Deputy Commissioner of Taxation v Swoosh Hand Car Wash Pty Ltd

REASONS FOR JUDGMENT 1 By its originating process filed on 19 June 2013, the Deputy Commissioner of Taxation (the Plaintiff) seeks an order that the defendant (the Company) be wound up in insolvency under ss 459A and 459P of the Corporations Act 2001 (Cth) (the Act). 2 On 20 December 2013, District Registrar Wall made an order under s 459R of the Act extending the six month period within which the winding up application was to be determined to 4 April 2014. The Plaintiff relies upon the failure of the Company to comply with a creditor's statutory demand dated 14 March 2013 for payment of a debt of $161,126.64 which was served on the company on that date. The Company failed within 21 days of service of the statutory demand to comply with it. 3 The Court is therefore required to presume that the company is insolvent, the winding up application having been filed within three months after the date on which the company failed to comply with the statutory demand: s 459C(2) of the Act. 4 All necessary procedural and formal requirements for the making up of a winding up order have been satisfied. The only issue which arises in the application is whether I ought to exercise my discretion under s 459A to make an order that the Company be wound up. This issue arises because after the expiration of the 21 day period prescribed for compliance with the statutory demand, the Company paid to the Plaintiff the amount the subject of the statutory demand. 5 If there were no other relevant considerations, it would ordinarily be inappropriate to permit the Plaintiff to proceed with the claim for a winding up: see De Montfort v Southern Cross Exploration NL (1987) 17 NSWLR 468 ("De Montfort v Southern Cross") at 471 (Needham J). However, since the date on which the Company failed to comply with the statutory demand, it has incurred other liabilities to the Plaintiff for amounts due for tax. The amounts are due on other accounts which I will explain later. Importantly, there is no dispute as to an amount of $148,693.24 which is due on one of those accounts. The essential question therefore is whether in those circumstances I should decline to exercise my discretion to make an order for winding up. 6 The facts are sufficiently explained in the Affidavit of Debt of Anna-Marie Cooper sworn on 4 February 2014. Ms Cooper explains that the Plaintiff's records show that, in addition to the amounts referred to in the creditor's statutory demand, the Company is liable in respect of three classes of liabilities. The first class is liabilities for Goods and Services Tax (GST) under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act). The second is liabilities for income tax withholding amounts withheld under the PAYG withholding provisions within Part 2-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the TA Act). The third is liabilities for administrative penalties pursuant to Subdivision 286-C of Schedule 1 to the TA Act. 7 All of those liabilities are primary tax debts within the meaning of s 8AAZA of the TA Act. The Defendant's primary tax liabilities in respect of GST and income tax withholding are self-assessed and were established through the lodgment of Business Activity Statements (BASs) with the Plaintiff for certain quarterly and monthly periods. The BASs were filed subsequent to the date of the present application. The liabilities reported by the Company on the BAS forms were allocated to a running balance account pursuant to s 8AAZC of the TA Act. 8 Pursuant to s 8AAZC of the TA Act, the Plaintiff maintains a running balance account in respect of the Company's primary tax debts. The running balance account showed that, as at 3 February 2014, additional amounts of more than $150,000 had become due and payable by the Company to the Commonwealth in respect of amounts recorded on the Company's running balance account. Since that date, the Company has made partial payments of the sum due to the Plaintiff, but the amount presently due is the sum referred to above, that is to say, $148,693.24 which is, as I have said, undisputed and still outstanding. 9 The Plaintiff's records also show that the Company is liable for income tax assessment and penalties in an amount of $38,862.45 but the Company has filed an objection in relation to those amounts. That objection has yet to be determined by the Plaintiff but nothing turns on this because another amount, namely, the amount payable on the running balance account, is not the subject of an objection. In addition, the Company is liable for a relatively small sum of $1,639.05 in respect of the superannuation guarantee charge which arises under assessments made under the Superannuation Guarantee (Administration) Act 1992 (Cth). 10 It is well-established that the Court has a wide discretion under s 459A of the Act which may be exercised on any ground that is not extraneous to the scope and purpose of the Act: see Deputy Commissioner of Taxation v T.D. Preece Pty Ltd [2013] FCA 1365 ("Preece") at [18] citing McHugh JA in FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) (1988) 14 NSWLR 643 ("FAI v Goldleaf") at 660. The Court also has a discretion under s 467(1) of the Act to adjourn the winding up application in an appropriate case: see Preece at [19] citing Austin J in Bungey v Magnate Projects [2006] NSWSC 734 at [44]. 