Gail Freeman & Co Pty Limited ACN 008 653 683 (In Liquidation) v Deputy Commissioner of Taxation

REASONS FOR JUDGMENT 1 This is an application pursuant to s 471A of the Corporations Act 2001 (Cth) for the Court's approval of the exercise of a function of the board in connection with a company which is in liquidation. The company is Gail Freeman and Company Proprietary Limited. The only director appears to be Ms Freeman. She wishes to cause the company to appeal against the decision that it be wound up but can do so only if she has the Court's approval pursuant to s 471A subs (1A) para (d). She offers to pay the company's costs of such proceedings. 2 In my view, the Court would not, in any circumstances, give such leave unless it were satisfied that a viable ground of appeal had been made out. I have now heard this matter argued for something approaching four and a half hours - two hours last week on an application for interim relief, and almost two and a half hours today. Mr Hassell has tried valiantly to identify viable grounds of appeal. I mean no discourtesy to him in saying that he has failed to do so. 3 The primary ground of appeal turns upon the fact that the debt, upon which the statutory demand was based, was a debt pursuant to the Superannuation Guarantee legislation. Following the statutory demand, non-compliance with it and filing of the winding up petition, the Commissioner issued an amended assessment. The applicant asserts that this in some way affected the Commissioner's entitlement to prosecute the petition. No clear basis has been identified for that assertion. It is said that there is a new debt but, as far as I have been able to discern from the material put before me, that is not the case. In my view, his Honour correctly disposed of the question. It may be that the drafting of the relevant legislation is a little opaque, but I am satisfied, at this stage, that there is no viable question for argument on appeal. 4 It is also said that his Honour erred in finding that the company was insolvent. His Honour acted upon the basis of an unsatisfied statutory demand but also considered other evidence which was put before him by the company in seeking to prove solvency. His Honour concluded that it rather supported the inference of insolvency. Although Ms Freeman proposed that the company appeal on that ground, it has not been demonstrated that such a ground of appeal is viable. Counsel sought to put further information before me as to the opinion of an accountant formed after the event. That information should have been put before the judge at first instance. It was not. In any event it is, itself, highly qualified and, in my view, does not establish solvency. No viable ground of appeal against the finding of insolvency has been demonstrated. 5 It is also asserted that his Honour ought to have exercised the discretion conferred by s 467 in favour of the company. That submission seems to be based upon the assertion that because an amended assessment was issued after the presentation of the petition, the Commissioner was no longer able to prosecute it. I am unable to understand that submission. Finally, it is said that to prosecute the winding up petition was an abuse of process. Again, I find myself unable to come to grips with that submission. 6 It may be thought that I have been somewhat offhand in my discussion of these grounds of appeal. If that is so, it is because I consider that there is another compelling reason why the company should not prosecute any appeal at this stage. McPherson J said, in Perovich v ASIC EC (2005) 10557 at [8] and [9], in connection with a similar application by directors: 'I can see no reason why their performance of that function should be approved by the court in the case of a company or companies which, because of the statutory presumption created by section 459C(2)(c), are insolvent. It can only result in further wastage of costs on the part of the liquidator, with no offsetting advantage to either the companies or their creditors or, for that matter, to the applicants themselves. Insolvent companies ought to be wound up unless they are placed under some form of authorised administration.' 7 In this case, even apart from the finding of insolvency based on the failure to comply with the statutory demand, the primary judge acted on evidence advanced in support of the assertion of solvency, finding that it was unconvincing and actually supported a finding of insolvency. That finding is also, in my view, supported, to some extent, by the affidavit of Mr Rangott filed today. His conclusions as to possible future solvent trading is heavily qualified (in para 5 of his report). Although Ms Freeman has offered to pay the company's costs of the appeal, I cannot see that any point will be served by allowing an appeal against the order to wind up this insolvent company. In those circumstances, Ms Freeman's application pursuant to s 471A will be refused. 8 This is a case in which costs should follow the event. I order that the applicant, Gail Freeman, pay the costs of the Deputy Commissioner of Taxation and Gail Freeman and Company Proprietary Limited (in liquidation), of and incidental to this motion. I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.