Hall v CAP Security Services Pty Ltd, In the matter of CAP Security Services Pty Ltd

Introduction 1 The matter before the Court is an application by the first plaintiff, Mr Dale Hall, and the second plaintiff, Tallicat Pty Ltd as trustee for the Hall Family Trust (Tallicat), to wind up the first defendant, CAP Security Services Pty Ltd (CAP Security), either in insolvency or on the just and equitable ground. It has been brought on urgently on the Commercial and Corporations Duty List and was initially heard on Friday, 25 August 2023, alongside other matters in the Corporations List. On that day, Mr Wacker appeared as Counsel for the plaintiffs and sought to advance the application. Mr Springer appeared as Counsel for the defendants. 2 That initial hearing lasted only a short time. The matter was adjourned until the following Tuesday, 29 August 2023, in order to allow the defendants an opportunity to respond to the evidence contained in the substantial amount of affidavit and other material that had been filed on behalf of Mr Hall and Tallicat. 3 As it happens, CAP Security filed no material in response. That is particularly important, because the material on which the plaintiffs now rely establishes that CAP Security is, in fact, insolvent. It also establishes that CAP Security's conduct has been of such a nature that it ought to be wound up on the just and equitable ground. Despite the absence of material from CAP Security, Mr Springer appeared on its behalf at the second hearing to oppose the winding up. Without any relevant evidence having been filed on behalf of his clients, the submissions that he was able to advance were necessarily limited.

Mr Hall, Tallicat and CAP Security 4 For reasons that are explained below, from Mr Hall's perspective, the present application was urgent. 5 Mr Hall was appointed director and secretary of CAP Security on 8 January 2004. At all relevant times, he has also been the sole director, secretary and member of Tallicat, which has been the trustee of the Hall Family Trust since 5 January 2004. 6 From 3 December 2018 until the occurrence of certain events detailed below, Tallicat (as trustee) was the sole shareholder of CAP Security, holding 20 ordinary shares. Mr Hall controlled CAP Security through Tallicat. 7 During the time when Mr Hall was involved in the management of the company, CAP Security carried on the business of providing security service personnel in the nature of doormen for functions, front door security for businesses, and the like. It provided security services to a number of licensed venues across Queensland, and held major contracts to provide such services to Stadiums Queensland and ASM Global. 8 On one view, Mr Hall remained a director of CAP Security from his appointment on 8 January 2004 until 16 June 2022. As discussed in greater detail below, however, there is some doubt as to the precise date on which his directorship came to an end. The cessation date of 16 June 2022 has been drawn from information derived from a database maintained by the Australian Securities and Investments Commission (ASIC), as extracted in an "ASIC & Business Name Organisational Search on CAP Security Services Pty Ltd" dated 22 August 2023. However, whether Mr Hall was actually a director in the period from 1 October 2021 to 16 June 2022 is a live issue in respect of which there may be some debate.

The sale of shares in CAP Security 9 On or about 9 September 2021, Tallicat entered into a written agreement for the sale of 70 per cent of Tallicat's shares in CAP Security to a company, Trojan Consultant Services Pty Ltd (Trojan). That agreement was described as a "Business Sale Agreement". 10 At the time that the Business Sale Agreement was entered into, and until 18 July 2022, Mr Peter Sleiman was the sole director of Trojan. 11 "Completion", as that concept was defined in the Business Sale Agreement, was due to occur on 30 September 2021. That date was also defined specifically in cl 1.1 of the agreement as the "Completion Date". 12 Pursuant to the Business Sale Agreement, Mr Hall was to resign as director and secretary of CAP Security at Completion. Accordingly, on or about 21 September 2021, he signed an ASIC Form 370 "Notification by officeholder of resignation or retirement" and tendered his resignation as director and secretary, to take effect on the Completion Date of 30 September 2021. 13 By cl 7.1 of the Business Sale Agreement, the "Purchase Price" of the shares (as defined in cl 1.1) was to be to adjusted, relevantly by way of reduction, to reflect the amount of provisioned but unpaid GST as at the Completion Date. 14 Ultimately, Completion did not occur in the manner contemplated by the Business Sale Agreement. Instead, a dispute arose between Tallicat and Trojan as to whether Completion had been effected, and whether the balance of the Purchase Price was due to Tallicat. 15 The dispute was resolved at a mediation, after which the parties entered into a "Deed of Settlement and Release" dated 26 May 2022. By that deed, Trojan was to cause CAP Security to effect the resignation of Mr Hall as a director, which had not occurred by that time, and the immediate registration of the transfer of 70 per cent of the shares in the company from Tallicat to Trojan. 16 On or about 10 June 2022, solicitors acting for Tallicat sent an email to solicitors acting for Trojan, attaching a further Form 370, by which Mr Hall was to resign as director and secretary of CAP Security from 27 April 2022, and a share transfer form for the transfer of 14 of Tallicat's ordinary shares in CAP Security to Trojan. 17 As mentioned previously, the records maintained by ASIC as at the time of the first hearing in this matter indicated that Mr Hall's resignation as a director was registered and took effect on 16 June 2022. Even though his resignation was formally registered on that day, it should be noted that Mr Hall has not participated in the management of CAP Security since about 30 September 2021. In fact, he has been excluded from its business premises. 18 As for the transfer of the 70 per cent shareholding, the records maintained by ASIC do not show Trojan ever to have been a shareholder of CAP Security. Instead, they showed six shares still to be held by Tallicat and the remaining 14 shares to be held by the second defendant company, Suria Global (L) Australia Pty Ltd (Suria Global). Mr Sleiman has at all relevant times been the sole director, secretary and shareholder of Suria Global.

