Doolan, in the matter of MIH Company Pty Ltd (in liq) v MIH Company Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 526 of 2015

IN THE MATTER OF: MIH COMPANY PTY LTD ACN 108 370 869 (IN LIQUIDATION) BETWEEN: EVAN MAXWELL DOOLAN

AND: MIH COMPANY PTY LTD ACN 108 370 869 (IN LIQUIDATION)

JUDGE: EDELMAN J DATE: 23 OCTOBER 2015 PLACE: BRISBANE

Introduction 1 This is Mr Doolan's application to terminate the winding up of MIH Company Pty Ltd. He relies upon s 482(1) of the Corporations Act 2001 (Cth). All the relevant parties either support, or do not oppose, the termination of the winding up. The termination of the winding up will result in all creditors being paid in full. MIH Company will not be insolvent if the winding up is terminated. The state of affairs that required MIH Company to be wound up no longer exists. For these reasons, explained in detail below, the winding up should be terminated.

Factual background 2 MIH Company is the corporate trustee of the Force Electrical Unit Trust. The business of MIH Company was the provision of commercial, industrial, and domestic electrical services. 3 In August 2014, MIH Company's business was sold to a third party. Mr Doolan, who is the applicant in this application, remained a director of MIH Company. MIH Company ceased trading and began to act solely in its capacity as a corporate trustee of the Force Electrical Unit Trust. All debts to trade creditors and WorkCover were discharged. The Australian Taxation Office was the only remaining creditor. This tax liability could be quantified when MIH Company finalised its tax return for the year ended 30 June 2014. 4 Between August 2014 and July 2015, Mr Doolan and the other director of MIH Company engaged new accountants to restructure various related entities and to finalise the tax liability of MIH Company to the Australian Taxation Office. Neither director realised that MIH Company had continued to incur PAYG withholding tax and General Interest Charges after the August 2014 sale of the business. 5 On 25 May 2015, MIH Company received a Statutory Demand from the Deputy Commissioner of Taxation seeking payment of a debt of $144,624.09. Mr Doolan forwarded a copy of the Statutory Demand to the company's new accountants. He says that he was told by the accountants for MIH Company that they were liaising with case officers at the Australian Taxation Office and that no further action was required in relation to the statutory demand. One of the accountants has given evidence that the Australian Taxation Office did not tell the accountants at any time during their discussions that it intended to, or had, commenced legal action against MIH Company. 6 Mr Doolan was mistaken in his belief that no further action was required in relation to the statutory demand. By 13 June 2015, there was $145,778.21 owing to the Australian Taxation Office. Mr Doolan and the other director instructed the accountants to liaise with the Australian Taxation Office in relation to payment of this amount. Mr Doolan says that the non-payment was not due to any financial difficulties of MIH Company. He says that he was not aware that an application to wind up the Company had been filed. He also says that he was not aware that Liquidators had been appointed until a representative of the Liquidators contacted him to advise that they had been appointed. Then he and the other director instructed solicitors. 7 When the Liquidators were appointed on 11 September 2015, the MIH Company had $154,372.41 in its bank account. Mr Doolan says that there are no contingent creditors of the Company because it is not trading. He says that there are sufficient funds for the MIH Company to pay all debts remaining, which include the remaining debt to the Australian Taxation Office, as well as the remuneration of the Liquidators.

Legal principles concerning the termination of a winding up application 8 Section 482(1) of the Corporations Act 2001 (Cth) provides as follows: At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order. 9 This power is discretionary and the Corporations Act 2001 (Cth) does not restrict the exercise of the power by reference to any particular criteria. However, eight of the most common factors were described by Master Lee QC in Re Warbler Pty Ltd (1982) 6 ACLR 526 (Warbler) at 533. These factors have become well accepted: see, for example, Benedict v Olde; in the matter of ATS (Asia Pacific) Pty Ltd [2011] FCA 1008 [5] (Jacobsen J); Judson, in the matter of Maneroo Pty Ltd (in liq) [2015] FCA 783 [21]-[22] (Gleeson J) and the authorities cited in those cases. As Gleeson J explains, the factors described in Warbler, are as follows: (1) The grant of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary & Edmonton Land Co Ltd (in liq) (1975) 1 WLR 355, 358-359 per Megarry J. (2) There must be service of notice of the application for a stay on all creditors and contributories, and proof of this: Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113. (3) The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged: Krextile Holdings Pty Ltd v Widdows [1974] VR 689; Re Data Homes Pty Ltd [1972] 2 NSWLR 22. (4) The attitude of creditors, contributories, and the liquidator is a relevant consideration: Re Calgary. (5) The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: Re a Private Company [1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VR 593, 598. (6) If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd [1963] 2 Ch 174. (7) The general background and circumstances which led to the winding-up order should be explained: Krextile. (8) The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to "commercial morality" or the "public interest": Krextile. 10 The most significant of all of these factors is usually the question of solvency of the company: see, for instance, In the matter of Glass Recycling Pty Ltd [2014] NSWSC 439 [18] (Brereton J). This is usually because where the winding up was on the grounds of insolvency, it will be necessary for the company to demonstrate that it is solvent in order to show that the state of affairs that required the company to be wound up no longer exists. Hence, an order terminating the winding up will usually be made if all creditors are paid out, the liquidators' costs and expenses are covered, and the members agree to terminate the winding up: see In the matter of Glass Recycling Pty Ltd [18]; Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, 96 [58] (Finkelstein J); Re Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280 [25] (Judd J). 11 The concept of "commercial morality" includes whether there has been any serious impropriety in the conduct of the company's affairs, or any other matter which poses a risk to future creditors. Further, the Court must usually be satisfied that it will be reasonable to entrust the affairs of the company to the directors under whose management the company had previously been subjected to an order for winding up: see Re Glass Recycling Pty Ltd [19] (Brereton J).

