Deputy Commissioner of Taxation v JGQ Developments Pty Ltd

Winding up orders - the principles 3 In so far as it is presently relevant, the statutory framework concerning the making of a winding up order by the Court in insolvency is contained in Pt 5.4 of the Corporations Act 2001 (Cth) and can be summarised as follows: (1) The Court is empowered, upon application made to it, to order that an insolvent company be wound up in insolvency: s 459A of the Act. In that respect, the Court has discretion which may be exercised on any ground not extraneous to the scope and purpose of the Act: see Deputy Commissioner of Taxation v Swoosh Hand Car Wash Pty Ltd [2014] FCA 73 per Jacobson J (at [10]) and Deputy Commissioner of Taxation v T.D. Preece Pty Ltd [2013] FCA 1365 per Griffiths J (at [18]). (2) A creditor may apply to the Court for an order that a company be wound up in insolvency: s 459P(1)(b) of the Act. The question of standing to pursue a winding up order is to be determined as at the date that the application for winding up is filed: Deputy Commissioner of Taxation v Complete Liquid Transport Pty Ltd (2010) 80 ATR 523 per Collier J (at [29]). (3) A person may serve on a company a statutory demand under s 459E of the Act where it satisfies the conditions therein contained. (4) Where an application for winding up has been made, and a company has failed to comply with a statutory demand served on the company pursuant to s 459E of the Act in the period that is three months prior to the making of the application, the Court must presume that the Company is insolvent: s 459C(2)(a) of the Act. (5) A presumption of insolvency arising from the failure to comply with a statutory demand may be rebutted by the company the subject of the application: s 459C(3) of the Act. However, in order to discharge that onus, the Court should ordinarily be presented with the 'fullest and best' evidence of the financial position of the company: Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACLC 1075 per Hayne J (at 1081). Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency, nor are bald assertions of solvency from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: see, for example, In the matter of Simionato Holdings Pty Ltd The Commissioner of Taxation of the Commonwealth of Australia v Simionato Holdings Pty Ltd [1997] FCA 125; Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 per Sackville J (at 463). (6) Where an application for winding up is made on the ground of a presumption of insolvency arising from the failure to comply with a statutory demand: (a) the application must set out particulars of service of the demand and the Company's failure to comply with it: s 459Q(a)(i) of the Act; (b) the application must have attached to it a copy of the demand: s 459(b)(i) of the Act; (c) unless the debt the subject of the demand was a judgment debt, the application must be accompanied by an affidavit which complies with the Federal Court (Corporations) Rules 2000 (Cth) and verifies that the total of the debts claimed in the demand is due and payable by the company: s 459Q(c) of the Act. In this regard, the affidavit under s 459Q merely is required to 'verify' debts, that is, a formal affirmation on oath that the money is due and payable and formal evidence of the debt is not required: see Deputy Commissioner of Taxation v National Skin Institute (Aust) Pty Ltd (2012) 200 FCR 146 per Finn, Gordon and Murphy JJ (at [17] and the authorities cited therein); and (d) the affidavit in support of the application must have annexed to it a record of the search of the records maintained by the Australian Securities and Investments Commission (ASIC), carried out no earlier than 7 days before the application is filed: r 2.4 of the Rules. (7) The affidavit in support must be made by the creditor or a person authorised by the creditor to make the affidavit on the creditor's behalf: r 2.5(c) of the Rules. (8) Upon the making of an application for winding up, the plaintiff must: (a) lodge a notice of the making of the application with ASIC in the prescribed form: s 465A(1)(a) of the Act; (b) within 14 days of the making of the application, serve a copy of it on the company: s 465A(1)(b) of the Act. In this regard, s 109X of the Act specifies methods of service on a company; and (c) publish a notice on the ASIC Insolvency Notices Website, at least 3 days after the application has been served and at least 7 days prior to the date fixed for hearing of the application: s 465A(1)(c) of the Act, r 5.6 of the Rules and reg 5.6.75 of the Corporations Regulations 2001 (Cth).

The Demand 4 On 27 February 2018, the Commissioner issued a Creditor's Statutory Demand for Payment of Debt addressed to the Company in the amount of $443,756.12 in respect of the Company's then indebtedness to the Commonwealth of Australia. The Company's indebtedness to the Commonwealth of Australia was comprised of a running balance account deficit debt. 5 The Demand was signed by facsimile signature and, therefore, is taken to have been duly signed by the Commissioner: reg 24 of Taxation Administration Regulations 2017 (Cth). 6 The Company was said to have been served with the Demand on 1 March 2018 (2 business days after posting). The Company had until 22 March 2018 to comply with the requirements of the Demand. 7 The Company failed, within 21 days of being served with the Demand, to pay the amount of the Demand or to secure or compound that amount to the reasonable satisfaction of the Commissioner.

Application for winding up and presumption of insolvency 8 The application was filed on 23 April 2018, that is, within three months of the Company's failure to comply with the Demand. Accordingly, for the purposes of this proceeding, unless the contrary is proven, the Court must presume that Company is insolvent under s 459C(2) of the Act. 9 The application is supported by an affidavit which verifies that the defendant failed to comply with the requirements of the Demand and that as at the date of 23 April 2018 the amount of $443,756.12 remained due to the Commonwealth and was payable by the Company to the Commissioner. 10 The application and supporting affidavits, together with a 'Consent of Liquidator', were served on 1 May 2018 on the Company by posting the documents to the Company at its registered office. 11 The Commissioner lodged a Form 519 with ASIC at 5:35 pm on the same day that the application was filed. The proceeding was also published on the ASIC insolvency notices website on 24 May 2018.