11 The guiding principle in cases such as this is that, as a general rule, a creditor of an insolvent company has a right ex debito justitiae to have the company wound up, but it has been said that there are exceptional cases in which the courts will refrain from making an order: see Deputy Commissioner of Taxation v Huon Foam Pty Ltd [2000] TASSC 99 ("Huon Foam") at [8] and the authorities there cited. Examples of exceptional cases are given at [9] of the decision of Blow J in Huon Foam. It is not necessary to consider whether exceptional circumstances need be established to warrant the refusal to exercise the discretion to make an order, but it is to be noted that in FAI v Goldleaf, McHugh JA expressed the scope of the discretion in wide terms. 12 The present application seems to me to turn upon a consideration of the approach taken by Needham J in De Montfort v Southern Cross as explained in later authorities. The effect of those authorities is that the statements made by Needham J as to the proper exercise of the discretion do not establish a principle of universal application. Rather, in cases such as this, there must be some positive reason for ordering a company to be wound up beyond the mere presumption of insolvency. The incurring of an additional debt after service of a statutory demand, in the absence of other relevant considerations, may well be a sufficient reason to make a winding up order: see Deputy Commissioner of Taxation v Visidet Pty Ltd [2005] FCA 830 at [5] (Gyles J); Deputy Commissioner of Taxation v Guy Holdings Pty Ltd (1994) 14 ACSR 580 at 585 (Zeeman J). 13 It is true that the principles stated by Needham J in De Montfort v Southern Cross have been endorsed by Ipp J in Braams Group Pty Ltd v Miric [2002] NSWCA 417 at [77]. However, I do not understand his Honour's remarks to take issue with the explanation of those principles given by Gyles J and Zeeman J in the authorities mentioned above. Here, the position is that a debt of over $148,000 has been incurred since the date on which the Company failed to comply with the statutory demand. That is precisely the situation which Zeeman J indicated as one in which it might be appropriate to exercise the discretion to make a winding up order. 14 Mr Lee, who appears for the Company, emphasises that the evidence dealing with the additional debt was filed only shortly before 5 February 2014 when this matter first came before me. However, it is clear that the Company was on notice of the debt well before that date. I reject Mr Lee's submission that the circumstances on which the Plaintiff relies constitute an abuse of process. The effect of Mr Lee's submission was that, by relying upon the additional debt without issuing a further statutory demand, the Plaintiff deprived the Company of an opportunity to address the debt within the statutory 21 day period. However, in my opinion, the Plaintiff is entitled to rely upon the debt without issuing a further statutory demand. It has the benefit of the presumption of insolvency arising under s 459C(2) of the Act. The Plaintiff's position is little different from that of a substituted creditor who would be able to pursue a winding up order without issuing a further demand. 15 What is critical is that the additional debt is not, and cannot, be disputed. Moreover, the Company's efforts to deal with it further demonstrate its insolvency. The Company tendered a cheque for approximately $26,000 which is, of course, well short of the amount due. The circumstances in which it did so today make plain, in my view, that this is a case of actual rather than presumed insolvency. Nor does the evidence on which the Company relies as to the possibility of raising funds to pay out the debt advance the situation. That evidence was quite unsatisfactory. 16 Nothing was put before me to demonstrate any likelihood that the director of the Company is, or is likely now or in the foreseeable future, able to raise funds from the sale or mortgage of a property owned by her so as to satisfy the debt due to the Commissioner. Moreover, even if there were satisfactory evidence of attempts to, or ability to, procure payment of the additional amounts due to the Plaintiff (which there is not), there are serious evidentiary deficiencies which are fatal to any attempt to invoke the discretion of the Court to refuse to make an order or even to adjourn the hearing of the application. 17 It is incumbent upon a company which seeks to resist the making of an order in a case such as the present to make full disclosure to the Court of its financial position. But here, there is no evidence at all of the Company's present financial position, in particular there is no evidence of the circumstances giving rise to the significant taxation liabilities due to the Plaintiff or of the Company's ability to trade profitably in the future so as to meet its debts as and when they fall due. 18 It follows that, in my opinion, the proper exercise of the discretion is to order that the company be wound up in insolvency. I will therefore make orders in the terms proposed in the originating process, that is: 1. The defendant be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth). 2. Steven Nicols of Nicols & Brien Business Recovery, Level 2, 350 Kent Street, Sydney NSW, be appointed as liquidator of the Defendant. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.