Deputy Commissioner of Taxation v Xpress Resources Pty Ltd

BANKS-SMITH J: 1 On 25 September 2018, Colvin J made orders winding up the defendant (Xpress) in insolvency and appointing liquidators, but ordered that the operation of the orders be stayed until 4.00 pm on 28 September 2018 or until further order: Deputy Commissioner of Taxation v Xpress Resources Pty Ltd [2018] FCA 1469. 2 As his Honour's reasons indicate, Xpress failed to comply with a statutory demand issued by the Deputy Commissioner of Taxation (Commissioner). After the statutory demand was issued, Xpress filed further Business Activity Statement (BAS) returns and also made certain payments in part satisfaction of its tax liabilities. 3 As at the date of the hearing, the Commissioner's evidence was that approximately $38,000 remained due with respect to the liability referred to in the statutory demand, $55,000 was held in the solicitor's trust account and another $130,000 was due for liabilities that had arisen since the date of the statutory demand. 4 On 28 September 2018 Xpress filed a notice of appeal from the winding up orders. 5 On the same date, Colvin J extended the stay of the winding up order to 4.00 pm on 9 October 2018. Xpress sought a continuation of the stay on the basis that it was expecting a payment from the sale of a prime mover. The purchase price was $120,000 and a copy of the contract was before the Court (Sale Contract). Those sale proceeds, Xpress submitted, together with the funds already paid to its solicitor's trust account, would see the liabilities to the Commissioner paid (which presumably might influence whether the Commissioner might agree to the winding up orders being permanently stayed or set aside). The liabilities to the Commissioner as at 28 September 2018 were $167,497.47, although during the hearing counsel for the Commissioner referred to potential additional liabilities. In those circumstances, Colvin J did not consider the merits of the proposed appeal. 6 The application before me today was for a further extension of the stay until the appeal is determined or until 9 November 2018, such application to be determined prior to 4.00 pm today. 7 Since 28 September 2018, the following matters have transpired: (a) the accountants for Xpress lodged further BAS returns for March 2018 and June 2018 (lodged on 28 September 2018); (b) by affidavit sworn 3 October 2018, the solicitor for Xpress (Mr Williams), having informed the Court on 28 September in response to a specific question that the purchaser under the Sale Contract was not related to the vendor, disclosed that the sole director of the purchaser under the Sale Contract is the cousin of the sole director of Xpress; (c) on 4 October 2018 an officer of the Australian Taxation Office (ATO) (Mr Mackintosh) deposed by affidavit to the ATO systems that are in place to record payments and tax liabilities as they arise, and said that the sum of $167,497.47 remained payable by Xpress by way of its running account with the ATO; that an amount of $7,950.30 is payable by way of income tax; that the sum of $45,636.28 is payable by way of liabilities for the superannuation guarantee charge; and so as at that date Xpress is liable to the Commissioner in the total sum of $221,084.05, plus $7000 by way of an unpaid costs order from the winding up hearing; (d) on 5 October 2018, the Commissioner's solicitors provided a copy of the Mackintosh affidavit of 4 October 2018 to Xpress' solicitors, and informed them of the total now said to be due of $221,084.05; (e) the same day, Xpress' solicitors by email to the Commissioner's solicitors confirmed that they held $175,000 in their trust account, as they had previously foreshadowed; (f) on 8 October 2018, Xpress by its solicitors tendered payment of $167,497.47 and $5,280.30 by cheques deposited at Australia Post; (g) on 8 October 2018 the Commissioner's solicitor (Ms Gray) deposed by affidavit to the effect that she had been in touch for some months with two parties claiming to be creditors of Xpress, being a former employee who said he was owed $5,000 and a company called Redfleet Pty Ltd, that claimed to be owed $33,435.54 for unpaid invoices dating back to May 2016 to April 2017; (h) on 8 October 2018, Xpress' solicitors wrote to the Commissioner's solicitors informing them that based on the information provided by the ATO affidavit of 4 October 2018, and taking into account the payments made, there remained owing the sum of $48,306.28 which Xpress expected to pay by 2 November 2018; and (i) on 8 October 2018, Mr Williams filed a further affidavit, stating that he is informed by Xpress' director that a sum of between $115,000 and $120,000 is payable by a third party contractor (Qube Holdings Ltd) on 18 October 2018 for services rendered by Xpress, and that once cleared, funds will be paid to the solicitor's trust account for payment of the outstanding liability to the Commissioner. No documentary evidence about that contract or invoice was provided.

