AMP Workers Compensation (NSW) Ltd v Whiterain Holdings Pty Ltd [1995] FCA 587

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3130 of 1995 GENERAL DIVISION ) BETWEEN: AMP WORKERS COMPENSATION (NSW) LTD Applicant AND: WHITERAIN HOLDINGS PTY LTD (IN THE MATTER OF WHITERAIN PTY LTD ACN 050 611 875) Respondent CORAM: Davies J. PLACE: Sydney DATE: 7 June 1995 REASONS FOR JUDGMENT This is an application to set aside a winding-up order that was made on 1 June 1995. The company the subject of the winding-up order, Whiterain Holdings Pty Limited, did not appear at the hearing to oppose the winding-up. An affidavit from Mr W.K. Sharvell, who appears to be its principal director, states that he was unaware of the proceedings. The affidavit does not say, however, how it came about that the company was unaware of the winding-up proceedings or of the statutory demand on which the proceedings were based. There are in the file affidavits of service. True enough, they are not affidavits of personal service, but rather of service by post, and of course it is possible that the documents did not get into the hands of someone at Whiterain Holdings. But that is one of the matters that is not explained by Mr Sharvell. The second matter that is unsatisfactory is that the petitioner, the Workers Compensation Services NSW Pty Limited, is prepared to consent to the setting aside of the winding-up order but its consent is based upon it receiving the sum due to it immediately the winding-up order is set aside. Such a payment, when the company is unable to pay its debts, would, in my view, constitute a preference. It seems to me to be an unfortunate proposition to put to the Court that one creditor will be preferred while other creditors remain unpaid. The representative for Whiterain Holdings proposed that the winding-up should be set aside and that the petition should be adjourned for two months so as to enable payment to be made to the Deputy Commissioner of Taxation who now opposes the setting aside of the order. The balance sheet which was attached to Mr Sharvell's affidavit shows that the company has had an increasing deficit of funds. For the year to date to 31 May, it had a deficiency of over $20,000. The deficiency to the end of last year, which I take to be 30 June 1994, was $7,500. The deficiency would be increased if intangible assets such as future income tax benefits, lease preparation costs and preliminary expenses which all amount to just under $40,000, were taken out. Perhaps those sums, however, should be regarded as being offset by a loan account due to Mr and Mrs Sharvell of about $40,000. The balance sheet shows that the trade creditors were owed $34,500 and group tax payable amounted to $86,000. The actual sum now due for group tax is over $93,000. There is another entry in the balance sheet which may be of importance but which is unexplained. There is a loan inserted under the heading "deferred liabilities" and it is a loan from RAM Sportswear Pty Limited of $74,601. It may be that this is a loan from a company with which Mr and Mrs Sharvell are connected but there has been no explanation of that matter. In his first affidavit Mr Sharvell did not deal with any of those matters and indeed it was said that, apart from the petitioning creditor, the company's only other creditor was the Australian Taxation Office which is owed $92,500. That statement, of course, was wrong. There were trade creditors and there were the deferred liabilities of which I have spoken, the sums due to Mr and Mrs Sharvell and to RAM Sportswear and another small loan to a Mr D. Coates. In a further affidavit Mr Sharvell has said that one of the trade creditors, HMA Knitting Mills, supports the application to set aside the winding-up order. Mr Sharvell also deposed that it had been impossible to contact the remaining trade creditor. He said that he believes that, if the winding-up order were set aside, the company would be able to discharge its current and past group tax liabilities by 11 August 1995. That was supported by a flow chart apparently prepared by an accountant. I do not, myself, obtain much assistance from the flow chart. For example, it starts off with an opening bank balance of $10,000 which is not mentioned in Mr Sharvell's affidavit or in the balance sheet, and then it shows an improving monthly position. That seems to be at odds with the facts, which are that trading for Whiterain in the year to the end of May was unprofitable. The Deputy Commissioner of Taxation tendered two affidavits. The Deputy Commissioner sought a winding-up of Whiterain Holdings in the Supreme Court of New South Wales in late 1993 for the non-payment of group tax. That matter was apparently resolved in April 1994 when it was dismissed by consent, an arrangement having been made to pay the group tax which was then only about $36,500. Despite the arrangement which was then made, the position has deteriorated. The sum due to the Tax Office to 30 March 1995, with penalties, amounted to $93,546.89. Mr Barclay deposed that on 11 April this year a cheque was received from the company for $10,000 but it was dishonoured. On 21 April a further cheque for $5,961 was received. That was dishonoured. On 20 April 1995 a repayment arrangement was entered into with the company's accountant but the company failed to adhere to the arrangement. On 16 May a cheque for $15,000 was received but was also dishonoured. Mr Barclay has deposed that the April and May 1995 group tax instalments have not been paid by the company. It is not clear from that affidavit whether he was referring to April group tax which would have been payable in May or was referring to the May group tax which may not yet be payable. History shows that the company has had serious problems and that its position has been deteriorating. It is a serious matter when debts such as the premiums due to the petitioning creditor, AMP Workers Compensation Services, are not paid. A company is in dire straits when it is unable to pay its workers' compensation premium. It is not able to protect is workers. A company is also in serious difficulty when it cannot pay group tax. The effect of a failure to pay group tax is that there is a deduction from workers' salaries but the amount of tax does not go to the benefit of the workers. The company that deducts the money ought to remit it promptly to the Commissioner. In a sense it holds those moneys on the employees' behalf for the payment of their tax and the result, of course, is that if the moneys are not remitted, then the workers find that their tax has not been paid and that they can be liable for it if the Deputy Commissioner seeks to pursue them. In all these circumstances it seems to me that the proposition that has been put forward is quite inadequate. The company is in a serious situation. There were plenty of avenues available for the company to enable it to protect itself if it was in financial difficulties. There are provisions under the Corporations Law for administration and there are provisions for the appointment of provisional liquidators. A company does not have to get itself into the situation where it cannot pay its tax or its workers' compensation premiums. This company is in that situation and it is in the situation where, apparently, it cannot even keep track of statutory demands and proceedings brought against it to cause the company to be wound-up. I am of the view that, in these circumstances, the order ought not to be set aside. I am of that view principally because I think the position of the company is serious and I think that the proposition that has been put to the Court is quite unsatisfactory. For those reasons the application will be dismissed with costs, both of the petitioning creditor and of the Deputy Commissioner. I certify that this and the 5 preceding pages are a true copy of the reasons for judgment herein of the Honourable Justice Davies. Associate: Date: 7 June 1995 Solicitor for the applicant: D.S. McCrostie of P.W. Turk & Associates Solicitor for the respondent: M. Ryckmans of P.A. Somerset & Co. Solicitor for the P.D. Rodionoff Deputy Commmissioner of Taxation: of Australian Government Solicitor Date of hearing: 6 & 7 June 1995 Date of judgment: 7 June 1995