present case, the appointment of the administrator to Support. The defence must cover the whole of the relevant period. See also Canty at [42] and [45].

Analysis

1. The question which arises for determination is whether Mr Hartman in the present case has established the statutory defence on the balance of probabilities.
2. While I accept that Mr Hartman gave his evidence honestly, the test is an objective one about whether reasonable steps were taken by him in the relevant period.
3. In my view, Mr Hartman has failed to make out the defence in the present proceedings.
4. First, I accept the submission of the plaintiff that one must consider the circumstances facing a reasonable director in the position of Mr Hartman as at 13 August 2018. This included the prior circumstances of Cozero which had employed the many employees in the group and which had failed to comply with its tax obligations. This would have been a clear warning sign to a reasonable director in the position of Mr Hartman that there were real risks that Support would also not be able to meet its taxation obligations as to withholding tax and superannuation guarantee payments without obtaining adequate funding from Holdings and some significant assurance of the provision of that funding. There was no arrangement in place between Support and Holdings of which any evidence was given in relation to funding. Support was entirely dependent on the provision of funds by Holdings. It had no relevant independent financial means. In the period up to the end of 2018, Support continued to incur taxation obligations which were not met. This could only be because it had failed to be provided with proper funding from Holdings.
5. In my view, a reasonable director would have taken steps to ensure that funding would be provided, such as by an exchange of emails or letters to that effect having regard to the fact that Support was a subsidiary in the group and Holdings was the parent company. In circumstances where Holdings had not provided funding and the taxation obligations increased and were not paid, in my view a reasonable director would not simply rely on the fact that Holdings was the parent company. The director would have insisted on funding as required and obtained an agreement for funding in the future. Support continued to provide services without adequate funding being provided by Holdings.
6. Further, there was no guarantee or obligation in place which would have required Holdings to provide funds to Support even if Mr Maxwell and/or ATEK had provided the subscription funds as agreed.
7. I am also not satisfied that adequate due diligence was undertaken by Mr Hartman in relation to Mr Maxwell and ATEK. Whilst Mr Hartman gave evidence as to his knowledge of Mr Maxwell's participation in a goldmine and him having well off and/or established relatives, the real position was of Mr Maxwell himself. I accept that the fact that Mr Maxwell was willing to sign the subscription agreement is relevant. Individuals do not usually execute subscription agreements unless they believe they can comply with them. However, in the present circumstances, the agreement was for a substantial sum of money being $2.5 million. In my view, a reasonable director would have taken further steps to ascertain the source and likelihood of the funds. This may have been through the provision of a statutory declaration as to the funds or satisfactory evidence as to the source of funds.
8. A similar position exists with ATEK. The amount to be provided by ATEK was nearly $12.5 million. That is a very substantial sum. I accept Mr Hartman's evidence that he believed ATEK had been involved in other significant transactions and that the funder contemplated with ATEK had been involved in numerous funding transactions.
9. However, ATEK did appear to be primarily a suburban accounting and tax firm situated in suburban Adelaide. Whilst it is true that professional persons should be expected not to execute agreements unless they believe they could meet them, Mr Hartman had no independent evidence as to the capacity of ATEK to meet its obligations under the subscription agreement. In my view, a reasonable director in the position of Mr Hartman would have sought such information and ensured he was reasonably satisfied with it.
10. The position became even more concerning following the defaults by Mr Maxwell and ATEK.
11. Mr Maxwell executed the share subscription agreement for $2.5 million on 23 October 2018. This had a Completion Date of 31 October 2018. No amount was provided by Mr Maxwell on that date or any later date. The texts between Mr Hartman and Mr Maxwell show Mr Hartman pursuing the funding. However, it is clear that by the latest on 16 November 2018 Mr Hartman was aware from a text from Mr Maxwell that the funding contract was subject to other funders receiving funds "from a number of different sources". In those circumstances, in my view, a reasonable director in the position of Mr Hartman would have taken further steps to satisfy himself of the likelihood of the external funding. He may also reasonably have sought advice from external accountants and lawyers as to the position of Mr Maxwell and his own obligations. I am not satisfied that from at the latest 16 November 2018, a reasonable director in the position of Mr Hartman would have believed that funding from Mr Maxwell as agreed was likely.
12. The ATEK agreement to provide nearly $12.5 million was dated 27 February 2019 with a Completion Date of 24 March 2019. The amount to be provided was considerable. The Completion Date passed without any money being provided. No money was at any stage provided. I accept that Mr Hartman pursued this funding option. However, in my view a reasonable director in the position of Mr Hartman should have required further assurance, including documents relating to the funding, before being satisfied that this funding was likely. The texts in evidence do not satisfy me that a reasonable director could have been of this view. Several weeks passed before Holdings retained external lawyers. Some delay occurred before a Notice to Complete was served on ATEK in July 2019. The considerable delay is unexplained satisfactorily in the evidence. Not all reasonable steps were thus taken by Mr Hartman promptly as they should have.
13. In my view, a reasonable director in the position of Mr Hartman would not have been satisfied that funding was likely from ATEK, certainly from at least one month after the Completion Date.
14. Mr Hartman in his affidavit evidence refers to numerous other sources of funding which were followed up by him with various entities. The affidavit evidence does not provide in my view sufficient information to be satisfied that funding was likely or realistic from any of the sources referred to. The position of a reasonable director must be judged in the light of the significant and continuing tax liabilities of Support resulting from the non-payment of withholding tax and superannuation guarantee obligations.
15. Holdings appointed an administrator on 15 July 2019. The delay of about a month until an administrator to Support was appointed is unexplained. Support relied on funding from Holdings. An administrator should promptly have been appointed to Support by Mr Hartman. This should have occurred within a week. The delay was excessive.
16. Even if I am in error in relation to the other matters I have referred to, in my view a reasonable director in the position of Mr Hartman would have required further independent persuasive evidence of the likelihood of funding from Mr Maxwell and ATEK following default by both of them under the subscription agreements and certainly within one month of the respective completion dates.
17. This matter alone would in my view mean that the defence put forward by Mr Hartman was not established.
18. I do not criticise Mr Hartman for his failure to call directors of Holdings. In my view they cannot be considered as being in his camp and in any case may have had concerns in relation to giving evidence which could expose them to suits by the liquidators of the company.
19. Mr Hartman referred to correspondence not in evidence between him and Mr Maxwell and ATEK. I cannot speculate about the likely content of that correspondence as it is not in evidence. Nor can I draw satisfactory inferences as to it. Mr Hartman had the power to subpoena documents which he regarded as relevant from the liquidators.
20. I accept that the obligation of Mr Hartman as the director of Support was a continuing one which applied throughout the period 13 August 2018 to 13 August 2019.
21. For the above reasons, I am not satisfied that Mr Hartman took all reasonable steps to ensure that he caused Support to comply with its taxation obligations or appoint an administrator or begin a winding up in that period. Accordingly, the defence asserted by Mr Hartman in his Defence under s 269-35 of Schedule 1 of the TAA fails.
22. Having regard to the failure by the defendant in establishing the defence pleaded, my preliminary view is that the defendant should pay the plaintiff's costs of the proceedings as agreed or assessed.
23. For the above reasons, I make the following orders: 1. Judgment for the plaintiff. 2. The parties are to agree on consent orders in accordance with these reasons within seven days. 3. In the absence of agreement, leave is granted to approach the Associate to Dicker DCJ to relist the matter for further hearing.

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