Opposition 12 The Company filed a notice of appearance on 8 June 2018. In that notice, the Company cited 'Solvency' as the sole ground of opposition. No particulars were provided. 13 The Company filed a single supporting affidavit of Mr Ho, sworn 25 June 2018 (Mr Ho's affidavit). 14 Mr Ho's affidavit apparently in opposition to the Commissioner's application explained that: (a) the Company had lodged an objection with the Commissioner for the Brown Street Trust; and (b) the Company was the registered proprietor of the following properties (the Properties) (i) Certificate of Title 2776-628, Parcel Identifier Lot 4 On Strata Plan 56447, commonly referred to as 22 Brown Street, East Perth 6004; and (ii) Certificate of Title 2798-542, Parcel Identifier Lot 517 On Plan 73720, commonly referred to as 60 Villena Parade, Alkimos 6038. 15 The Company has not filed any further evidence or submissions in support of its contention as to solvency.

Solvency - the principles 16 The principles concerning the determination of solvency are well-settled. 17 In the context of an application for winding up following service of a statutory demand, in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728, Weinberg J (at [44]) summarised the principles as follows: • The respondent is presumed to be insolvent and as such bears the onus of proving its solvency: s 459C(2) and (3); Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235 per Spender J; Commissioner of Taxation v Simionato Holdings Pty Ltd. (1997) 15 ACLC 477 per Mansfield J. • In order to discharge that onus the Court should ordinarily be presented with the 'fullest and best' evidence of the financial position of the respondent: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J. • Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Simionato Holdings Pty Ltd (supra); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232 per Heerey J; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463 per Sackville J. • There is a distinction between solvency and a surplus of assets. A company may be at the same time insolvent and wealthy. The nature of a company's assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency: Rees v Bank of New South Wales (1964) 111 CLR 210; Re Tweeds Garages Ltd [1962] Ch 406 at 410 per Plowman J; Simionato Holdings Pty Ltd (supra); Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 13 ACLC 823 at 832 per Lindgren J; Leslie v Howship Holdings Pty Ltd (supra) at 465-466. • The adoption of a cash flow test for solvency does not mean that the extent of the company's assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account: Sandell v Porter (1966) 115 CLR 666 at 671 per Barwick CJ (with whom McTiernan and Windeyer JJ agreed); Leslie v Howship Holdings Pty Ltd (supra) at 466; Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808 at 812 per McGarvie J. • The question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored: Leslie v Howship Holdings Pty Ltd (supra) at 466-467. • It is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights: Elite Motor Campers Australia v Leisureport Pty Ltd (supra). See also Deputy Commissioner of Taxation v Soiland Pty Ltd (in liq) (No 2) (2010) 81 ATR 701 per Barker J (at [91]-[95]). 18 From these observations it is clear that a company that asserts its solvency must adduce evidence for that purpose.

The Company's solvency 19 In this case, insufficient evidence to rebut the presumption of insolvency was adduced by the Company: (a) first, Mr Ho's affidavit proved that the Company is the registered proprietor of the Properties, however, failed to disclose the current value of the Properties or any mortgages or other interests which are registered on the Properties; (b) secondly, Mr Ho's affidavit suggested that an objection was lodged by the Company, however, it did not indicate what impact the objection would have on the Company's debts owing to the Commissioner; (c) thirdly, in any event, the Company has been notified that the objection has been disallowed; and (d) finally, the Company adduced no evidence as to its: (i) financial position; (ii) assets; (iii) liabilities; (iv) debtors, and the age of its debtors; and (v) creditors, and the age of its creditors. 20 There is insufficient evidence to rebut the presumption of insolvency.

Discretion to make a winding up order - the principles 21 There can be no doubt that s 459A and s 467(1)(a) of the Act vest in the Court a discretion to decline to make a winding up order, even where the requirements of the statute are met. 22 The Court will have regard to authority as 'guides or signposts along the way' as to how the Court ought exercise its discretion: Re Gem Exports Pty Ltd (1984) 8 ACLR 755 per Legoe J. 23 The Court's discretion is to be exercised judicially and for the proper objects and purposes of the Act in which the discretionary power resides: see, for example, Soiland per Barker J (at [168]). 24 The guiding principle in determination of winding up proceedings in insolvency was expressed by the High Court of Australia in IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 1 ALR 417 per Gibb J (Stephen and Jacobs JJ agreeing) (at 427): The authorities show that as a general rule a creditor who cannot obtain payment is, as between himself and the company that owes the debt, entitled to a winding-up order as a matter of right … (Citations omitted.) 25 To establish the creditor's prima facie right, it is sufficient that a creditor has made a demand for an established debt and that the debt has not been paid. Evidence filed on behalf of the Commissioner shows the Company has a debt of $443,756.12 as at 2 October 2018 26 The circumstances in which the Courts have exercised discretion not to make a winding up order have generally related to there being some prospect that the Company will overcome its difficulties in the short-term. There is no such inference available in this instance.

AT THE HEARING 27 The defendant did not appear. The solicitors for the defendant informed the Court when inquiries were made about whether submissions would be filed that they had no instructions to seek leave to file evidence or appear in Court.

CONCLUSION 28 The Court is not satisfied that the Company is solvent or that there is any proper basis to decline the making of a winding up order. The Company should be wound up, a liquidator appointed and costs fixed. I certify that the preceding twenty-eight (28) numbered paragraph are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.