The payment of the Purchase Price 19 In accordance with cl 3 of the Deed of Settlement and Release, an expert was appointed at Tallicat's cost to determine the adjustment to the Purchase Price that was payable in accordance with cl 7.1 of the Business Sale Agreement as at 30 September 2021. 20 Although that determination was duly completed, Trojan failed to pay the balance of the adjusted Purchase Price. Tallicat accordingly commenced proceedings in the Supreme Court of Queensland to recover the relevant sum. Subsequently, it obtained default judgment against Trojan in the amount of $954,317.05, inclusive of interest. It appears that $500,000 of that sum has been paid into a trust account. 21 On 9 August 2023, solicitors acting for Mr Hall sent a demand to the solicitor acting for Trojan, seeking payment of the amount of $454,317.05.

The lease dispute 22 Until relatively recently, CAP Security conducted its business operations from premises at Units 5-8, 200 Evans Road, Salisbury, which were leased from a Mr Nicholas Malouf pursuant to a lease dated 11 May 2017. Mr Hall and Tallicat were guarantors under that lease. 23 The evidence indicates that, in about the middle of July 2023, CAP Security abandoned those premises. 24 Prior to that, on 5 July 2023, the landlord had served on CAP Security and Mr Hall, under cover of a letter from his solicitors, a Form 7 "Notice to Remedy Breach" under s 124 of the Property Law Act 1974 (Qld), seeking payment of arrears of rent for the months of June and July 2023 and outgoings in the sum of $21,844.53. A separate invoice was attached to the same letter, by which the landlord claimed legal costs incurred in issuing the Form 7 in the amount of $3,326.96. 25 The documents were apparently served on Mr Hall on the basis that he was a guarantor of CAP Security's obligations under the lease. 26 On 25 July 2023, the solicitors acting for the landlord sent a further letter to CAP Security and Mr Hall. The letter advised that, on or about 19 July 2023, the landlord had attended at the premises and found them to have been abandoned. He had accordingly retaken possession and acted to secure the premises. 27 The letter also stated that: (a) CAP Security remained in breach of its obligations to pay the rent and other monies owing under the lease for the months of June and July 2023; and (b) "[o]n preliminary inspection", CAP Security appeared to be in breach of its obligations under the lease to keep the premises in a certain condition, and a building consultant had been engaged to "undertake a detailed inspection of the Premises to identify any works required in this respect". 28 It may be that CAP Security will be liable to the landlord for further "make good" costs, in addition to the aforementioned amounts.

