Deputy Commissioner of Taxation v Terramyer Pty Ltd

Federal Court of Australia|2013-09-24|Before: Gordon J

INTRODUCTION 1 On 12 July 2013, the Defendant (Terramyer) was wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (the Act). Mr Gary Stephen Fettes was appointed liquidator of Terramyer (the Liquidator). The order for the winding up of Terramyer was made on the application of the Plaintiff (the Commissioner) following Terramyer's failure to comply with a creditor's statutory demand (the Commissioner's statutory demand). That amount represented a running balance account debt as at 23 February 2013 in respect of amounts due under the BAS provisions (as defined in the Income Tax Assessment Act 1997 (Cth)). 2 By an interlocutory process filed on 17 September 2013, the Applicant (Mr Dowling) applied for an order pursuant to s 482(1) of the Act that the winding up of Terramyer be terminated. Mr Dowling submitted that his application was made in circumstances where: 1. Terramyer is solvent, as Mr Dowling has already paid or is willing pay amounts owing to Terramyer's creditors; and 2. the termination of the winding up poses no danger to future creditors of Terramyer. 3 For the reasons that follow, an order terminating the winding up of Terramyer should be made.

Background to the winding up 5 Mr Dowling is the sole director and shareholder of Terramyer and has been since Terramyer's incorporation on 20 August 2009. Prior to the incorporation of Terramyer, Mr Dowling had operated as a sole trader builder, undertaking domestic and commercial building renovations since 1998. In July 2009, Mr Dowling received advice from his accountants to incorporate Terramyer and set up a trust structure. In August 2009, on the advice of his accountants, Mr Dowling set up the Dowling Family Trust (the Trust) with Terramyer as trustee and Mr Dowling as the sole beneficiary of the trust. In the 2011 financial year, Mr Dowling ceased operating as a sole trader and operated his building business through the Trust. 6 The registered office of Terramyer is the office of Mr Dowling's accountants. On or around 26 February 2013, Mr Dowling's accountants advised him that they had received the Commissioner's statutory demand. 7 Mr Dowling was informed by Mr Kevin Clements (one of his accountants) that on or around 26 February 2013, Mr Clements had telephoned Ms Sujita Sharma of the Australian Taxation Office (the ATO) to discuss the debt. Mr Clements advised Ms Sharma that Terramyer would be lodging outstanding BAS returns, the lodgement of which would reduce the amount of the Commissioner's statutory demand (the Debt). Mr Clements informed Mr Dowling that he understood from that telephone conversation that any potential legal action would be deferred because Terramyer's liability to the ATO would be reduced shortly after lodgement of the BAS returns. 8 Then, on or around 19 June 2013, contrary to Mr Dowling's understanding, his accountants advised him they had received a creditor's petition from the Commissioner. The Debt had been reduced to $16,726.16 as at 11 June 2013. The ATO proceeded with the Commissioner's statutory demand. Terramyer was wound up and a liquidator was appointed on 12 July 2013. 9 On 16 July 2013, Mr Dowling and Mr Clements met with the Liquidator and his staff and told the Liquidator that Mr Dowling intended to make application to terminate the winding up as soon as possible. Three days later, Mr Dowling and Mr Clements retained solicitors to make the necessary application to the Court. A principal reason for the application is that Mr Dowling is, and wishes to remain, a registered building practitioner with the Building Practitioners Board.

Preliminary matters 10 Mr Dowling, as a contributory of Terramyer, has standing to seek the termination of the winding up: s 482(1A)(a) (read with s 9) of the Act. 11 Notice of the application has been given to the Liquidator, the ATO and the Australian Securities and Investments Commission (ASIC). The application is not opposed.

Matters relevant to exercise of power to terminate winding up 12 The principles applicable to an exercise of power under s 482(1) of the Act are "well established": see, by way of example, Acconi v Alpha Technologies Corporation Limited (in liq) [2010] FCA 970 at [86]-[97]. Of course, the Court is required to exercise its discretion by reference to the particular circumstances of each case. As Black J recently observed in In the matter of Lorie Najjar & Sons Pty Ltd (in liq) (2013) 94 ACSR 561 at [24]: … The court is required to determine, exercising a discretion judicially and having regard to the purposes of the [Act], and particularly the regime for winding up established under Pt 5.4 of the Act, whether a stay or termination of the winding up is justified and that statutory discretion is not confined by imposing limitations not found in the express wording of the statute or by a checklist of criteria developed by the case law or by an exercise of classification of the factors considered in or the results of other cases. 13 What then is relevant to the exercise of the Court's power in the present case? 14 First, the solvency of Terramyer. It is a relevant and central consideration: In the matter of SNL Group Pty Ltd (in liq); Su v SNL Group Pty Ltd (in liq) [2010] NSWSC 797 at [24]. Courts generally require evidence as to solvency from a person other than the applicant: QBE Workers' Compensation Pty Ltd v P Russell Enterprises Pty Ltd [2005] NSWSC 1128 at [26]. 15 What then is the available evidence? The Liquidator provided a Solvency Report. It was undated but provided to the Court on 23 September 2013. The report concluded that: 1. provided the debt due from Mr Dowling to Terramyer is fully recoverable, Terramyer as trustee of the Trust is likely to be solvent; 2. there were presently adequate assets to satisfy the costs of the winding up and the liabilities of the Trust; 3. the ATO told the Liquidator that Terramyer and the Trust have outstanding statutory lodgements although the Liquidator had been told by Terramyer's accountants that the statutory lodgements had been brought up to date. 16 At the hearing, counsel for Mr Dowling informed the Court that since the winding up order was made, Mr Dowling has made the following payments to, or on behalf of, Terramyer: AMOUNT(S) PURPOSE NET POSITION $77,150 Discharge of debt owed by Terramyer to the ANZ Nil outstanding $17,048.37 Discharge of ATO debt (being ATO's formal proof of debt and costs of $4,490 ordered on 12 July 2013) Nil outstanding $33,931.04 To be applied against Liquidator's costs and disbursements (both incurred and prospective) Surplus anticipated of at least $9.964.45

In the circumstances, it is apparent that Terramyer is solvent. All creditors have been paid and there is a surplus of cash. 17 Second, the application has been made promptly. Thirdly, there is no suggestion that the conduct of Terramyer and its business has been, or will be, in contrary to commercial morality or public interest. Further, there is no suggestion that the termination of the winding up would be detrimental to commercial morality: Sevior v Morgan [2012] VSC 480 at [18]. 18 Finally, there nothing to suggest that the staying of the winding up will imperil future creditors of Terramyer. When the winding up order was made, Terramyer's creditors were limited in number and quantum and did not include what might be classified as "trade creditors". In the period following the winding up order, Mr Dowling has complied with all statutory obligations and provided assistance to the Liquidator. Counsel for the ATO also informed the Court there were no outstanding lodgements. After the hearing, the Australian Securities and Investments Commission informed the Court that they did not oppose or consent to the application. 19 In those circumstances, it is appropriate that the winding up of Terramyer be terminated with effect on and from 4:00pm on 24 September 2013. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (6 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (4)

Cited By (2)