Reasons why the winding up should be terminated 12 In this case, all creditors of MIH Company have been given notice of the application to terminate the winding up. None has objected to the application. None will be prejudiced if the winding up is terminated. The petitioning creditor, the Australian Taxation Office, consents to the application. The sole member of the Company, Mr Doolan, supports the termination of the winding up. The Australian Securities and Investments Commission confirmed that it did not intend to intervene in the proceedings. 13 Mr Tomlinson, who is one of the Company's accountants, has given evidence that:

1. he believes that the creditors of MIH Company will not be prejudiced by terminating the winding up;
2. he does not believe that there are any creditors who are unidentified who would be prejudiced by the termination of the winding up;
3. he believes that MIH Company is solvent;
4. he is satisfied that if the liquidation is terminated MIH Company will return to solvent and profitable operation; and
5. he considers that there are satisfactory measures in place to ensure that MIH Company does not again fail to meet its ongoing taxation requirements or that it would be unaware of demands from creditors. 14 The winding up order in this case was precipitated as a result of the inability of the directors of MIH Company to address taxation issues, and in particular their mistaken belief that the Statutory Demand was being dealt with in ongoing discussions between the Australian Taxation Office and MIH Company's accountants. I consider that it is unlikely that this will occur again. The cost to the Company from this episode has been substantial. 15 The Liquidators neither consented to nor opposed the orders sought by Mr Doolan. However, they do seek an order that their remuneration be approved by the Court and fixed at $20,998.41. I have read the affidavit filed on behalf of the Liquidator and the summary of work performed. The amount claimed is appropriate. Mr Doolan, as the sole shareholder of the Company, has consented to that amount. MIH Company had paid $20,000 on trust with its solicitors in relation to this liability. I was informed from the bar table that this amount has now been increased to $30,000. 16 There are only two matters which initially seemed to me to be of possible concern. One matter of possible concern is that the Australian Taxation Office has provided affidavit evidence that, as at 14 October 2015, the outstanding sum due to the Commissioner of Taxation is $159,432.60. However, as at 11 September 2015 there was only $154,372.41 in the MIH Company's bank account. 17 There are two reasons why I am satisfied that this matter is not a significant concern. 18 First, the MIH Company's accountants consider that General Interest Charges of $17,609 would normally be remitted to the company because the charges were incurred due to the failure by the former accountants to finalise MIH Company's outstanding lodgements and affairs. The Australian Taxation Office has not yet responded to the request for remission of this amount because of the liquidation. However, on this application the Australian Taxation filed evidence and did not dispute that General Interest Charges would normally be remitted in the circumstances of this case. 19 Secondly, Mr Doolan and the other director of MIH Company have undertaken to pay any shortfall to the Australian Taxation Office in the unusual event that the General Interest Charge is not remitted. 20 There is also evidence from MIH Company's accountants that MIH Company has net assets of $962,724. However, it is unclear whether these assets are held absolutely or whether they are held in MIH Company's capacity as trustee of the Force Electrical Unit Trust. The lack of clarity is exacerbated because the evidence from the accountants describes the Force Electrical Unit Trust as though it were a legal entity, which it is not. 21 The second matter which initially seemed to be a possible concern is that MIH Company's 2015 Fringe Benefit Tax return was due on 28 May 2015 and remains outstanding. However, MIH Company's accountants have undertaken to prepare tax returns for the company as soon as the company is removed from liquidation. The solicitor for Mr Doolan informed the court that this intention extended to the preparation of all required tax matters. That submission is consistent with the evidence of the accountants recommending ways to avoid any future management issues. Further, there is evidence from MIH Company's solicitors that a draft Fringe Benefit Tax return has been prepared and would be lodged very soon after termination of the winding up if those orders are made.

Conclusion 22 In all the circumstances, it is appropriate that the winding up be terminated under s 482(1) of the Corporations Act 2001 (Cth). The appropriate orders are as follows:

1. Pursuant to section 482(1) of the Corporations Act 2001 (Cth) (the Act), the winding up of the Respondent is terminated.
2. The Liquidators' fees and costs of the liquidation be fixed in the sum of $20,998.41.
3. The Applicant pay the Deputy Commissioner of Taxation's petitioning creditor costs fixed in the sum of $2,256.
4. Within seven (7) days of the Liquidators receiving clear funds of the balance of monies transferred from the Company's former Commonwealth Bank of Australia account, they be directed to deal with those funds in the following manner: a. to retain in payment of the Liquidators' fees and costs, the sum of $20,998.41; and b. to pay the balance of funds to the Deputy Commissioner of Taxation.
5. Within seven (7) days of compliance by the Liquidator of the above direction, the Applicant pay, or cause the Company to pay, any remaining taxation liabilities owed by the Company to the Australian Taxation Office as at 23 October 2015.
6. Pursuant to section 482(5) of the Act, the Respondent to lodge a copy of this Order with the Australian Securities and Investments Commission within 14 days of the date of this Order. I certify that the preceding twenty two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman.