Weaver v Valspan Pty Ltd

REASONS FOR JUDGMENT 1 On 23 February 2011, on the application of the plaintiff, the Court ordered that the defendant be wound up in insolvency. 2 The Court also gave leave to the plaintiff to file a notice of motion seeking costs against a non party, Peter Norman James. 3 On 9 March 2011, the plaintiff filed a notice of motion seeking, inter alia, an order that Mr James pay the costs of the winding up application. That is the application presently before the Court.

The facts 4 The defendant conducted a real estate and property development business. The plaintiff was employed as the real estate licensee. 5 Between April 2007 and May 2008 (the relevant period) the plaintiff, Mr James, and Mr James' now deceased brother, were directors of the defendant. 6 In the relevant period, the defendant withheld amounts for the purposes of Division 12 in Schedule 1 of the Taxation Administration Act 1953 (Cth) of tax payable to the Australian Tax Office (ATO) amounting to $118,173.88. The directors from time to time were obliged to cause the company to pay that amount to the ATO, to make an agreement with the Commissioner of Taxation (the Commissioner) in relation to the company's liability, to appoint an administrator, or to begin winding up proceedings (s 222AOB of the Income Tax Assessment Act 1936 (Cth) (ITAA)). 7 The directors did not comply with the requirements of s 222AOB. As a result each person who was a director in the relevant period became liable to pay a penalty to the Commissioner equal to the amount of the company's liability (s 222AOC of the ITAA). 8 The Commissioner was not permitted to recover the penalty until 14 days after service of a notice under s 222AOE of the ITAA. If s 222AOB was complied with within the notice period, for instance, by the commencement of winding up proceedings, the penalty was remitted by automatic operation of s 222AOG of the ITAA. 9 These provisions reflect the policy that if a company is unable to pay its tax liabilities the directors have an obligation to act promptly to place the company into liquidation or to take the other specified steps to address the inability to pay. 10 On 30 August 2010, the Commissioner issued a writ against the plaintiff to recover the $118,173.88. 11 On or about 13 September 2010, the plaintiff phoned Mr James and told him that he was being sued by the ATO for the company's debt because he was a director, and he wanted to know what the defendant was doing about the debt. Mr James said that the company was no longer trading and that he had no problem putting it into liquidation but that he was attempting to reach a settlement with the ATO without needing to appoint a liquidator. 12 On 23 September 2010, the plaintiff filed the originating process seeking a winding up order on the just and equitable ground (s 461(k) Corporations Act 2001 (Cth) (the Corporations Act)). 13 Shortly afterwards, Mr James received a further originating process this time from the ATO seeking to wind up the defendant on grounds of insolvency under s 459P of the Corporations Act, and also a District Court writ in relation to a director's penalty notice. The ATO later withdrew their winding up application because of the pending proceedings in this Court. 14 Mr James states in an affidavit sworn on 1 April 2011 in opposition to the application for costs that from around October 2010 he worked with the ATO to attempt to settle the company debt. 15 On 26 October 2010, the originating process instituted by the plaintiff was listed before Registrar Jan and adjourned to 9 November 2010 because the defendant did not appear. On 9 November 2010 Registrar Jan allowed an amendment to the originating process to include insolvency as a basis for the winding up order. The amended originating process was served on the defendant and on Mr James, then the sole director of the defendant. The originating process was referred for hearing by a judge to be conducted on 10 December 2010. 16 On 10 December 2010, neither the defendant nor Mr James appeared at the hearing. The material before the Court was not sufficient to establish insolvency. In order to address this deficiency, the plaintiff obtained leave to serve a subpoena on Mr James to produce documents and give evidence. On 21 December 2010, Mr James attended Court on the return of the subpoena. Insofar as the subpoena related to the production of documents, the return was adjourned to 1 February 2011 before a registrar. Insofar as the subpoena required the attendance of Mr James to give evidence, it was adjourned to 23 February 2011. These adjournments were granted because Mr James said that he had not had adequate time to gather the documents required by the subpoena, and further, that he was negotiating with the ATO concerning the debt owed by the defendant to the ATO. Mr James agreed, and it was ordered, that he pay by 21 January 2011, the costs of the adjournment fixed at $1,712. 17 Several appearances before the registrar followed at which the plaintiff received documents forwarded by Mr James to the Court in response to the subpoena. Mr James did not appear on these occasions. 18 Before the adjourned hearing of the originating process on 23 February 2011, the settlement negotiations between Mr James and the ATO broke down. Consequently, on 23 February 2011, Mr James caused the defendant to consent to the winding up order. Neither he nor the defendant appeared on that day.