Principles 8 The principles were usefully collected by Reeves J in Deputy Commissioner of Taxation v Ansett Resources & Industries Pty Ltd [2010] FCA 833; (2010) 79 ACSR 347 (at [11]-[12]): [I]t is clear, in my view, that I have the power under s 23 of the Federal Court Act 1976 (Cth) to order a stay of the winding-up order pending an appeal to the Full Court. The grant of such a stay is a matter for the discretion of the court in all the circumstances of the case: see HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169 at [47]-[48] (HVAC) per French J. Furthermore, the principles applicable to this stay application are the same as those that apply under the Rules of Court to the stay of any order of the court pending an appeal: see Kalifair Pty Ltd v Digi-Tech (Aust) Ltd (2002) 55 NSWLR 737 at [18] (Kalifair); Masri Apartments Pty Ltd (in liq) v Perpetual Nominees Ltd (2004) 209 ALR 86 at [17] (Masri); and Gronow, McPherson's Law of Company Liquidation (Lawbook Co, subscription service) at [16.190]. Under the Federal Court Rules, the normal principles are these. First, it is not necessary to demonstrate some "special" or "exceptional" reason for the stay: see Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 at 66 and HVAC at [48]. Second, there is an onus on the applicant to make out a reason or appropriate case for the discretion to be exercised in its favour: see HVAC at [48] and Ng v Van Der Velde [2010] FCA 89 at [20] and [21] (Ng). Third, the fact that an appeal will be rendered nugatory if a stay is not granted, is usually regarded as a substantial factor in favour of a stay. This, in turn, requires some assessment to be made to the prospects of success on the appeal: see, variously, Alexander v Cambridge Credit Corp Ltd (receivers appointed) (1985) 2 NSWLR 685 at 695; Kalifair at [18]; Masri at [17]; HVAC at [49(b)] and Ng at [21]. That assessment has been described as: "a preliminary non-speculative assessment of whether the appellant by the grounds of appeal has raised an arguable case … [involving] … a low threshold of arguability": see Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd [2008] FCA 1867 at [40] per Greenwood J and Ng at [36]. Fourth, if the grounds of appeal disclose an arguable case, it is necessary to consider where the balance of convenience lies. See Kalifair at [18] and Masriat [17]. In this respect, some of the factors that have been identified as being relevant to the stay of a winding-up application include: any detriment or risk to creditors or contributories flowing from the stay; the current trading position and solvency of the company; and the legislative policy expressed in the Act against delay in the liquidation process: see HVAC at [49] and, as to the latter, Broadbeach Properties at [15]. 9 Those principles were also applied by Robertson J in Ample Source International Ltd v Bonython Metals Group Pty Ltd, in the matter of Bonython Metals Group Pty Ltd (No 7) [2012] FCA 137 at [26]-[27].

Appeal grounds 10 Xpress relies on two appeal grounds as follows: 1. The defendant company is solvent 2. In the alternative to ground 1, the court erred in exercising its discretion not to refuse the winding up orders sought. 11 As is clear from the extract from Deputy Commissioner of Taxation v Ansett Resources & Industries Pty Ltd, before a stay of a judgment pending appeal is granted it is necessary for the court to make a preliminary assessment about whether the appellant has an arguable case: see also Aquaqueen International Pty Ltd v Titan National Pty Ltd [2015] NSWCA 9 at [46] (McColl JA).