The Director Penalty Notice issued to Mr Hall 29 On 18 August 2023, Mr Hall received by mail from the Deputy Commissioner of Taxation a "Director Penalty Notice" (DPN) for net GST amounts, issued under s 269-25 of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA53). 30 The DPN identified that CAP Security had unpaid GST liabilities for the period 1 July 2021 to 30 September 2021 in the amount of $208,574. It stated that Mr Hall, as a director of the company, had failed to discharge an obligation that he had pursuant to s 269-15 of Sch 1 to the TAA53, such that he was "therefore liable to pay the Commissioner by way of penalty an amount equal to the unpaid amount of each liability of the company to pay an assessed net amount for a tax period in accordance with the A New Tax System (Goods and Services Tax) Act 1999". In effect, Mr Hall was said to be liable to pay the amount of $208,574 himself. 31 Mr Hall explained the delay in his receipt of the DPN as resulting from it having been sent to his former residential address. Upon receiving the DPN, he promptly sought legal advice and brought the present application on an urgent basis, seeking to have CAP Security wound up. 32 The object of Div 269 of Sch 1 to the TAA53, as stated in s 269-5, is to ensure that a company either meets certain of its taxation obligations, including particular obligations arising under the GST legislation, or else goes promptly into voluntary administration or restructuring under the Corporations Act 2001 (Cth) (Corporations Act) or into liquidation. Section 269-15 obliges directors of the company to cause it to comply with its obligations until any one of four events takes place, as set out in s 269-15(2): (2) The directors of the company (from time to time) continue to be under their obligation until: (a) the company complies with its obligation; or (b) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or (ba) a small business restructuring practitioner for the company is appointed under section 453B of that Act; or (c) the company begins to be wound up (within the meaning of that Act). 33 If a company fails to comply with one of its obligations to pay money due and owing to the Commissioner, then the Commissioner may give a DPN to a director of the company, pursuant to s 269-25. The DPN must, amongst other things, set out what the Commissioner thinks is the unpaid amount of the company's liability under its obligation and state that the director is liable to pay the Commissioner, by way of penalty, an amount equal to that unpaid amount because of the director's obligation under the Division. 34 The effect of the giving of a DPN is that the director then has 21 days, from the date that the Commissioner left the DPN or posted it, to cause the company to comply with the obligation in question. In the present case, the 21-day period commenced on 8 August 2023. 35 Importantly, a penalty will be remitted if the director stops being under his or her s 269-15 obligation within the 21-day period. As explained above, the obligation may cease where, amongst other things, the company begins to be wound up. 36 It follows in the present case that Mr Hall would remain liable to pay an amount equal to CAP Security's outstanding liability of $208,574 unless the company began to be wound up by 29 August 2023. That was the date of the second hearing in this matter. Hence, the determination of the winding up application assumed considerable urgency for Mr Hall. 37 Finally, it ought to be noted that, on 23 August 2023, Mr Hall personally made a payment of $5,000 to the Australian Taxation Office (ATO) in respect of the DPN. Pursuant to s 269-45(2) of Sch 1 to the TAA53, he was entitled to be indemnified by CAP Security in respect of that amount as if the payment was made under a guarantee of the liability of the company. He thereby became a creditor of the company.

Some preliminary matters 38 At the hearing on 29 August 2023, some preliminary issues needed to be addressed. They are dealt with below in the order that they were raised.

Non-compliance with rules in relation to service 39 The first issue is that the originating process and supporting affidavits were not served in accordance with r 2.7(1) of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules), which required that they be served on each defendant at least five days prior to the hearing. The documents were instead served on 24 August 2023, which was the day before the first hearing. The plaintiffs accordingly seek an order, pursuant to r 1.39 of the Federal Court Rules 2011 (Cth), shortening the time for service. 40 Ultimately, as noted above, the first hearing was adjourned. The defendants have therefore been afforded several additional days to consider the material. Although the order sought by the plaintiffs still means that the defendants will be left with a shorter time in which to respond to the application than they would ordinarily be entitled to under the Corporations Rules, it is apparent that they have not suffered any prejudice as a result. 41 The only real issue to be addressed by CAP Security is its solvency. In the ordinary course, evidence going to that point should readily be available to it. At the very least, if it is in fact solvent, it should easily be able to adduce evidence sufficient to displace the indicia of insolvency on which Mr Hall has relied. Mr Hall's evidence on this application has not taken the form of an expert report, involving detailed consideration of the company's books and records; rather, it has focused on a number of occasions on which the company has failed to meet its debts on time, or at all. If the failure to pay those debts could be explained, the basis of the application would substantially be undermined. 42 Further, it may have been possible for CAP Security to rebut Mr Hall's evidence by producing its most recent accounts, on the assumption that those accounts would reveal cash flow solvency and a limited number of creditors. If such evidence was available, then it could not have been an onerous task for it to be produced. As it is, nothing of the sort has been put before the Court. 43 It should be acknowledged that neither CAP Security nor Suria Global has opposed the order permitting the time for service to be abridged. 44 For those reasons, it is appropriate to order that the time under r 2.7(1) of the Corporations Rules for service on each defendant of the originating process filed on 24 August 2023, and any supporting affidavits, be abridged to 24 August 2023.

