Deputy Commissioner of Taxation v Arizcorp Pty Ltd ACN 078 186 722 (No. 3) [2008] FCA 760

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Arizcorp Pty Ltd ACN 078 186 722 (No. 3) [2008] FCA 760

CORPORATIONS AND INSOLVENCY - consideration of an application to terminate an order for the winding‑up of the first defendant

Prendergast v Rolcross (in Liquidation) [2008] NSWSC 146 DEPUTY COMMISSIONER OF TAXATION v ARIZCORP PTY LTD ACN 078 186 722

QUD239 OF 2007

GREENWOOD J

21 MAY 2008

BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QUD239 OF 2007

BETWEEN: DEPUTY COMMISSIONER OF TAXATION

Plaintiff

AND: ARIZCORP PTY LTD ACN 078 186 722

First Defendant

ROBERT ALEXANDER WILKIE

Second Defendant

JUDGE: GREENWOOD J DATE OF ORDER: 21 MAY 2008

WHERE MADE: BRISBANE

THE COURT ORDERS THAT:

1. The winding‑up in insolvency of Arizcorp Pty Ltd pursuant to the order made on 29 February 2008 is terminated. 2. The first defendant shall provide further security to a liquidator of the first defendant in an amount of $5,000 and pay such sum into Court. 3. The parties shall have liberty to apply on three days notice. 4. There shall be no order as to costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QUD239 OF 2007