Xpress' position 12 In short, based on the affidavit evidence it is Xpress' position that it has now paid more to the Commissioner than was set out in the statutory demand and more than the amount that was said to be owing at the time of the hearing of 25 September 2018. It says the additional amounts are due as a result of the fact it lodged the March 2018 and June 2018 BAS returns. It says that since June 2018 it has paid the Commissioner some $222,777.77 for claimed indebtedness up to and including the date of the winding up order. It disputes that there is any credible extant claim by any employee and says that any liability to Redfleet was disputed, with the last communication between the parties occurring in November 2016. It requested that in those circumstances the Commissioner agree to an extension of the stay but by email of 8 October 2018, the Commissioner refused to provide such consent. 13 During oral submissions I was told from the bar table that the moneys used to pay the Commissioner did not come from the sale of the prime mover under the Sale Contract, but from a receivable paid by a third party contractor, together with the moneys already held on trust by Xpress' solicitors. I was told that the company is continuing to trade, is receiving payment and can pay all of its debts from cash flow. I was told that the Sale Contract has not completed (completion was due on 5 October 2018). No explanation as to the completion delay was given. I was told there are many contracts. 14 There was a lack of evidence to support these assertions. There was no up to date financial information provided. There was no statement that set out the identity or position of creditors. The claims as to solvency were put at a very generalised level, despite the stay application first being made on 25 September 2018 (and despite the fact the winding up application itself had been adjourned on various occasions). 15 I was told that the company has nine full time employees and two full time contractors and that the reasons for delay in putting the company's tax affairs in order had already been explained to the Court prior to the hearing before Colvin J. 16 I asked counsel for Xpress, Ms Luktuke, to address the proposed appeal grounds and the matters that would be relied upon in asserting that the primary judge had failed to properly exercise his discretion in the sense provided for by House v The King [1936] HCA 40; (1936) 55 CLR 499. 17 Counsel was not able to point to any particular matters that would be relied upon other than to say that the grounds of appeal might be amended and Xpress might need to consider adducing new evidence on the appeal to establish solvency. 18 Counsel was unable to say precisely what such new evidence might be, save that it would include a reference to the Sale Contract and other payments that were now being received from debtors, and that the tax records had now been brought up to date. 19 There was no evidence addressing the effect on Xpress of a winding up. I asked counsel for Xpress what matters it was said were relevant in that context. Counsel referred to the potential loss of employment and the loss of contracts.

The Commissioner's position 20 The Commissioner opposed any extension of the stay. I asked counsel for the Commissioner, Mr Metlej, what the approach of the Commissioner would be if the final outstanding payment of $48,306.28 were made from the proceeds from Qube as anticipated, such that there was no liability remaining to the Commissioner. 21 Counsel said that the Commissioner's position would remain that any stay would be opposed. 22 Counsel submitted that it is not for the Court to extend a stay to enable a payment to be made: the obligation of the Court is to exercise its discretion taking into account the principles that apply on a stay application pending appeal, and that requires a consideration of the prospects of the appeal grounds. 23 Counsel referred to the fact that regardless of any subsequent payments, the Commissioner was a creditor at the time the winding up order was made, and the Commissioner is entitled to rely on that formal order of the Court. Counsel relied on the principle that the law places a very high store on the finality of judgments, referring to DJL v The Central Authority [2000] HCA 17; (2000) 201 CLR 226 at [90]. 24 Counsel also relied on the established principle that a winding up operates for the benefit of all creditors and seeks to protect them from detriment or risk flowing from an insolvent company continuing to trade. Mr Metlej referred to the dearth of information about the financial position of the company (especially as some eight months has passed since the proceedings commenced) and the fact that an inference should be drawn from the superannuation guarantee charges that not all payments to employees had been made as required (a matter challenged by Ms Luktuke). Mr Metlej submitted that the appropriate course for Xpress is to apply to have the winding up terminated under s 482 of the Corporations Act 2001 (Cth) once it has met its liabilities and it can then continue to operate its business (and as an aside I note that in such a scenario a liquidator of a company might also consider the appointment of an administrator and the merits of a deed of company arrangement). 25 The Commissioner also relied on the policy expressed in the Corporations Act against delay in the liquidation process.