Leave pursuant to s 459P(2) of the Corporations Act 45 The second preliminary issue is that Tallicat is a contributory of CAP Security, with the result that it requires leave, pursuant to s 459P(2) of the Corporations Act, to apply under s 459P(1) for an order that the company be wound up in insolvency. 46 Pursuant to s 459P(3), the Court may give leave under s 459P(2) if it is satisfied that there is a prima facie case that the company in question is insolvent, but not otherwise. For the reasons outlined below, there is a prima facie case that CAP Security is insolvent. 47 In his very helpful written submissions, Mr Wacker for the plaintiffs also referred to the decision of Lindgren J in Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187, where (at 201) his Honour identified three discretionary factors favouring the grant of leave in circumstances where he had already been satisfied that there was a prima facie case that the respondent company was insolvent. The first was that it is, generally speaking, not in the public interest that an insolvent company should continue trading. The second was that it is not in the interests of minority shareholders that they should be "locked into" an insolvent company. The third was that, where the winding up proceedings will continue in any event, it is convenient and appropriate that a minority shareholder be permitted to rely upon the insolvency ground in addition to the other grounds upon which it might rely to seek a winding up order. 48 All of those circumstances exist in the present case. It is not in the public interest for CAP Security to continue trading whilst it is insolvent. The refusal of leave would cause Tallicat to be locked in as a minority shareholder of an insolvent company. Absent leave, the winding up proceeding would continue in any event because Mr Hall is a creditor of CAP Security and is entitled in that capacity to pursue a winding up application on the ground of insolvency. Mr Hall and Tallicat are also pursuing winding up on the just and equitable ground. It is therefore convenient and appropriate that Tallicat be permitted to rely upon the insolvency ground. 49 In the result, it is appropriate to grant leave pursuant to s 459P(3) of the Corporations Act for the plaintiffs to make an application under s 459P of the Corporations Act.

Non-compliance with s 465A(1)(c) of the Corporations Act 50 The third preliminary issue concerns the plaintiffs' non-compliance with s 465A(1)(c) of the Corporations Act, which provides as follows: 465A Notice of application (1) A person who applies under section 459P, 462 or 464 for a company to be wound up must: … (c) cause a notice setting out the prescribed information about the application to be published in the prescribed manner. 51 Rule 5.6(2) of the Corporations Rules further provides that: (2) A notice under subrule (1), or under paragraph 465A(1)(c) of the Corporations Act, of an application for a company to be wound up must be published: (a) at least 3 days after the originating process is served on the company; and (b) at least 7 days before the date fixed for the hearing of the application. 52 The plaintiffs seek dispensation pursuant to s 467(3)(b) of the Corporations Act in relation to these requirements. 53 It is obvious, in the circumstances of urgency referred to above, that there is relatively little utility in insisting on strict compliance with s 465A(1)(c) of the Corporations Act and r 5.6(2) of the Corporations Rules. In this case, a "Notice of Application for Winding Up Order" was prematurely caused to be published by the plaintiffs' solicitors on ASIC's insolvency notices website on 24 August 2023. While ASIC has been asked to withdraw that notice, that has not occurred by the time of the hearings in this matter. Arguably, some degree of notice has thereby been given to those persons who might have an interest in the matter. By the time of the second hearing, in particular, those persons have been afforded a sufficient opportunity to respond to the urgent application, or at least make their positions known to the parties and to the Court. 54 It should again be recorded that neither of the defendants has opposed the request for dispensation. 55 It is therefore appropriate for such dispensation to be given.

The application for winding up 56 Two grounds have been advanced by the plaintiffs as to why CAP Security should be wound up. First, it is contended that the company should be wound up in insolvency pursuant to s 459A of the Corporation Act, as it was insolvent at the time that the originating process was filed and remained so at the time of the hearing. Secondly, it is contended that the company should be wound up on the just and equitable ground under s 461(1)(k) of the Corporations Act.

