Nationwide (Mercantile) Collections Pty Ltd v Deputy Commissioner of Taxation (2008) FCA 824

FEDERAL COURT OF AUSTRALIA

Nationwide (Mercantile) Collections Pty Ltd v Deputy Commissioner of Taxation (2008) FCA 824

INSOLVENCY – application for order restraining defendant from commencing winding up proceedings against plaintiff company – plaintiff out of time to apply to set aside statutory demand – plaintiff's tax agent, registered with defendant, had dealt improperly with the plaintiff's funds – not an "abuse of process" for defendant to commence winding up proceedings against the plaintiff – application dismissed Corporations Act 2001 (Cth) ss 459F, 459G(1) Income Tax Assessment Act 1936 (Cth) s 222AHA

Braams Group Pty Limited v Miric (2002) 44 ACSR 124 applied David Grant & Co Pty Limited (Receiver Appointed) v Westpac Banking Corporation (1995) 184 CLR 265 referred to Williams v Spautz (1992) 174 CLR 509 referred to NATIONWIDE (MERCANTILE) COLLECTIONS PTY LTD (ACN 000 329 788) v DEPUTY COMMISSIONER OF TAXATION NSD 543 OF 2008

JACOBSON J

16 MAY 2008 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 543 OF 2008

BETWEEN: NATIONWIDE (MERCANTILE) COLLECTIONS PTY LTD

ACN 000 329 788

Plaintiff

AND: DEPUTY COMMISSIONER OF TAXATION

Defendant

JUDGE: JACOBSON J DATE OF ORDER: 16 MAY 2008

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The application be dismissed. 2. The plaintiff pay the defendant's costs of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 543 OF 2008

BETWEEN: NATIONWIDE (MERCANTILE) COLLECTIONS PTY LTD (ACN 000 329 788)

