FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v National Skin Institute (Aust) Pty Ltd [2012] FCAFC 2 Citation: Deputy Commissioner of Taxation v National Skin Institute (Aust) Pty Ltd [2012] FCAFC 2 Parties: DEPUTY COMMISSIONER OF TAXATION v NATIONAL SKIN INSTITUTE (AUST) PTY LTD (ACN 006 483 574) File number: VID 1033 of 2011 Judges: FINN, GORDON & Murphy JJ Date of judgment: 2 February 2012 Catchwords: CORPORATIONS – winding up application – affidavit in support – verification that debt still due and payable – a formal affirmation – formal proof not required Legislation: Corporate Law Reform Act 1992 (Cth) Corporations Act 2001 (Cth) Evidence Act 1995 (Cth) Federal Court of Australia Act 1976 (Cth) Federal Court (Corporations) Rules 2000 (Cth) Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth) Cases cited: Australian Securities and Investments Commission v Eastlands Pty Ltd (2006) 58 ACSR 658 AZED Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54 Deputy Commissioner of Taxation v Brilliant Homes Management Pty Ltd [2011] FCA 1539 Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark (1934) 52 CLR 85 Hamilhall Pty Ltd (in liq) v AT Phillips Pty Ltd (1994) 54 FCR 173 Re Lilley, deceased [1953] VLR 98 Standard Commodities Pty Ltd v Societe Socinter Department Centragel (2005) 54 ACSR 489 Date of hearing: 2 February 2012 Date of last submissions: 2 February 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 28 Counsel for the Plaintiff: Ms H Symons SC with Dr P Bender Solicitor for the Plaintiff: Australian Government Solicitor Amicus Curiae: Mr M Gronow IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1033 of 2011 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: NATIONAL SKIN INSTITUTE (AUST) PTY LTD (ACN 006 483 574) Defendant JUDGES: FINN, GORDON & MURPHY JJ DATE OF ORDER: 2 FEBRUARY 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. National Skin Institute (Aust) Pty Ltd (ACN 006 483 574) (the Company) be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (the Act). 2. Ian Carson of PPB Advisory, Level 21, 181 William Street, Melbourne, Victoria, an official liquidator, be appointed liquidator of the Company. 3. The plaintiff's costs be fixed in the sum of $5,206.66 and reimbursed in accordance with s 466(2) of the Act. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1033 of 2011 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: NATIONAL SKIN INSTITUTE (AUST) PTY LTD (ACN 006 483 574) Defendant JUDGES: FINN, GORDON & MURPHY JJ DATE: 2 FEBRUARY 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT THE COURT: INTRODUCTION 1 Pursuant to s 459P of the Corporations Act 2001 (Cth) (the Act) the Deputy Commissioner of Taxation (the Commissioner) seeks to wind up the defendant, National Skin Institute (Aust) Pty Ltd (ACN 006 483 574) (the Company), in insolvency. 2 The hearing of the application was referred to a Full Court of the Federal Court pursuant to s 20(1A) of the Federal Court of Australia Act 1976 (Cth). That step was necessary because an issue of general application has arisen concerning the admissibility of three paragraphs in the affidavit filed on behalf of the Commissioner in support of the application to wind up the Company. The paragraphs are numbered 3, 4 and 8. The paragraphs were included in the affidavit to seek to satisfy the Court that the sum demanded in the statutory demand remained due the Commonwealth and was payable by the defendant company. It is common ground that if the three paragraphs were inadmissible, the application could not proceed without the admission of further affidavit evidence. 3 The issue is of general application because the affidavit filed by the Commissioner in support of each application to wind up a company in insolvency (save for formal matters) is in a standard form and that form that has been used by the Commissioner for a number of years. Unsurprisingly, the Commissioner seeks to have the issue resolved not only for future applications but also in relation to past winding up applications. 4 In an unrelated matter heard late last year on 16 December 2011, Rares J found that three paragraphs were inadmissible: Deputy Commissioner of Taxation v Brilliant Homes Management Pty Ltd [2011] FCA 1539. His Honour stated at [7]: I rejected that part of the affidavit in support of the originating process that had been sworn on 10 June 2011 by Kathryn Chapman, an officer of the Deputy Commissioner, that accompanied the original application. Ms Chapman had purported to verify that the sum demanded in the statutory demand remained due to the Commonwealth and was payable by Brilliant Homes, but she did so in terms that, in the absence of any authority cited to me, were inadmissible in the rejected portion of that affidavit. 5 We have now had the benefit of argument, supported by authority. Mr Gronow of Counsel was appointed by the Court to act as a contradictor to the Commissioner's contention that the three paragraphs were admissible. The Court is grateful for his assistance. Background 6 On 1 June 2011, the Commissioner served on the Company a Creditor's Statutory Demand for Payment of Debt of $400,590.50. The statutory demand and the Affidavit Accompanying the Statutory Demand was sent by prepaid post to the registered office of the Company. The Company did not respond to the Statutory Demand. 