Winding up on the ground of insolvency 57 Here, the alleged insolvency is not founded upon a failure to comply with a statutory demand, or any other presumption set out in s 459C of the Corporations Act. The plaintiffs therefore bear the onus of establishing that CAP Security was insolvent at the time of the application and the hearing: see Ann Street Mezzanine Pty Ltd (in liq) v Beck (2009) 175 FCR 532, 536 [9]. In accordance with s 459B, the Court must be satisfied that the company is insolvent. 58 The plaintiffs seek to establish insolvency by reference to the circumstances of CAP Security's activities - particularly its inability to pay its debts as and when they fall due. 59 In applying a "cash flow" test for insolvency, the Court must have regard to commercial realities. In particular, such realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable. As was recognised by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at 224 - 225 [54], the Court may also take such realities into account in assessing whether a company's position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency. It is appropriate, in this exercise, for the Court to consider the company's recent history, including whether it has drawn, or has been able to draw, on resources in its accounts and in the hands of third parties. 60 In this way, the inquiry into a company's insolvency poses a question of fact that is generally to be answered by a consideration of the company's financial position taken as a whole: see Lewis v Doran (2004) 208 ALR 385, 408 [106]; Australian Beverage Distributors v The Redrock Co (2008) 26 ACLC 74, 97 - 98 [146], 99 - 100 [157]. Nevertheless, a failure by a company to pay an undisputed and genuine debt may, of itself, provide evidence of insolvency: see In the matter of Plutus Payroll Pty Ltd [2017] NSWSC 1360 [31]; FP Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd (1993) 12 ACSR 136, 140; Re Taylor's Industrial Flooring Ltd (1990) 8 ACLC 3081, 3086; Just Juice Corporation Pty Ltd v Murrayland Fruit Juice Pty Ltd (1990) 2 ACSR 541, 546; Commissioner of Revenue (Vic) v Roy Morgan Research Centre Pty Ltd (1997) 24 ACSR 73; Re Ryals Hotel Pty Ltd (2020) 149 ACSR 626, 631 [16]; Devmin International Pty Ltd v Belconnen Developments Pty Ltd [2022] QSC 186 [88]. 61 This is particularly relevant in the present case, where CAP Security has a number of debts that have been outstanding for some time. This includes the $203,574 in outstanding GST liabilities (taking into account the $5,000 paid by Mr Hall), which have been payable since the quarter ending on 30 September 2021. That particular debt is addressed in more detail below. 62 It is appropriate to begin by considering some of the other evidence as to CAP Security's financial position at the time of this application.

CAP Security's books and records 63 As Mr Wacker acknowledged, little is known by the plaintiffs about the current financial position of CAP Security. In part, that is due to the defendants' failure to adduce evidence on this point. 64 Mr Hall produced in his first affidavit in this proceeding, which was filed on 24 August 2023, a profit and loss statement and a balance sheet for CAP Security for the financial year ending on 30 June 2021, as well as a balance sheet for the company as at 30 September 2021. 65 The profit and loss statement indicates that, as at the end of the 2020-21 financial year, CAP Security had made a net profit of slightly over $2 million. However, this was due only to the receipt of a JobKeeper subsidy of over $3.8 million, being financial relief provided by the Commonwealth government in response to the COVID-19 pandemic. 66 The balance sheet for the 2020-21 financial year indicates that, at the same time, the company had net assets of just over $2.1 million. This, of course, would ordinarily give the Court pause for thought, as it tends to suggest that the company was not, at that time, financially unhealthy. However, the accounts were, by the time of the hearing, two years old. 67 The balance sheet as at 30 September 2021 shows quite a substantial change in circumstances. It indicated that the company's current year earnings were -$206,545.94, demonstrating a substantial loss over the first three months of the financial year. Its net assets were reported to be $1,534,604.16, being approximately $600,000 less than the net assets reported at the end of the preceding financial year. This left a deficiency of current assets over current liabilities of about $124,000. If prepaid expenses were removed as a current asset, that deficiency increased to almost $600,000. Notably, the balance sheet included within it the GST liability to the Commissioner of $208,574.

