Wily v Commissioner of Taxation

COUNSEL : C J Stevens QC & D J Durston (P1 & 2) M R Aldridge SC (D) SOLICITORS : Michell Sillar (P1 & 2) Australian Government Solicitor (D) CATCHWORDS : CORPORATIONS [250], [253] - Winding up - Conduct and incidents of liquidation - Effect of winding up on other transactions - Preferences - Protected transactions - Dealings in good faith - Reasonable grounds for suspecting insolvency - What constitutes - Other matters - Indemnification of Commissioner of Taxation by directors - When cause of action complete. Acts Interpretation Act 1901 (Cth) s 10 Corporations Act 2001 ss 436A, 477, 588FA, 588FC, 588FE, 588FF, 588FG(2) - (5), 588FGA(1) - (4), 588FGB LEGISLATION CITED : Income Tax Assessment Act 1936 ss 220AAM, 221F Interpretation Act 1987 s 68 Supreme Court Act 1970 s 94 Browne v Commissioner of Taxation (1998) 82 FCR 1 George v Rockett (1990) 170 CLR 104 Hillig v Commissioner of Taxation [2001] 2 Qd R 147 Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 CASES CITED : Queensland Bacon Proprietary Limited v Rees (1966) 115 CLR 266 Re Ermayne Pty Ltd; Sims v Tech Holdings Pty Ltd (1999) 30 ACSR 330 Sands & McDougall Wholesale Pty Ltd (In liq) v Commissioner of Taxation (Cth) [1999] 1 VR 489 Sims v Celcast Pty Ltd (1998) 71 SASR 142 Sutherland (as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR DECISION : Defence under s 588FG(2) not made out. Payments are voidable transactions. Directors to indemnify Commissioner of Taxation.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2612/01 ANDREW HUGH JENNER WILY and HUGH JENNER WILY (as joint liquidators of Boutique Resorts Management Pty Limited) & ANOR v COMMISSIONER OF TAXATION JUDGMENT 1 HIS HONOUR: In these proceedings there are two claims. First, by their further amended statement of claim Andrew Hugh Jenner Wily and Hugh Jenner Wily as liquidators of Boutique Resorts Management Pty Limited ("the company") claim a declaration that each of 16 payments made by the company to the defendant was a voidable transaction within the meaning of s 588FE of the Corporations Act 2001 (Cth) ("the CA") and an order that the defendant pay the plaintiffs the sum of $359,923.12 being the sum of those 16 payments together with interest under s 94 of the Supreme Court Act 1970. The 16 payments were made on various dates commencing on 21 January and ending on 31 May 2000. A full list is set out in the Schedule to this judgment. 2 The second claim is a claim made by the Commissioner of Taxation as defendant by amended interlocutory process filed on 9 July 2001. The claim is made in effect by way of cross claim against the directors of the company. The relief sought is a declaration that the directors are liable to indemnify the defendant pursuant to subs 588FGA(2) of the CA in respect of any loss or damage sustained by the defendant as a result of any order made in these proceedings and orders that the directors pay to the applicant $356,600.38 together with s 94 interest. One of the directors, Robert MacDiarmid, has settled with the defendant the defendant's claim against him. None of the other directors has appeared to defend the claim made by the defendant and the defendant's claim against them has been heard by me ex parte. 3 The legislative framework in which the claims are made is as follows. By s 588FC of the CA a transaction of a company is an insolvent transaction if it is an unfair preference given by the company when the company is insolvent. By s 588FA a transaction is an unfair preference if it results in a creditor receiving from the company in respect of an unsecured debt more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company. By s 588FE(2) a transaction is voidable if it is an insolvent transaction and was entered into during the six months ending on the relation back day, or after that day, but on or before the day when the winding up began. By s 588FF a Court may make an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction if the transaction is a voidable transaction. A defence is provided by s 588FG(2) in the following terms: "(2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company and it is proved that: (a) the person became a party to the transaction in good faith; and (b) at the time when the person became such a party: (i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and (ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and

(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction."