7 On 22 September 2011, the Commissioner filed an originating process under s 459P of the Act to wind up the Company in insolvency. As required, an affidavit in support of the originating process was also filed. It was sworn by Bhavani Srisathkurunathan, an officer of the Commissioner (the Affidavit). The Affidavit stated, after the formal parts: 1. The Plaintiff is Paul Michael Duffus, whom I know to be a Deputy Commissioner of Taxation of the Commonwealth of Australia. I am duly authorised by the Plaintiff to make this affidavit on his behalf. 2. Annexed to this affidavit and marked "BS-1" is a current and historical extract of the records maintained by the Australian Securities and Investments Commission with respect to the Defendant, obtained on 22 September 2011. 3. The following facts are within my own personal knowledge and from my perusal of records and information in the possession of the Plaintiff to which I have access and with which I am familiar in my capacity as an officer of the Australian Taxation Office. 4. On 1 June 2011 the Defendant was indebted to the Plaintiff in the sum of $400,690.50 which sum was then due by the Defendant to the Commonwealth of Australia, payable by the Defendant to the Commissioner of Taxation, and recoverable by the Plaintiff under and in pursuance of the provisions of the Taxation Administration Act 1953. 5. The Plaintiff served on the Defendant a demand signed by the Plaintiff requiring the Company to pay the sum referred to in paragraph 4 by posting the said demand on 1 June 2011 by prepaid post to the registered office of the Defendant. 6. The Defendant failed to pay the amount of the debt demanded or to secure or compound for that amount to the reasonable satisfaction of the Plaintiff within 21 days after the demand was served on the Defendant. 7. The matters stated in the originating process concerning the demand and failure of the Defendant to comply with it are true and correct. 8. At the date of affirming this affidavit, the sum demanded of $400,690.50 remains due to the Commonwealth and is payable by the Defendant to the Plaintiff. 8 The paragraphs ruled inadmissible by Rares J were substantively similar to those numbered 3, 4 and 8 above. Mr Gronow submitted that the paragraphs were inadmissible as they infringed the hearsay rule in s 59 of the Evidence Act 1995 (Cth) because: 1. paragraph 3 did not state the information the deponent accessed; and 2. in paragraphs 4 and 8, the deponent's statement was mere assertion and did not state the source of her knowledge. Mt Gronow submitted that s 459Q of the Act required the Commissioner to adduce admissible evidence to "prove" each element of the case including admissible evidence of his standing as a creditor of the Company. 9 There is no dispute that the other requirements of the Federal Court (Corporations) Rules 2000 (Cth) (the Rules) and the Act have been satisfied. legislative framework 10 Division 4 of Pt 5.4 of the Act governs applications to wind up a company in insolvency. As noted, the current application was made under s 459P, which forms part of Div 5.4. 11 Where, as occurred here, the application for a company to be wound up in insolvency relies on a failure to comply with a statutory demand, the application must satisfy s 459Q of the Act. The application: (a) must set out particulars of service of the demand on the company and of the failure to comply with the demand; and (b) must have attached to it: (i) a copy of the demand; and (ii) if the demand has been varied by an order under subsection 459H(4) - a copy of the order; and (c) unless the debt, or each of the debts, to which the demand relates is a judgment debt - must be accompanied by an affidavit that: (i) verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and (ii) complies with the rules. The current application concerns the Commissioner satisfying s 459Q(c) of the Act. ' 12 Regulation 5.4 of the Rules, entitled "Affidavit in support of application for winding up (Corporations Act s 459P, s 462, s 464)" provides: (1) The affidavit in support of an originating process seeking an order that a company be wound up must be made by the plaintiff or by a person with the authority of the plaintiff or plaintiffs. (2) If the application is made in reliance on a failure by the company to comply with a statutory demand, the affidavit must: (a) verify service of the demand on the company; and (b) verify the failure of the company to comply with the demand; and (c) state whether and, if so, to what extent the debt, or each of the debts, to which the demand relates is still due and payable by the company at the date when the affidavit is made. Note An example of the affidavit in support of an application for winding up in insolvency for failure to comply with a statutory demand is shown in Schedule 3 (Notes to these Rules). … (4) The affidavit must be made within 7 days before the originating process is filed. 