CAP Security's creditors 68 As at the time of the hearing in this matter, the known creditors of CAP Security are: (a) the Commissioner of Taxation, who is owed $203,574; (b) Mr Hall, who is owed $5,000; and (c) Mr Malouf (the landlord), who is owed approximately $25,000 for unpaid rent, outgoings and enforcement expenses, plus an unknown amount for potential make good costs. 69 When the originating process was filed on 24 August 2023, there was no evidence that CAP Security genuinely disputed its liability to the Commissioner, which had been outstanding for almost two years. 70 However, approximately one hour before the first hearing on 25 August 2023, solicitors acting for the company provided to the plaintiffs' solicitors by email a document described as an "amended BAS for the June/September 2021 quarter" - being an ATO business activity statement, recorded as having been lodged on 25 August 2023. The amended BAS reported nil total sales and nil GST owed to the ATO for the period from July 2021 to September 2021. 71 By a letter dated 28 August 2023, sent between the first hearing and the second hearing, the plaintiffs' solicitors wrote to the solicitors acting for company, addressing (amongst other things) the amended BAS. That letter stated, relevantly: We have not yet received any affidavit material from you; nor have we received anything which might explain the circumstances in which an amended BAS is said to have been submitted to the ATO, or any material which might explain how the GST liability of the Company with respect to the September 2021 quarter may have been reduced. We look forward to receiving any material intended to be relied upon by your clients, as a matter of urgency. We do note, however, that our client's former solicitor, Mr Wesley Hill of McNamara Law, was copied to an email from your firm to Worrells on 28 October 2022 which, among other things, attached a sales register and general ledger report for the Company for the period from 1 July to 30 September 2021 (that is, the relevant quarter in question). Among other things, that sales register referred to total GST on the sales of $354,023.56 for the quarter; the general ledger report attached to that email shows a closing balance for the GST account of $208,574.09, which (as we understand it) reflects the amount of the GST liability mentioned in the Director Penalty Notice received by our client, Mr Hall (and thus the amount of the director penalty itself). For completeness, we note that the balance sheet for the Company as at 30 September 2021 also recorded a liability for GST in the amount of $208,574. In the circumstances, we invite you to explain the circumstance in which, and the basis upon which, the amended BAS is said to have been lodged. 72 Accordingly, CAP Security has been asked squarely to provide evidence explaining the amended BAS. Despite this, at the second hearing of this matter, no evidence was forthcoming. It can perhaps be inferred, in these circumstances, that the material held by the company would not support its apparent contention that no GST liability exists. 73 For this reason, the attempt by CAP Security to negate its GST liability by producing the amended BAS can be of little relevance to the outcome of this application. 74 Indeed, the last-minute production of the amended BAS to the plaintiffs' solicitors should be regarded as concerning. There is reason to suspect that the document has been proffered for the purpose of inducing the plaintiffs to desist with the present application. The basis upon which the amended BAS was lodged has never been clarified. As CAP Security was obliged to maintain records that explained its financial transactions, one would have thought that it would have been a simple matter for the company's solicitors to provide an explanation when requested, accompanied by supporting documents. Similarly, under s 382-5(4) of the TAA53, companies must keep records containing particulars of the basis on which, and the method by which, an estimate, determination or calculation was made under an "indirect tax law" (which includes the GST law: see Income Tax Assessment Act 1997 (Cth) s 995-1). Again, it ought to have been very easy for the company's solicitors to adduce evidence as to why the amended BAS was lodged. 