BETWEEN: DEPUTY COMMISSIONER OF TAXATION

Plaintiff

AND: ARIZCORP PTY LTD ACN 078 186 722

First Defendant

ROBERT ALEXANDER WILKIE

Second Defendant

JUDGE: GREENWOOD J

DATE: 21 MAY 2008

PLACE: BRISBANE

REASONS FOR JUDGMENT 1 I have before me an application this morning for the termination of an order for the winding up of the first defendant, Arizcorp Pty Ltd, pursuant to orders that were made on 29 February 2008. The matter was last before the Court on 24 April 2008 and adjourned on terms to this morning. The history of the matter is recited in ex tempore reasons I delivered on 24 April 2008 and I do not propose to go into the reasons at great length except that it might be convenient to simply quote what I said on that occasion (Deputy Commissioner of Taxation v Arizcorp Pty Ltd (No. 2) [2008] FCA 580). At para [3], I said this: The history of the matter involves a statutory demand made by the Deputy Commissioner of Taxation (which I will refer to as the ATO) in relation to taxation liabilities due to the Commonwealth by the first defendant company. Taxation returns under the PAYE regime have not been lodged in 1999 and 2000 and after the introduction of the BAS protocols taxation returns were not lodged throughout a number of years. The end result of the ultimate lodgement of returns and assessment of the unpaid tax was that an amount of $631,955.71, among perhaps some other moneys, became payable to the commissioner. The company has fully paid that amount of money. 2 I also said this, at para [5]: Earlier undertakings given to the Court required further returns for particular years to be lodged by 16 April 2008 as a condition of a stay order. Those returns, I understand, were lodged on 9 April 2008. Those returns resulted in an amount of tax due to the Commonwealth of $87,635.37. 3 This morning, it is common ground that there is an amount outstanding to the plaintiff of $85,110.78. The first defendant has brought into Court a bank cheque for $85,000 together with an amount of money of approximately $110.78 in order to tender that money and thus discharge the debt due to the Deputy Commissioner. The bank cheque has been delivered into the hands of the plaintiff together with the balance cash in order to discharge that debt. 4 The position on the facts which is not in controversy is that the affairs of the first defendant are now under the control of Mr Wilkie and Mr Wilkie appears to be exercising governance duties in discharge of his obligations as director. Trade creditors have been paid and, having regard to an expert's report which is now supported by appropriate affidavit material, the company is solvent. A question has arisen as to the principles upon which the discretion ought to be exercised in considering the basis for termination of the winding‑up order. Mr Coulsen has referred me to a number of authorities guiding and informing the exercise of the discretion and in particular, reference has been made to a decision of the Supreme Court of New South Wales, Prendergast v Rolcross (in Liquidation) [2008] NSWSC 146 per White J. 5 In that case, Justice White outlined the factual circumstances which influenced the exercise of discretion in that case and those circumstances at [27] involved a consideration that the Australian Taxation Office was a potential creditor and that it was a matter of serious concern that income tax returns and business activity statements had not been lodged since the end of the 2004 financial year. Some explanations for that were failure proffered to White J and one other additional factor seemed to be that there had been no attempt at the date of the hearing of the application for termination of the winding‑up, to demonstrate that particular obligations had been discharged, in fact. 6 Nevertheless, the question that arises in this case is, having regard to the failure to lodge returns as I have indicated, whether in the exercise of the discretion the Court ought to be influenced by that circumstance in the sense of imposing as an additional sanction for non‑compliance, an unwillingness to terminate the winding‑up. At [25] of the reasons of White J in Prendergast, this observation is made: In the present case, I do not consider that the orders sought should be refused as a mark of the court's disapproval of the director's conduct or to provide an additional sanction against non-compliance with statutory duties. The question rather is whether it appears that it would be or may be contrary to the public interest if the company were permitted to resume operations. In a case such as the present where all the shares are held by the plaintiff, "the public interest" means primarily, the interests of existing and future creditors. 7 Having regard to those observations I agree that there is no public interest in imposing a sanction in the form of a refusal to grant an order terminating the winding‑up, for reasons of an historical failure to lodge taxation returns. 8 In the present case, the position is that the ATO's debt has been fully discharged. Trade creditors' obligations are being managed and discharged in the ordinary course. The company is solvent and is otherwise under the governance of Mr Wilkie in circumstances where proper governance obligations appear to be properly discharged. The company might properly be described as a "family company" and ultimately the interests in issue are those of the shareholders and existing and future creditors. I can see no compelling public interest in refusing to grant the order to terminate the winding‑up and accordingly, I order that the winding‑up be terminated. 9 The second question that has arisen is an application by the liquidator for an order that remuneration in the period 23 April 2008 to this morning be fixed at an amount of $4,800 which is made up of an amount said to be owing to the liquidator of $2,119.50 and further fees to the advisers to the liquidator of $2,688.90 resulting in $4,808.40, thus approximating $4,800 as the additional costs and expenses of the winding‑up from the period 23 April 2008 to today. Rather than engage in a present debate about the precise quantum of those matters and since there is some lack of clarity between the first defendant and the liquidator as to the precise amount of the fees for the entire winding‑up, it seems to me to be sensible to provide for an order that gives security to the liquidator for fees and expenses for the period from 23 April 2008 up to and including the termination of the winding‑up. 10 An amount of $3,000 was previously ordered to be provided by way of security which has been paid and a further amount of $5,000 by way of security was ordered by order 3 of the orders of 24 April 2008. The first defendant has a bank cheque for $5,000 to be paid into the Registry. It seems to me that the sensible course is to make a further order that a further amount of $5,000 be paid by way of security for the costs and expenses of the liquidator in connection with the winding‑up. 11 The third question that arises is whether directions ought to be made as to the disposition of the apparent controversy in relation to those fees. 12 It seems to me that an order ought to be made as suggested by way of directions that the first defendant provide objections to the costs and expenses of the liquidator as identified in fee notes and affidavits within a period of three weeks from today. If the position emerges that no objections are delivered within three weeks of today then, the monies paid into Court by way of security ought to be paid to the solicitors for the liquidator. If objections are lodged, those objections will need to be dealt with and it seems to me that the appropriate way to deal with that matter is to make an order that liberty to apply be given on two days notice in the present application proceeding for the termination of the winding‑up. 13 It may be that consent directions can be agreed and it may be that those consent directions will involve a consent direction to the Registrar for the determination of and thus the fixing of the remuneration of the liquidator but those matters can be the subject of discussion between the liquidator's advisers and the first defendant. If it be necessary, a proposed consent order can be put to my Associate. If no consent arrangements can be reached then the matter can be listed and I will make appropriate orders. 14 I think the appropriate orders are these. I will make an order that the first defendant pay the costs of the plaintiff of and incidental to the application for termination. 15 In relation to the costs order I have just proposed, it seems to me that the plaintiff has its costs of the winding‑up by reason of the earlier winding‑up order. That order continues to operate and subsists and is good for whatever the value of those costs might be. This order for the termination of the winding‑up does not have the effect of rendering the winding‑up a nullity. The present order brings the winding‑up to an end as at today. Accordingly, since the plaintiff is content that there are no costs associated with the application for termination, I will vacate the proposal to make an order for costs in the termination application and the order will simply be that the termination of Arizcorp Pty Ltd pursuant to the order made on 29 February 2008 is terminated. I will order that the first defendant pay a further amount of $5,000 into Court as security for the costs of the liquidator of Arizcorp Pty Ltd. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.