13 Three things should be noted. First, the affidavit must be made by the plaintiff or by a person with the authority of the plaintiff: r 5.4(1). In the present case, paragraph 1 of the affidavit established that the affidavit complied with r 5.4(1). Next, if (as here) the application is made in reliance on a failure by the company to comply with a statutory demand, the affidavit must address particular matters. It must verify service of the demand on the company and the failure of the company to comply with the demand and the Rules require that it must "state whether and, if so, to what extent the debt, or each of the debts, to which the demand relates is still due and payable by the company at the date when the affidavit is made". Third, given the relationship between s 459Q and r 5.4, the provisions need to be read together: Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark (1934) 52 CLR 85 at 89. analysis 14 The affidavit must comply with the Act and the Rules: s 459Q(c)(ii) of the Act. 15 First, the identity of the deponent. Rule 5.4(1) of the Rules provides that the affidavit in support of an originating process seeking an order that a company be wound up may be made "by a person with the authority of the plaintiff or plaintiffs". That is unsurprising. It expressly permits persons other than the plaintiff to depose to the necessary facts. On occasions, that is essential – a receiver or, as in this case, an officer of a large plaintiff: see, by way of example, Hamilhall Pty Ltd (in liq) v AT Phillips Pty Ltd (1994) 54 FCR 173 at 174. Moreover, a statement in the affidavit by the deponent that he or she was authorised to make the affidavit on behalf of the creditor is sufficient in the absence of evidence calling in question the authority of the deponent to make the affidavit: see, by way of example, Standard Commodities Pty Ltd v Societe Socinter Department Centragel (2005) 54 ACSR 489 at [7]. 16 Next, the substance of the affidavit. Section 459Q requires that the deponent, inter alia, "verifies that the debt, or the total of the amounts of the debts, is due and payable by the company" (emphasis added) and complies with the Rules. Rule 5.4 requires the deponent, inter alia, "to state whether and, if so, to what extent the debt, or each of the debts, to which the demand relates is still due and payable by the company at the date when the affidavit is made" (emphasis added). 17 The express word of the provisions is verification that the debt remains due and payable. The language is one of "a formal affirmation" and not of the need to "prove or demonstrate by good evidence or otherwise substantiate": AZED Developments Pty Ltd v Frederick & Co Ltd (in liq) (1994) 14 ACSR 54 at 56 (in the context of s 459E of the Act). What is required is formal affirmation on oath that a certain amount of money is due and payable: Australian Securities and Investments Commission v Eastlands Pty Ltd (2006) 58 ACSR 658 at [7]-[8] and the authorities cited. Section 459Q does not require the affidavit to prove by evidence the existence of the debt. Indeed, as Hayne J explained in AZED Developments at 57, if more was required, it would be difficult to identify what kind of affidavit would be required. 18 The conclusion that s 459Q requires formal affirmation (and not proof or substantiation) is further supported by the legislative context. 19 What is now Div 4 of Pt 5.4 came into operation in June 1993 as part of the reforms introduced by the Corporate Law Reform Act 1992 (Cth). It established a new regime regulating applications by a company to a court to set aside a statutory demand. The Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth) stated at [689] that the provisions were intended to provide: … a means of dealing with statutory demand disputes in such a way that an alleged defect in the statutory demand does not have the effect of prolonging proceedings leading to the commencement of a winding up, by requiring debtor companies to raise genuine disputes (about, for example, whether a debt is owed) at an early stage, rather than after winding up proceedings have commenced. See also s 459J of the Act in relation to "defects" and AZED Developments at 57. 20 Consistent with that objective, s 459C(2) provides for a rebuttable presumption of insolvency where a company fails to comply with a statutory demand. That presumption is available in an application under s 459P. If the company does not pay or reach an arrangement with the creditor in relation to a statutory demand and does not move to have the demand set aside within 21 days of service of the demand, the company will bear the burden of proving that it is solvent when the application is heard. 21 The Company was served with the demand and the accompanying affidavit. The demand was signed by or on behalf of the creditor. It is in writing. The demand specifies the debt and the amount of it: s 459E. The demand was accompanied by an affidavit that verified that the debt, or the total of the amounts of the debts, is due and payable by the Company and complies with the Rules: s 459E(3). It was for the Company within 21 days of service of the demand to challenge the demand by alleging, for example, a genuine dispute. It did not do so. When the Company failed to challenge the demand, it was presumed insolvent: s 459C. That presumption was and remained rebuttable: see s 459S of the Act. Then, in accordance with the Act and the Rules, the Company was served with a copy of the originating process and the Affidavit the subject of these reasons for decision. At no time has it sought to rebut the presumption of insolvency. 22 The only issue then remaining is verification (not formal proof) that the debt is still due and payable. As Hayne J noted in AZED Developments at 56-57, the statutory scheme plainly indicates an intention that the verification required by the Act and Rules is different to and less than a requirement to prove or demonstrate the debt by good evidence. 