75 At best, it might be inferred that the company was simply in error as to the quantum of its liability to the Commissioner. However, the material presently before the Court indicates that, in the quarter ending on 30 September 2021, the amount of GST payable was, in fact, that which appeared in the company's accounts at that time: namely, the sum of $208,574. It is highly unusual that, immediately before the hearing of this matter, the sum was purportedly reduced to nil. It would necessarily follow that either the relevant figure in the company's accounts or the amended BAS was not only erroneous, but was quite blatantly so. This necessarily calls for evidence as to how the amended BAS come to be prepared, and an explanation as to why it was delivered to the plaintiffs' solicitors only immediately prior to the hearing (and not to the Court). I need not discuss the implications flowing from the absence of any such evidence or explanation. However, at the very least, it can be said that the unsubstantiated, belated attempt to present the company as having no GST liability suggests that it is being managed in a way that is other than correct and honest. 76 It is ultimately safe to proceed on the basis that there is no genuine dispute about CAP Security's indebtedness to the Commissioner in respect of the GST liability. Indeed, the existence of that indebtedness has been evidenced in the company's own balance sheets. There is also evidence that the amount has been payable for a significant period of time. 77 It follows that CAP Security is indebted to the Commissioner in the sum of $203,574. That indebtedness has existed for about two years. 78 Notably, Mr Hall has made two demands of CAP Security for payment of the GST debt. The company has not responded to those demands. Importantly, at no time has it contended that the GST debt is not due, or that it disputes its liability to pay the debt. The fact that the DPN has been sent to Mr Hall indicates that the Commissioner is of the view that the debt remains owing. 79 Ultimately, the failure of CAP Security to meet its taxation liabilities over an extended period of time is a significant indication of its insolvency. 80 The conclusion of insolvency is buttressed by the fact that it has also failed to pay the money owed to its landlord, and the fact that it has abandoned its business premises. There is no material before the Court explaining why it has abandoned the premises, and no information as to why it has failed to pay the rent and other expenses that have accrued. It would no doubt be unusual for a solvent company to behave in such a manner. 81 In these circumstances, the Court can quite safely treat the absence of any response by the company to the evidence of its substantial indebtedness as indicating its inability to pay its debts. In this respect, in his written submissions, Mr Wacker referred to the observations of Heerey J in Ataxtin Pty Ltd v Gordon Pacific Developments Pty Ltd (1991) 29 FCR 564 at 572, where his Honour observed: The applicant creditor is thrown back on the common law rules of evidence and proof. One of the matters that may be relied on is the inference to be drawn in the circumstances of the case from the company's response to a purported statutory demand, albeit one that does not comply with the terms of the statute. Given appropriate circumstances, a failure to respond to an assertion in a commercial setting may amount to an admission of the truth of that assertion: see Wiedemann v Walpole [1891] 2 QB 534 at 537-538; Young v Tibbits (1912) 14 CLR 114 at 122; L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 at 230. … With no further evidence, the natural inference to be drawn is that the company did not pay the amount admittedly due because it was unable to do so. The conclusion will ordinarily follow that the company is unable to pay its debts: see Re Tweeds Garages Ltd [1962] Ch 406 at 410. 82 Here, CAP Security has failed to respond to Mr Hall's demands that it pay the GST debt. The "natural inference" to be drawn is that the company is unable to do so. 83 It is difficult to reach any conclusion other than that CAP Security is unable to pay its debts as and when they fall due, and that its failure to pay its debts is not a result of mere temporary illiquidity. The commercial reality is that, if there were assets available that might be used to meet the long-outstanding indebtedness of the company to the Commissioner, then the debt would surely by now have been paid. That view is strengthened by the fact that demands have been made of the company for an explanation as to the indebtedness, to which it has failed to respond. 84 There are sufficient grounds to wind up CAP Security on the basis that it is insolvent, pursuant to ss 459A and 459P of the Corporations Act.

Winding up on the just and equitable ground 85 This leads to the second ground on which the application is pursued: that is, the just and equitable ground under s 461(1)(k) of the Corporations Act. 86 The circumstances of this case are sufficient to permit a shareholder to wind up CAP Security on that ground. In Australian Securities and Investments Commission v ABC Fund Managers Ltd (2001) 39 ACSR 443, Warren J identified the scope of the power to wind up a company on the just and equitable ground. Her Honour said at 469 - 470 [119]: There are general fundamental principles applied by the courts with respect to a winding-up application on the just and equitable ground. First, there needs to be a lack of confidence in the conduct and management of the affairs of the company: see Loch v John Blackwood Ltd [1924] AC 783 at 788; [1924] All ER 200. Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection. Third, there is a reluctance on the part of the courts to wind up a solvent company. 87 For the present purposes, there is no need to consider the third issue raised in this passage. It has already been determined that CAP Security is insolvent. 88 In relation to the first issue, the proffering of the apparently incorrect amended BAS to the legal representatives of Tallicat, a minority shareholder whose director is the subject of a DPN, supports the conclusion that CAP Security is not being managed in an appropriate way. 89 The amended BAS is a document that might have caused Mr Hall substantial damage, had he acted upon it. It also appears to have been produced in contravention of obligations owed to the Commissioner. Although no final conclusion needs to be reached on that point, if it comes to be found that the amended BAS is not correct and truthful, consequences may follow under the relevant taxation legislation. 90 The evidence also shows that CAP Security has failed to lodge a GST return since September 2021. The Court was taken to the company's balance for its GST "activity running account statement", which indicated that, apart from accruing a general interest liability, the company has not been reporting any GST liabilities. That is somewhat unusual, because there is some evidence that the company has been continuing to trade. If it continues to trade, it is necessarily a company that incurs GST liabilities. In that capacity, it is required to submit a return. Its failure to do so is a matter of great concern. On the information presently available, and given the company's decision not to avail itself of the opportunity to respond to the allegations levelled against it, it is possible to conclude that it is not complying now with its taxation obligations. 91 To the above can be added the fact that the GST debt in connection with which Mr Hall brings the present application is now over two years old, and has remained outstanding without justification. The natural conclusion to be drawn is that there is some public interest in winding up the company. As identified above, the company is insolvent. It is also, potentially, continuing to incur debts and failing to pay amounts that are due to the Commonwealth. If it is continuing to trade whilst insolvent, it presents a danger to the community at large. 92 In reaching the conclusion that CAP Security should also be wound up on the just and equitable ground, I have relied upon the very helpful observations of Gordon J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189 at 195 [20] - [24], and the circumstances there described by her Honour. The observations bear repeating in full, as follows: [20] It has long been established that a company may be wound up where there is "a justifiable lack of confidence in the conduct and management of the company's affairs" and thus a risk to the public interest that warrants protection: Loch v John Blackwood Ltd [1924] AC 783 at 788. In Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443; [2001] VSC 383 at [119] (ABC Fund Managers), Warren J (as her Honour then was) set out three "general fundamental principles": [119] First, there needs to be a lack of confidence in the conduct and management of the affairs of the company … Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection. Third, there is a reluctance on the part of the courts to wind up a solvent company. [Citation omitted.] [21] In relation to the first, a lack of confidence may arise where, "after examining the entire conduct of the affairs of the company" the court cannot have confidence in "the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company": Galanopoulos v Moustafa [2010] VSC 380 at [32]; see also Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 at 532-3; 133 ALR 1 at 61-2; 18 ACSR 459 at 518-19 (AS Nominees); ABC Fund Managers at [117]-[118]; Australian Securities and Investments Commission v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416; [2004] FCA 1059 at [135]-[139] (International Unity Insurance). [22] There is thus a significant overlap between the matters relevant to the just and equitable ground and the matters which weigh in favour of the exercise of the court's discretion to appoint a provisional liquidator. For example, matters which indicate "the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company" might also demonstrate that "the company's affairs have been conducted in a manner without regard to legal requirements or accepted principles of corporate management". [23] In relation to the second, a risk to the public interest may take several forms. For example, a winding-up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public: International Unity Insurance at [138] ; see also Australian Securities and Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110 at [3]. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law: Kingsley Brown Properties at [96]; see also AS Nominees at FCR 527; ALR 56-7; ACSR 513-14; Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778; [2001] WASC 27 at [75]-[77]. Again, there is an overlap between matters which would pose a risk to the public interest for the purpose of s 461(1)(k) and which are relevant to the appointment of a provisional liquidator. [24] In relation to the third, it has been said that "a stronger case might be required where the company was prosperous, or at least solvent": Kingsley Brown Properties at [96]. Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Act: ABC Fund Managers at [124]-[130]. 93 It follows that the plaintiffs have established that CAP Security ought to be wound up on the just and equitable ground. However, for the reasons set out above, they have already succeeded in demonstrating that the company ought to be wound up in insolvency. It is preferable to order that the company be wound up on the latter basis.

Conclusion 94 The plaintiffs have established in this case that CAP Security ought to be wound up in insolvency. An order should be made to that effect. The requirements of the Corporations Act and the Corporations Rules have been complied with, or otherwise dispensed with. 95 Mr Gavin Morton and Mr Leon Lee of Morton + Lee Insolvency have consented to act as liquidators of the company. They should be appointed accordingly. 96 The plaintiffs' costs, including reserved costs (if any), of and incidental to this proceeding, shall be taxed and reimbursed out of the property of the company in accordance with s 466(2) of the Corporations Act. I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.