Plaintiff

AND: DEPUTY COMMISSIONER OF TAXATION

Defendant

JUDGE: JACOBSON J

DATE: 16 MAY 2008

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 18 April 2008 the plaintiff ("Nationwide") filed its originating process under s 459G(1) of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendant ("the Deputy Commissioner"). However, it is common ground between the parties that the application to set aside the statutory demand was served outside the 21 day time limit set under the Act. Notwithstanding this, Mr Johnson, who appears for the Nationwide, seeks to pursue an application by way of final relief for an order that the Deputy Commissioner be restrained from commencing winding up proceedings against Nationwide. 2 Mr Johnson accepts that in light of the decision of the High Court in David Grant & Co Pty Limited (Receiver Appointed) v Westpac Banking Corporation (1995) 184 CLR 265, it is necessary for him to establish to my satisfaction that the pursuit of a winding up application in the present circumstances would amount to an abuse of process within the principles stated in Williams v Spautz (1992) 174 CLR 509. 3 This application has come on before me as corporations judge as a matter of some urgency this afternoon. I do not consider it is necessary to set out the facts in any detail; they are recorded sufficiently in the various affidavits that have been read by Mr Johnson in support of the application. 4 The statutory demand described the debt as consisting of three separate components. The first is a running account balance deficit as at 25 March 2008 in an amount of approximately $122,000; the second is an income tax liability for the year ended 30 June 2004 made pursuant to a tax return filed by Nationwide. The amount stated in the statutory demand in respect of this component of the debt is an amount of nearly $29,000 inclusive of interest. The third component of the debt is described as an amount of nearly $29,000 comprising income tax liability for the year ended 30 June 2005, together with interest. The total amount of the debt described in the statutory demand is $179,700. 5 The essence of the case put to me this afternoon by Mr Johnson is that the evidence establishes that the Deputy Commissioner was aware of Nationwide's difficulties in verifying the amount of the running account stated in the statutory demand. He points to the evidence which establishes that Nationwide is taking steps to rectify the position. He also points to the fact that a statutory demand served on Mr Peter Nemes, a director of Nationwide, was set aside by order of the Court. 6 The evidence before me shows that the difficulty in which Nationwide finds itself is that its former tax agent received large amounts of funds on behalf of its various clients, including Nationwide, but apparently failed to account to the ATO for the moneys which were to be remitted to the ATO by the agent. 7 The substance of the evidence is summed up in [7] of Mr Nemes affidavit of 16 May 2008, which suggests that the former tax agent or entities related to it may not have remitted the funds to the ATO. Reference is made to a report which indicates that there is in excess of $1.6 million of unpaid client funds missing from the former tax agent. 8 The evidence also suggests that Nationwide's new agent, Mr Santoro, has been taking steps to ascertain what moneys were remitted or alternatively, paid to the agent but not accounted for. However, Mr Santoro has not yet been able to ascertain the correct position. 9 Mr Johnson submits that Nationwide is therefore in a position where the ATO knows that it cannot verify the outstanding amount due on a running account. Indeed, he submits that the ATO's estimate has been made in circumstances where the Deputy Commissioner knows that Nationwide is not in a position to respond to it. 10 Nationwide finds itself in a particular difficulty because of its failure to take steps to set aside the statutory demand within the required 21 day period and there is, therefore, a presumption of insolvency under the Act. 11 Mr Johnson submits that but for the late service of the application to set aside the statutory demand, this would have been a case where Nationwide could have demonstrated a genuine dispute, or at the very least, that Nationwide would have succeeded in an application to extend time for compliance with the demand under s 459F of the Act. 12 Mr Johnson submits that the Deputy Commissioner has a duty to monitor the obligations of tax agents. There is evidence before me which demonstrates sufficiently that the Deputy Commissioner accepts he has a responsibility to administer tax agent registration requirements. This is in order to provide consumer protection to taxpayers using the services of registered tax agents. The registration system is intended to ensure that persons who charge a fee for providing tax-related services have appropriate knowledge and are otherwise fit and proper persons. Nationwide's former tax agent was a person or company who was a registered tax agent, in respect of whom the Deputy Commissioner had obligations and responsibilities in accordance with those that I have outlined. 13 Mr Johnson recognises that in order to obtain the relief that he seeks, it is necessary to offer certain undertakings to the Court. He has offered an undertaking as to damages as well as an undertaking on behalf of Mr Nemes to pay the sum of $35,000 into Court within seven days. 14 In my view, the submissions made by Mr Johnson and the evidence to which I have been taken does not establish that the notice was served for an improper purpose or that it would constitute an abuse of process for the Deputy Commissioner to proceed with an application to wind up Nationwide. There is nothing in the material before me to establish that the pursuit of the winding up processes is to be sought otherwise than for a conventional purpose. 15 It is important to note that the provisions of the Income Tax Assessment Act 1936 (Cth) deal with the question of an estimate of the liability of a taxpayer and for the service of the requisite notice. Section 222AHA provides that: (1) If the Commissioner makes an estimate and sends notice of it to the person liable or to the person's trustee, the person must pay to the Commissioner the amount of the estimate. This liability is called a liability to pay an estimate. 16 Provision is also made in s 222AGF for a taxpayer to be able to challenge the notice within a period of seven days from the date of service. Here, the statutory notice was served on 6 March 2008, but no steps were taken by Nationwide to challenge the amount of the estimate. 17 The statutory demand under the Act was served more than seven days after the date on which the estimate of the taxpayer's liability was arrived at and the notices under s 222AHA and the related sections were served on Nationwide. Whilst it would appear from the evidence before me that the Deputy Commissioner accepts that he has a responsibility to monitor the affairs of registered tax agents, I do not see that this creates a duty to Nationwide or to Mr Nemes, which, in the circumstances of this case, would give rise to an abuse of process by reason of the estimate of the running account that was made. 18 It is also important to bear in mind that the statutory demand is not limited to the amount of the running balance account. As I have said earlier, it comprises two other components. Those components consist of income tax liability in amounts totalling approximately $58,000. Those liabilities arise from tax returns filed by Nationwide in respect of those financial years. I do not see how, in those circumstances, the pursuit of a winding up of Nationwide based upon the statutory demand could amount to an abuse of process. 19 It seems to me that this is a case which falls squarely within the principles stated by the New South Wales Court of Appeal in Braams Group Pty Limited v Miric (2002) 44 ACSR 124. It is sufficient to refer to what was said by Stein JA at [41]‑[42], [51] and [61]. 20 For those reasons, the application will be dismissed. 21 I should point out that the originating process sought the injunctive relief as an interlocutory order, however, without objection by counsel for the Deputy Commissioner, Mr Johnson proceeded to seek the relief as final relief. However, as I have said, Nationwide has not made out a claim of abuse of process and I propose to dismiss the application. I order that the plaintiff pay the costs of the application. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.