23 In the context of that regime, it is apparent that the role of the affidavit is merely to confirm that the debt "is still due and payable by the company at the date when the affidavit is made" (emphasis added), as spelt out in r 5.4(2)(c). That is, s 459Q is directed to verifying the demand and failure to comply with it. Consistently, s 459Q(c)(i) takes up a matter of timing rather than proof. Accordingly, there is no reason to treat an affidavit under s 459Q as requiring any higher degree of proof than an affidavit under s 459E of the Act. 24 In the present case, the Affidavit complies with the Act and the Rules. It was made by a person with authority of the plaintiff and it verifies the debt the subject of the statutory demand remains due and payable by the Company. Indeed, contrary to the submissions of Mr Gronow, the deponent of the Affidavit identified the basis on which the verification was provided – from within her own personal knowledge and from perusal of records and information in the possession of the Commissioner to which she had access and with which she was familiar in her capacity as an officer of the Australian Taxation Office. 25 Two other matters should be noted. Under s 467A of the Act, the Court may grant a winding up application notwithstanding non-compliance with s 459Q if the company which is the subject of the application has not suffered substantial injustice. In other words, the parliamentary drafters accepted that compliance with these provisions was required but recognised that non-compliance would not necessarily lead to the dismissal of the application. 26 Next, in the present case (and in many other similar applications), the hearing before the Registrar was unopposed. Upon such a hearing, a judge (or Registrar) is at liberty to take into consideration evidence which is neither irrelevant nor prohibited by an absolute rule of law notwithstanding that it could be objected to by an interested party, were the party present, on the ground or grounds of some privilege or available rule of evidence: Re Lilley, deceased [1953] VLR 98 at 101. In other words, even if contrary to the view we have formed, the paragraphs in dispute were inadmissible, that would not have prevented the Registrar considering them. 27 Counsel for the Commissioner also referred to the form of affidavit in support of a winding up application provided in Sch 3 to the Rules. The form of affidavit is in the following terms: *AFFIDAVIT IN SUPPORT/*AFFIDAVIT IN SUPPORT OF APPLICATION FOR WINDING UP IN INSOLVENCY I, [name] of [address and occupation], *say on oath/*affirm [or *make oath and say/*solemnly and sincerely declare and affirm]: 1. I am the above-named plaintiff [or if the applicant is a corporation, I am *a/*the director of the above-named plaintiff which is registered or taken to be registered in [specify State or Territory]. I am duly authorised to make this affidavit on its behalf]. Now produced and shown to me and marked A is a copy of the originating process to be filed in the proceeding. 2. Annexed to this affidavit is a current and historical extract of the records maintained by the Australian Securities and Investments Commission with respect to the defendant. 3. [Where the defendant is registered or taken to be registered in a State or Territory other than that of this Registry, state any facts -- apart from the defendant's principal place of business -- which bear upon jurisdiction being exercised in the State or Territory of this Registry, rather than in another State or Territory.] 4. The following facts are within my own personal knowledge save as otherwise stated. 5. The defendant was on [state date of statutory demand or other relevant date] indebted to the plaintiff in the sum of $ [amount] for [state concisely the consideration, for example, goods sold and delivered etc.] which sum was then due and payable. 6. The demand, a copy of which is attached to the originating process, was signed by or on behalf of the plaintiff. I served the demand [or the demand and the accompanying affidavit] as referred to in the originating process [or X.Y. has been instructed to make an affidavit of service of the demand [or the demand and the accompanying affidavit]]. 7. The matters stated in the originating process concerning the demand and failure of the defendant to comply with it are true and correct. 8. The sum demanded remains due and payable by the defendant to me [or the plaintiff]. The affidavit currently before the Court is not in dissimilar terms. The parliamentary drafters no doubt considered that the Sch 3 affidavit would satisfy the requirements of s 459Q of the Act. orders 28 For those reasons, the Court orders: 1. National Skin Institute (Aust) Pty Ltd (ACN 006 483 574) (the Company) be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (the Act). 2. Ian Carson of PPB Advisory, Level 21, 181 William Street, Melbourne, Victoria, an official liquidator, be appointed liquidator of the Company. 3. The plaintiff's costs be fixed in the sum of $5,206.66 and reimbursed in accordance with s 466(2) of the Act. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Gordon & Murphy. Associate: Dated: 2 February 2012