By reason of the provisions of subss (3), (4) and (5) of s 588FG there is no doubt that the defendant has provided valuable consideration under the transaction by receiving the 16 payments in discharge of taxation liabilities. Section 588FGA provides that if the Court makes an order against the Commissioner of Taxation under s 588FF in relation to payments made under specified sections of the Income Tax Assessment Act 1936 (Cth) ("the ITAA") any person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from that order. Section 588FGB provides substantive defences in proceedings under s 588FGA, but as none of the directors against whom the defendant proceeds has come forward to substantiate any of these defences that section does not require further consideration in these proceedings. 4 As was apparent from the form of the defence and the manner in which the proceedings were conducted at trial, the defendant did not dispute that the company was insolvent at the time that the payments were made, that the payments were made within the relevant period and that the defendant received more through the payments than he would receive through proving his debts in the winding up. Since the liquidators' report makes it plain that as at December 1999 the company's debts exceeded its assets by some $2 million, the admissions as to insolvency were practically inevitable and also the admission to the effect that the payments were unfair preferences. The balance of the facts, which are largely undisputed or are easily found, are set out in pars [5] - [19] below. The conclusions which should be drawn from those facts in relation to s 588FG(2) are, however, in contest. 5 In November 1999 the company was in arrears in various payments to the Australian Taxation Office ("the ATO"). During that month the ATO's files in the matter came into the hands of Bronwen Macleod, who was then an officer in the Newcastle office of the ATO and who at the time of trial was still employed by but was on leave from the ATO. When I say the files came into her hands, the system at the time in the ATO at Newcastle was that there were two files, an electronic file and a paper file. An extensive electronic file already existed in respect of this matter. From that time on Ms Macleod recorded all her actions by way of narratives in that electronic file. There was also a paper file which certainly came into her hands at the time she first dealt with the matter and from time to time thereafter. Ms Macleod was the officer in the ATO who principally dealt with this matter at all times after November 1999 material to these proceedings. However, she had discretion to approve agreements for payments of arrears by instalments only up to $50,000 (later $75,000). She had on at least two occasions to refer the matter to her superiors in the ATO at Newcastle for approval of arrangements. Those officers, respectively Donald Hopkins and Marilyn Corrigan, received her recommendations. They had both the electronic and the paper file available to them. In both cases they adopted Ms Macleod's recommendations. Ms Macleod was certainly the officer in the ATO who had the greatest body of knowledge concerning this matter. 6 On 16 November 1999 Ms Macleod noted that the outstanding balance then current was $269,565.26; that all tax was paid up to March 1998 but that part of the debt went back as far as April 1998; and that an agreement negotiated with her predecessor in the files in June 1999 was in default, no payments towards arrears having been received since September 1999, although ongoing commitments were currently being met. She took the decision that director penalty notices should be issued "to prompt the company/directors into action in addressing the debt". All five directors, including Mr MacDiarmid, who was the managing director, and Carmen Tester, were subsequently served with notices. By the end of November Ms Macleod was in negotiation with the company through its accountant, David Fisher, for a new agreement for prospective payment. She noted on 24 November 1999 that, "I need to establish company's capacity to make monthly payments towards penalties whilst at the same time paying the principle [sic] tax". On 24 November 1999 David Fisher faxed a repayment proposal to Ms Macleod. 7 On 25 November 1999 Ms Macleod submitted the arrangements she had negotiated to her superior, Donald Hopkins, for approval under cover of the following narration: "I submit for APS 5 officer approval of coys. [sic] proposal to make payments each month to reduce the principle [sic] tax (director liability amts.) with the final payment to be made by 31 March 2000 (written proposal faxed to me on 24.11.99). Also that we accept the coys. [sic] proposal to pay $2,000 per month in reduction of the penalties commencing from December 1999 up to and including end of March 2000 and to pay remaining penalties as follows: 50% by end of April 2000, remaining 50% by end of May 2000."

It is to be noted that there is no reference in this narration to the company's solvency or ability to pay. Mr Hopkins was either given or could have obtained the paper file. On the same day he granted approval "to accept the arrangement as per the above narration". 8 On 29 November 1999 Ms Macleod drafted an appropriate agreement which showed the principal tax owing as $201,759.51 and the first payment due on 8 December 1999. It was a term of the agreement that upon any default the whole amount would be due and owing and the Commissioner would take recovery action without further notice. On 1 December 1999 the payment agreement had not reached the accountant but Ms Macleod assured him that no action would be taken against the directors under the penalty notices unless there were a default in payment under the agreement. It was not until 15 December 1999 that the payment agreement was finally executed. The first payment, due on 8 December, was paid on time and a further payment was made on 15 December. However, a payment due on 21 December was not made until 24 December, which caused the agreement to appear as defaulted in the ATO's computer system. On 31 December 1999 Ms Macleod entered the following narration: "I explained Payment Agreement actually now null & void due to the late payment of NOV. '99 g/tax. The directors are already personally liable for the group tax because the Payment Agreement wasn't executed within fourteen (14) days of the date of issue of the Director Penalty Notices. There is no point therefore in drafting another Payment Agreement.

I advised Carmen [Tester] I am prepared to allow payment to continue under arrangement as per original proposal. However, I made it clear that this must only be a one-off late payment of currents. Carmen told me they were waiting on a cheque to come in a week before the 21st of December but it came in late. In the event they are going to be late in the future, Carmen will contact me." 9 On 21 February 2000 Ms Macleod was telephoned by Mr MacDiarmid and recorded his request as follows: "He advises summertime is traditionally best trading months. Results are ahead of this time last year but cashflow is not what they would expect at this time. He proposes that we allow the coy. to pay g/tax weekly for the months of January, February, March & April 2000 and has listed a schedule of proposed payments with part payments by the particular due dates for each of those months & then amounts to be paid each week. Under no circumstances can this be accepted." 10 On 29 February 2000 Ms Macleod had a telephone conversation with Carmen Tester recorded as follows: "Total of $48,866.20 ($46,866.20 tax & $2,000) is due today. [Obliterated] has had quite a few corporate bookings this month and is experiencing difficulty in collection of the accounts.

Proposes to spread arrears payment as follows: 29/2/00 - $15,000, 10/3/00 - $15,000, 17/3/00 - $16,866.22, 17/3/00 - $2,000. The next arrears payment as per arrangement is due 31/3/00. I asked Carmen if this will be paid on time and Carmen confirmed it will. I granted the variation to the agreement. Carmen told me she sent me the 4 cheques by Express Post yesterday. I explained that I am not permitted hold onto [sic] the cheques therefore the 3 future dated ones will be returned to her. I pointed out to Carmen that Payment Agreement is no longer valid and coy. is just under an arrangement." 11 On 21 March 2000 Mr MacDiarmid wrote to Ms Macleod. His letter contained the following: "Our industry is going through a period of adjustment to business practices as a result of preparations for the GST, with heavy discounting of room rates being common place [sic] in an endeavour to improve occupancy/revenues, and suppliers tightening trading terms.

Being a small privately owned and managed business, we are left with no choice but to meet the market, but the reduced margins and as a consequence profitability, combined with the demands of our suppliers has had a severe impact on our cash flow.

Despite these difficulties, we have been able to meet our obligations to the Australian Taxation Office and since 1st December have paid to you:-

$174,861.85 in arrears payments And all current deductions.

To preserve the profitability of the company we have reduced both permanent and casual staff numbers, and as a consequence of this action and the seasonal changes in our business, you will see a reduction in deductions in coming months."

He proposed a revised schedule of payments. Ms Macleod recorded the thrust of his letter in a narration dated 22 March 2000. 12 Further negotiations took place concerning the revised schedule of payments. Then Ms Macleod had to submit the matter again for approval by a superior. This she did by means of a written "Submission for Acceptance of Payment Proposal" which she entered as a narration in the computer on 27 March 2000. She summarised the history of the matter and then recorded the following "Recommendation": "Taking into account balance of $79,643.56 owing as at today, company has reduced its debt by $189,921.17 since November 1999. With the exception of Nov. '99 tid's were which were paid 3 days late & part of Feb. '00 which will be approximately 2 weeks late, the company has paid ongoing group tax commitments as they fall due. They notify me whenever they encounter difficulties in being able to meet either arrears payments or current commitments.

I consider that we should accept the latest proposal to clear the balance of the arrears as I have no doubt company is genuine in trying to clear this debt, there is no reason to believe the company is insolvent and if all goes well the account will be paid before the end of the financial year. In the event that the arrangement falls over, I have the option of pursing [sic] the company AND the directors for payment. Note also that there are stoppers in place against the directors of the company so that any income tax refunds which come up for issue will be applied to the company's group tax debt.

As an APS 3 I do not have the delegation to grant arrangements for debts that exceed $75,000 therefore I seek APS 4 approval. Please note that when I granted variation of arrangement on 29.2.00, I overlooked this." 13 This was submitted to Marilyn Corrigan for approval. Ms Corrigan accepted the recommendation as noted by her narration on the same day: "I agree that the company has greatly reduced the original amount owing, and they appear to be genuine in their attempt to clear this debt. I consider that the proposal is acceptable, and the directors are already personally liable should there be any default."

Although Ms Macleod on this occasion expressed a view about solvency, it is not in any way adverted to in Ms Corrigan's note of approval. 14 As recorded there was little contact during April 2000. On 22 May 2000 Carmen Tester sent a fax to Ms Macleod which contained the following: "We have to date paid $230253.61 back in Group Tax and paid $26085.55 in penalty interest. We based the November repayment schedule on the budgets set for the 1999-2000 trading year. We advised you on February 28, 2000 and March 21, 2000 that the business couldn't pay the current arrangements and the ATO accepted varied payment dates. We appreciated your understanding and have made all of those payments.

We are facing a very tough traditional winter trading period from May 00 to August 00. Our actual summer trading period has not been as forecasted [sic], however we have diligently met our commitments to the ATO. Our summer profits are what fund the Resort through our traditional cash flow negative trading months.

Today we have paid $4647.37 towards the April 00 Group tax which leaves a balance of $30k owing. We are asking for relief on the balance of $30k and on the May 00 and June 00 which will be approximately $30k each. We would also ask that you look favourably at not applying penalty interest to these months. The proposed repayment of the $90k would be as follows;

Proposed Repayment Schedule September 00 $15K October 00 $15K November 00 $20K December 00 $20K January 01 $20K

We are currently building new family units on the Resort which is being funded by our bank and they will start settling from July 00 progressively to Dec 00. The sale of these units will be used to fund us through the winter period that we are facing. The 1998-1999 was such a disastrous trading year, which we have been struggling to recover from, and the sale of these Units will provide sufficient funds to lift Boutique Resorts Management back into a sound financial position. We employ over 100 local staff and use 75% local suppliers, we have reduced our costs structures and reduced all spending, but we will make trading losses for the next 4 months. We are noticing the effect of the Goods and Services Tax in our trading terms with our suppliers particularly the majors like Phone, Gas and Electricity who have always accommodated 60day [sic] trading terms, these have all now pushed for 30 days [sic] trading and this has added strain to our cash flow." 15 The same day Ms Macleod records a telephone conversation with Carmen Tester, which included the following: "Carmen advised that in hindsight, they can see that their original proposal for payment of group tax arrears was going to make things difficult financially. Basically they have been putting the profits from the business into paying of [sic] the group tax arrears which she advised me they have never disputed owing." 16 The last two payments in respect of which the plaintiff's claim is made were on 25 May and 31 May 2000. On 29 June 2000 the company appointed Hugh Jenner Wily and Andrew Hugh Jenner Wily as administrators of the company under s 436A of the CA. The company was wound up and they were appointed its liquidators on 13 December 2000. 17 All of Ms Macleod, Mr Hopkins and Ms Corrigan gave evidence by affidavit and were cross examined. Ms Macleod's cross examination was somewhat curtailed as, while being cross examined, she collapsed and was unable to continue. The proceedings were adjourned to permit her cross examination to continue but, although it was recommenced on the adjourned occasion, she again became too unwell to continue. Despite these problems the cross examination which was effected extended, it seemed to me, to most of the important matters in her evidence and the plaintiffs agreed not to cross examine her further by reason of her indisposition. Ms Macleod was frank and straightforward in the way she gave her evidence and the plaintiffs do not submit to the contrary. Equally, I found Mr Hopkins and Ms Corrigan frank and straightforward witnesses. I see no reason for not accepting the evidence of each of them at face value. 18 Going back to the time of her initial negotiations with Mr Fisher in November 1999 Ms Macleod in cross examination gave the following answers: "Q. You understood, and it was in amongst the earlier discussions you had had with Mr Fischer [sic], that is the cash flow did not enable the amount due to be immediately paid, it was going to take a period of time? A. That's right.

Q. That is in addition, you were aware both from the discussion you had with Mr Fischer and the reading of his letter, that was faxed to you, that trading had been difficult for this particular resort? A. Yes.

Q. And you are aware and appreciated it was not unique to this resort, that takings had been difficult within the resort and tourism industry. This is the second page of the document under tab 9 part A? A. Yes.

Q. So, therefore, you also understood that is what was being proposed as the future repayments were reflection of the inability of the company to be able to make the payments any larger than that or any sooner than that proposed? A. That's right." 19 Ms Macleod did add that she thought that the reason they were requiring the proposed period of time to pay the long outstanding debt was due to cash flow problems "which they advised me was due to a number of factors which they expected to be temporary." That, however, cannot detract from the fact that she was well aware of the age of the debt and the difficulties that existed in the resort and tourism industry. She stated both in contemporary narrations and in the witness box that she thought the company was not insolvent for various reasons including the genuineness of its efforts to pay the debt and the payment on time of current group tax deductions. 20 There is a deal of authority including appellate authority on the incidence of the s 588FG(2) defence. The meaning of "suspicion" is reasonably well settled. The passage generally quoted as defining its meaning is from the judgment of Kitto J in Queensland Bacon Proprietary Limited v Rees (1966) 115 CLR 266 at 303. That was cited with the following commentary in the judgment of the High Court in George v Rockett (1990) 170 CLR 104 at 115 - 116: "Suspicion, as Lord Devlin said in Hussien v Chong Fook Kam [1970] AC 942, at p 948, 'in its ordinary meaning is a state of conjecture or surmise where proof is lacking: "I suspect but I cannot prove."' The facts which can reasonably ground a suspicion may be quite insufficient reasonably to ground a belief, yet some factual basis for the suspicion must be shown. In Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266, a question was raised as to whether a payee had reason to suspect that the payer, a debtor, 'was unable to pay [its] debts as they became due' as that phrase was used in s 95(4) of the Bankruptcy Act 1924 (Cth) Kitto J said at p 303: 'A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to "a slight opinion, but without sufficient evidence", as Chambers's Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which "reason to suspect" expresses in sub-s (4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the sub-section describes - a mistrust of the payer's ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors.'

The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture." 21 It is sometimes said that subpar (i) of s 588FG(2)(b) represents a subjective test and subpar (ii) an objective test: eg, Sutherland (as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [38], [41] per Santow J (as his Honour then was). I think that that formulation may be too simplistic, at least if intended as a definitive assessment of the provisions. The terms of the subsection are not entirely easy and the tension between subpars (i) and (ii) of par (2)(b) have been the subject of some judicial debate. In the decision of the Full Court of the Supreme Court of South Australia in Sims v Celcast Pty Ltd (1998) 71 SASR 142 Williams J (with whom Cox and Mullighan JJ agreed) said at 144 - 145: "In Downey v Aira Pty Ltd (1996) 14 ACLC 1068 Ashley J examined s 588FG(2) and reached the conclusion that subpar (b)(ii) though expressed conjunctively with (b)(i) seemed to be otiose. His Honour said (at 1076):

'… an issue arises as to the distinction - if any - between the matters which a creditor must prove under subpars (i) and (ii). … it is no doubt right to say that all the words of a statute should be given a meaning, if that is possible. I find it difficult, however, to see how a different result could obtain from the operation of subpars (b)(i) and (ii). The question - has the creditor proved that he had no reasonable grounds for suspecting insolvency? - requires an objective consideration of the circumstances. Once that is done, the answer to the question would seem to be "no" if, objectively, there were no reasonable grounds - regardless whether the creditor was a reasonable or a quite unreasonable person. If that be so, then subpar (b)(ii), though expressed conjunctively, would seem to be otiose. What can at least be said is that subpar (b)(ii) makes it abundantly clear that proof of a negative - upon an objective consideration of the circumstances removed from the creditor (but not the creditor's circumstances) - is required before the creditor can make out a subs (2) defence.'

In my view (b)(ii) does have work to do independently of (b)(i). It seems that the trial judge in the present case (who quoted the abovementioned passage from Downey v Aira ) has not sufficiently understood the subtleties which may be associated with the application of these two subsections in different situations: see Sands & McDougall (Wholesale) Pty Ltd (In liq) v Commissioner of Taxation (Cth) (1996) 34 ATR 333 at 354 per Nathan J. The reasonable person in the circumstances of Celcast (subpar (b)(ii)) is not necessarily to be equated with Celcast acting reasonably in its perception of events under subpar (b)(i)." 22 Both the above passages were quoted in the decision of the Victorian Court of Appeal on appeal from Nathan J in Sands & McDougall Wholesale Pty Ltd (In liq) v Commissioner of Taxation (Cth) [1999] 1 VR 489, a case with facts not dissimilar from the present case. The passages were cited with apparent approval by Charles JA at 509 - 511. Brooking JA concurred in that judgment and Kenny JA agreed with it, adding only a short comment on a point not material to the present. The facts of that case had some considerable similarity to the present. The Judge below had found the defence established. However, Charles JA said at 515: "In the light of all this uncontested evidence, I am persuaded that the commissioner did not establish on the evidence at trial the position required by subpara (i) of s 588FG(2)(b), namely that he had no reasonable grounds to suspect that the company was insolvent at any time in the period from January to 20 June 1994, when SMW was placed in voluntary administration. This conclusion would inevitably lead to the like result in relation to subpara (ii) of s 588FG(2)(b). It follows that I think, again with respect, that the learned judge was in error in this regard also, and that the issue addressed by his Honour was not the issue posed by either subpara (i) or (ii) of s 588FG(2)(b)."

As is made clear in this passage, by s 588FG(2)(b) the onus is placed on the defendant to establish the negative propositions set out in the paragraph: see also in the Supreme Court of South Australia Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 658 per Doyle CJ and Re Ermayne Pty Ltd; Sims v Tech Holdings Pty Ltd (1999) 30 ACSR 330 at 332 per Wicks J. There is a useful survey of the process of evaluating the matters necessary to come to a conclusion about the defence in the judgment of Santow J in Sutherland v Eurolinx supra at [42] - [47]. 23 In this case I shall not need to resolve whatever tension there may be between subparagraphs (i) and (ii). The conclusion that I have come to is that the defendant cannot establish the matter set out in subparagraph (ii) and that is the end of the matter. If I had to come to a conclusion about the matter in subparagraph (i) I should come to the conclusion that he could not satisfy that test either. 24 The reasons I have come to that conclusion in relation to subparagraph (ii) are as follows. The material known to Ms Macleod (and available to her superiors) at the time that she drew the agreement that was finally executed on 15 December 1999 included the following. The unpaid group tax went back as far as April 1998, more than 18 months previously. The Commissioner of Taxation had been a pressing creditor in the meantime and the debt had not been brought more up to date than that. The agreement come to in June 1999 had been defaulted. What was being offered in late 1999 was not immediate satisfaction of the debt but its progressive satisfaction over a period of months. The industry was having difficulties. Ms Macleod in effect conceded that she was aware that the company was not able to pay its debts as they fell due. A reasonable person would also recognise a likelihood that a debtor which was over a year in arrears would, faced by demands from the Commissioner of Taxation, be delaying other creditors to meet the Commissioner's demands, in effect robbing Peter to pay Paul. 25 These matters all applied as at the time the agreement for instalments was made in November/December 1999. From there on, according to the knowledge of the Commissioner's officers, the position did not improve. In December, a payment was three days late. This was despite the issue of directors' liability notices and the warning that the terms of the agreement must be stringently adhered to or the debt would be enforced in full against both the company and the directors. The reason given was that one particular cheque that was promised was not received on time. It was after that that the first impugned payment was made in January 2000. It is true that substantial payments of arrears were made over the months under consideration, but the debt was never caught up. By February, application was made to make payments weekly instead of monthly and it was revealed that trading during the summer months (which were conceded to be, not unnaturally, the best trading months for a coastal resort) had not been as good as expected. 26 One must be careful not to apply hindsight, but the facts that I have set out above were not matters of hindsight. A reasonable person in the Commissioner's circumstances possessed of these facts must in my view have had at least a suspicion, ie, an actual apprehension or mistrust, that the company was insolvent (as indeed it was) and had that suspicion from the time of the first payment to the last. It seems to me that the question on which the Commissioner, through his officers, focussed was whether the company was or was not likely to make the payments promised to him, in whole or in part. But that does not really matter. What does matter is that the propositions necessary to constitute a defence under s 588FG(2) have not been established in respect of any of the payments. In those circumstances, each of the 16 payments by the defendant to the plaintiffs was a voidable transaction and appropriate orders should be made. 27 The making of those orders will enliven the cross claim. The cross claimant seeks pursuant to s 588FGA indemnity from four directors of the company who are named as respondents to the cross claim, namely, Frances Fittler, Carmen Tester, Veronica Bryant and Margaret Brookes. 28 The only matters necessary to establish to render each of them liable in respect of a payment are: (a) that an order in respect of the payment has been made against the Commissioner under s 588FGA; and (b) that she was a director at the time the payment was made. See s 588FGA(2), (3) and (4). It has been established that each of them was a director of the company at the time each payment was made. I have determined that an order will be made under s 588FGA against the defendant in respect of each payment. Each of them has been served with process but has not appeared to defend the cross claim. In particular, no material has been led which would substantiate any defence under s 588FGB. 29 The only problem in relation to the cross claim which Mr Aldridge, of Senior Counsel for the Commissioner, has drawn to my attention is whether the payments in respect of which orders are to be made are within the class of payments to which s 588FGA applies. The class is defined by reference to the provisions of the ITAA under which the payments were received by the defendant. One of the payments in this case was received under s 221F of the ITAA (see s 588FGA(1)(a) of the CA) and the rest were received under s 220AAM of the ITAA (see s 588FGA(1)(aa)). The difficulty is that par (aa) was inserted in the section with effect from 15 July 2001. The present interlocutory process was filed on 5 June 2001. Those payments were therefore not in terms specified as payments within s 588FGA at the time the cross claim for their recovery was instituted. Two submissions are put on the defendant's behalf as overcoming this difficulty. 30 First, it is submitted that s 588FGA of the CA only takes effect if and when the Court makes an order against the Commissioner under s 588FF and no cause of action arises until the order is made. That being so, the relevant form of s 588FGA is that which is in force at the time the order is made against the Commissioner, which is yet to occur, and not the time of the commencement of the cross claim. On that basis, the difficulty evaporates. Given that the claim is in the nature of an indemnity, actual liability to pay will not arise until and to the extent that the Commissioner has repaid the moneys: Browne v Commissioner of Taxation (1998) 82 FCR 1. 31 Secondly, s 220AAM of the ITAA is in substantially the same form as s 221F and the provisions of the Interpretation Acts dealing with re-enacted sections apply: see s 10 of the Acts Interpretation Act 1901 (Cth) and s 68 of the Interpretation Act 1987. White J in the Supreme Court of Queensland held that the interpretation provisions solved a similar problem: see Hillig v Commissioner of Taxation [2001] 2 Qd R 147 at [8]. 32 In my view, both these submissions are correct. These proceedings are by way of cross claim for an indemnity. It is not necessary that the cause of action be complete at the institution of the cross claim. The time for the statute to operate is at the time of the order in the principal proceedings against the Commissioner. It is at that date that the form of s 588 FGA is material. Equally, I agree with White J that the problem is resolved, if necessary, by the interpretation provisions. 33 The defendant is therefore entitled to orders against the directors named in [28] above. Short minutes may be brought in to give effect to the decisions contained in these reasons for judgment.

SCHEDULE DATE ACCOUNT AMOUNT $49,200.07 On or about 21/01/00 Payroll Accruals: Group Tax On or about 28/01/00 Payroll Accruals: Group Tax 63,948.79 On or about 21/02/00 Payroll Accruals: Group Tax 51,280.66 On or about 28/02/00 Payroll Accruals: Group Tax 15,000.00 On or about 16/03/00 Payroll Accruals: Group Tax 15,000.00 On or about 23/03/00 Payroll Accruals: Group Tax 16,866.22 On or about 24/03/00 Payroll Accruals: Group Tax 21,964.77 On or about 31/03/00 Payroll Accruals: Group Tax 10,000.00 On or about 14/04/00 Payroll Accruals: Group Tax 10,000.00 On or about 19/04/00 Payroll Accruals: Group Tax 10,000.00 On or about 20/04/00 Payroll Accruals: Group Tax 10,000.00 On or about 20/04/00 Payroll Accruals: Group Tax 32,015.24 On or about 4/05/00 Payroll Accruals: Group Tax 10,000.00 On or about 8/05/00 Payroll Accruals: Group Tax 10,000.00 On or about 25/05/00 Payroll Accruals: Group Tax 4,647.37 On or about 31/05/00 Payroll Accruals: Group Tax 30,000.00 $ 359,923.12 TOTAL

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