Determination 26 I have carefully considered the position of Xpress. I am aware that a stay to ascertain if the payment from Qube is forthcoming may be for a relatively short period (payment is due on 18 October 2018). I also appreciate that the Commissioner has received significant payments from Xpress during the course of these proceedings, and has also issued updated information increasing Xpress' tax obligations from that originally provided. It is clear that Xpress has sought to address the increased liability when informed. 27 Nevertheless, there are aspects of the stay application that are concerning: (a) there is a lack of evidence as to important matters that should have been addressed for the purpose of a stay application, particularly as to the position of creditors and liabilities and supporting a contention that the business is trading within terms, and the application has now been on foot for two weeks. Xpress has had ample time over the course of various adjournments before the winding up hearing and since to provide proper disclosure of its financial position; (b) the lack of evidence means that it is not possible to properly ascertain or test the financial position of the company, even on a preliminary basis; (c) there is no explanation as to why the Sale Contract has not completed; (d) there is no evidence as to any steps Xpress has taken to seek an expeditious hearing of its appeal; (e) the effect on the company of a winding up (including on its contracts) has only been addressed at a very general level and by submission: no real attention was paid to the consequence of a stay being granted or not and it seems that all efforts have been addressed to meeting the revised claims of the Commissioner. 28 I will proceed on the assumption that Xpress' appeal against the winding up order would be rendered nugatory if a stay is not granted. The merits of the appeal grounds must be assessed against that backdrop and also taking into account that the company is presumed to be insolvent, and failed to either comply with or apply to set aside the statutory demand: HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd [2002] FCA 1638; (2002) 44 ACSR 169 at [50] (French J). 29 Xpress has not elucidated the evidence that would be subject to any application to evince new evidence. The principles as to receipt of new evidence on appeals under r 36.57 of the Federal Court Rules 2011 (Cth) are well known and the appellant must explain why the evidence was not adduced previously. An application by Xpress to evince financial information in support of solvency that could have been provided earlier may be fraught with difficulties. But in any event, it is not for the Court to speculate as to the evidence that the appellants may seek to adduce. I do not consider the fact of the Sale Contract is compelling: it has not completed when due and whilst proceeds may flow from its realisation, the assets of the company are thereby reduced. Such impact has not been sufficiently explained. 30 Nor has Xpress pointed to some wrong principle that it is said the primary judge acted upon, or that upon the facts his Honour's decision can be shown to be unreasonable or plainly unjust. 31 His Honour took into account the evidence before him as to the financial position of Xpress. His Honour took into account the principles that apply where the full amount of a statutory demand is paid at or prior to the hearing of a winding up petition. He noted there was no evidence form Xpress challenging the Commissioner's affidavit evidence as to the tax debts (at [6]). His Honour referred to the evidence of Xpress having assets of about $1.2 million including the prime mover. His Honour considered that little weight should be given to any claimed ability on the part of the company to realise the prime mover to meet its liabilities in light of the history of adjournments (a matter clearly relevant to that question). He considered the evidence before him as to debtors, noting that there was a lack of clarity as to whether debts would in fact be realisable. His Honour addressed such evidence as there was against the context of the company's failure to either comply with or apply to set aside the statutory demand. He addressed the public interest. Having due regard to all of those matters, and bearing in mind the nature of this preliminary assessment, in the absence of any real enunciation or explanation of the grounds of appeal, I am of the view that Xpress has not demonstrated that the appeal raises serious issues for the determination of the appeal court, even allowing for a low threshold of arguability. 32 I also have regard to the principle that the purpose of the statutory demand regime is to bring to a head quickly disputes about debts so that insolvent companies do not continue to trade to the detriment of creditors. 33 Having said that, I appreciate that the result may seem somewhat harsh in light of the fact that substantial payments have been made to the Commissioner. I have not overlooked that the refusal to extend the stay may impact on the position of the business as a going concern and may impact on the prospects of other unsecured creditors getting paid. Nor have I assumed that the particular debts raised by the Commissioner in the affidavit of Ms Gray of 8 October 2018 will be established. However, I must take all relevant matters into account. It is recognised under the statutory regime that commercial injustices may fall on a company but commercial injustices may also flow from the continued operation of an insolvent company: HVAC at [53]. 34 Taking into account all of the circumstances including the proposed appeal grounds, I am not satisfied that a further extension of the stay should be granted. Accordingly, I dismiss the application. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith.