FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Marro (SA) Pty Ltd, in the matter of Deputy Commissioner of Taxation [2011] FCA 1024 Citation: Deputy Commissioner of Taxation v Marro (SA) Pty Ltd, in the matter of Deputy Commissioner of Taxation [2011] FCA 1024 Parties: DEPUTY COMMISSIONER OF TAXATION v MARRO (SA) PTY LTD ACN 124 172 283 File number: SAD 161 of 2011 Judge: FINN J Date of judgment: 1 September 2011 Catchwords: CORPORATIONS – winding up – setting aside winding-up order made in the absence of a party – procedural irregularity – agreement to seek adjournment departed from without notice – irregularity cured by subsequent giving of notice before making of winding-up order Legislation: Federal Court Rules 2011 r 39.05 Corporations Act 2001 s 482(1) Cases cited: Double Bay Newspapers Pty Ltd v The Fitness Lounge Pty Ltd (2006) 57 ACSR 131 applied Scott v Handley (1999) 58 ALD 373 discussed Registrar of Aboriginal Corporations v Murnkurni Women's Aboriginal Corporation (1995) 58 FCR 125 applied Date of hearing: 29 August 2011 Place: Adelaide Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 37 Counsel for the Plaintiff: Mr P Britten-Jones Solicitor for the Plaintiff: Hunt and Hunt Counsel for the Defendant: Mr R Sallins Solicitor for the Defendant: Hamdan Lawyers IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 161 of 2011 IN THE MATTER OF DEPUTY COMMISSIONER OF TAXATION BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: MARRO (SA) PTY LTD ACN 124 172 283 Defendant JUDGE: FINN J DATE OF ORDER: 1 SEPTEMBER 2011 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The application be dismissed. 2. Mr Daher pay the Deputy Commissioner of Taxation's costs of the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 161 of 2011 IN THE MATTER OF DEPUTY COMMISSIONER OF TAXATION BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: MARRO (SA) PTY LTD ACN 124 172 283 Defendant JUDGE: FINN J DATE: 1 SEPTEMBER 2011 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This is an application made under r 39.05 of the Federal Court Rules 2011 for an order to set aside an order of this Court that Marro (SA) Pty Ltd ACN 124 172 283 be wound up in insolvency. The basis of the application is that the order was made "in the absence of a party": r 39.05(a). 2 The application has been made by Jack Daher who is the sole director and shareholder of the company. The winding-up order was made on 17 August 2011 for failure to comply with a creditor's statutory demand, the matter having been previously adjourned on 3 August 2011. The company was not present at either hearing in circumstances to be noted below. 3 Marro ceased to be involved in business in 2008; it has no assets according to Mr Daher; it has not lodged taxation returns for the 2008-2010 financial years; and its sole creditor is the Deputy Commissioner of Taxation to whom $47,665.80 was owing at the time the order was made. The inference to be drawn from the evidence before me is that if, as Mr Daher proposes, the debt is to be paid this can only be done from his own resources. I have no evidence before me of his own financial circumstances. 4 No application has been made to stay or terminate the winding up under s 482(1) of the Corporations Act 2001. The stated reason for this is that an order made under that section would not eliminate the adverse impact of the making of the winding-up order on the company's and Mr Daher's commercial reputations. However, it needs also to be said that, even if there was an irregularity in obtaining a winding-up order, it is unlikely that an order would be made under the section given that the Court could not be satisfied of the company's solvency: Double Bay Newspapers Pty Ltd v The Fitness Lounge Pty Ltd (2006) 57 ACSR 131 at [16]. THE BASIS OF THE PRESENT APPLICATION 5 Put shortly, Mr Daher's case is that prior to the 3 August 2011 hearing he had in substance agreed with the Deputy Commissioner's legal advisers that a four week adjournment would be granted at that hearing to enable him to have the company's taxation returns prepared (as required by the Deputy Commissioner) and otherwise to get its taxation affairs up-to-date; that he need not attend the hearing (and did not do so); but that only a two week adjournment was sought by, and granted, the Deputy Commissioner. He was unaware of this. He did not, in consequence, attend the 17 August 2011 hearing when the winding-up order was made. 6 Mr Daher's dealings with the Australian Taxation Office ("ATO") insofar as this emerges from the evidence before me, appear to have commenced in late June/early July 2011. By no later than 14 July he was aware that the proceeding to wind up Marro in insolvency had been instituted and that the hearing of it was scheduled for 3 August. It is his evidence that he then contacted a Mr Williams, a solicitor in the employ of the solicitors for the Deputy Commissioner. It is unclear whether there were several phone communications in mid-July. Nonetheless the essence of what transpired between the two is that Mr Daher indicated that it was intended to put a payment proposal to the Deputy Commissioner to clear the debt; Mr Williams informed him that a payment proposal would not be considered until the company's outstanding lodgments were brought up-to-date; Mr Daher in turn would follow up the lodgments with his accountant; and the issue of obtaining an adjournment was raised. At this time Mr Daher was experiencing considerable difficulties in engaging effective accountancy services. 7 On or before 1 August, Mr Daher requested an adjournment of four weeks to bring his outstanding lodgments up-to-date. Mr Williams communicated this to the ATO by email on that day seeking instructions in relation to the 3 August hearing. It is Mr Daher's case that, by this time he had an agreement with Mr Williams that by consent the hearing would be adjourned for four weeks. It is Mr Williams' evidence that he advised Mr Daher he would seek instructions on the adjournment. 8 While I consider Mr Williams' version the more probable, I need not resolve this evidentiary conflict as counsel for the Deputy Commissioner accepts that the parties' communications were such that, if an adjournment of four weeks was not to be requested, Mr Daher would reasonably have expected to be informed of this so as to enable him to take steps to protect his interests. 9 Mr Williams was unable to obtain instructions until the morning of 3 August and less than half an hour before the hearing. He was told that his client would only agree to a two week adjournment. Mr Daher was not notified of this. A two week adjournment was sought and granted. 10 If the order granting the adjournment was in issue in this proceeding, it would have had difficulty in withstanding scrutiny. But the matter does not end there. 11 It is Mr Daher's evidence that, having been given his four weeks assurance from Mr Williams at no stage after 1 August was he informed that the ATO had "unilaterally altered our agreement". He claims that he remained in contact with Mr Williams by telephone between 3 August and 17 August 2011 (the day the winding-up order was made). 12 I note Mr Williams' very different version of events below but need to interpolate one matter. On 11 August Mr Daher's accountant discontinued his retainer. While expressing regret and acknowledging Mr Daher's frustration and criticism, the accountant nonetheless observed that, while he attempted on many occasions to start the work involved, he would cease "due to the complex nature and lack of available information". Mr Daher says he communicated the fact of this resignation to Mr Williams by telephone and the engagement of a new accountant by email of 14 August. As noted below Mr Williams denied having telephone conversations with Mr Daher after 4 August and before 19 August. 13 Mr Daher says he only learned of the winding-up order on 18 August – the day after it was made. Unable then to make contact with Mr Williams he sent an email on the 18th. For present purposes I note the following extract from it: Both before and after the last court hearing in the above matter, you and I had discussions where the matter that was listed before the Federal Court 3 August 2011 was be adjourned for a period of four weeks, without the need to me to attend on that occasion, in order to enable me to obtain an accountant for the company defends it on the grounds that you and I both discussed at length. You agreed to obtain such an adjournment without me needing to attend. You assured me that I would need to [sic] attend if it was an order by consent. You confirmed that several times including on the day before the hearing. You then sent me an e-mail confirming that the hearing had been adjourned. I draw particular attention to the last quoted sentence. 14 On 19 August Mr Daher had a telephone conversation with Mr Williams. Their accounts of it differ. Mr Daher's account is as follows: 71. Mr Williams and I then had the following conversation: 71.1 I asked him what was going on and whether he had read my email. 71.2 He stated that he had but had only read/received half of it. 71.3 I confirmed our earlier discussions, in which he had agreed to adjourn the court proceedings for a period of four weeks without my need to attend so as to enable the Company to prepare and lodge the outstanding taxation returns. 71.4 He agreed that that was what we had agreed to by telephone. 71.5 I also confirmed with him that I had earlier offered to pay half of the superannuation amount but that his client had said that it would be best to do that once all of the Company's taxation returns had been lodged. 71.6 He also confirmed that discussion. 72. I then asked him why contrary to our agreement to adjourned the matter for four weeks the Company had been wound up on Friday. 73. He stated to me that after we had spoken his client only agreed to an adjournment of two weeks and that he had sent an email and letter after the court hearing. 74. I immediately said to him that I hadn't seen any such materials. 75. In so saying I did not doubt that he had sent them however I had previously agreed with him to contact me by telephone on account of my work hours at my new employment. 76. I then asked him if he could do anything about lifting or setting aside the winding-up order, with words the effect that it was all done and he would not do anything about it. 77. I asked him why he had not raised on the telephone with me that his client had changed the agreed period from four weeks to the two weeks, and why he had not told me about this. 78. He repeated there was nothing he could do about it. 15 Mr Williams' file note of the conversation was to the effect that Mr Daher said he thought the company would not be wound up; he, Williams, advised that the 4 August letter set out the adjourned date and the requirements for Mr Daher's proposal; these requirements were not complied with; and Williams' instructions were to seek winding-up orders. In his affidavit he says that, contrary to Mr Daher's allegations, "I did not tell him that I or the plaintiff had agreed to a 4 week adjournment of the matter". 16 Reference is made in the Daher evidence to an email and letter sent by Mr Williams after the 3 August hearing. These require separate note. THE 4 AUGUST COMMUNICATIONS 17 Mr Williams unsuccessfully called Mr Daher on the morning of 4 August. Mr Daher contacted him later that day. Mr Williams' file note is to the effect that he advised Daher that the adjournment was for two weeks; that he had drafted a letter setting out his client's position and that these should be received by email and post shortly. He noted that Mr Daher advised he would "keep us updated". 18 I should note that Mr Daher made no explicit reference in his affidavit to this conversation and did not ask to put any further evidence on in relation to it. 19 The letter (dated 4 August) was sent to the company at the home address Mr Daher provided to ASIC. It recounted the contents of Mr Daher's 1 August email to the ATO; the ATO's view that it considered there to be a high risk it would be unable to recover the debt and as a consequence, the Deputy Commissioner was only prepared to consent to a two weeks adjournment, ie the matter would be heard at "9.30 am on 17 August 2011": emphasis in original. It set out the terms on which a payment arrangement would be entered into, many of the stipulated requirements having to be satisfied "by 12 August 2011". These included the payment of "50% of the current total tax debt" and all outstanding business activity statements and tax lodgments to be brought up-to-date. 20 A copy of this letter was sent by email by Mr Williams' assistant to Mr Daher. It is clear that the email was received by Mr Daher. As the documentary evidence reveals, he used it to send his 14 August email to Mr Williams. It likewise is clear from his email of 18 August – an extract of which is quoted above – that he received an email from Mr Williams "confirming that the hearing had been adjourned". The covering note of Mr Williams' assistant's email made no reference to the adjournment. It has not been suggested that Mr Williams sent any other email confirming the adjournment. 21 I would add that it is Mr Williams' evidence that, apart from the 4 August telephone conversation, he had no other conversations with Mr Daher until after the 17 August hearing. 22 Finally I would note that Mr Daher claims that it was only after he spoke to Mr Williams on 19 August that he opened the 4 August letter that had been sent to the home address supplied to ASIC. The letter had been provided to him with a bundle of envelopes by his mother on 18 August. 23 Apparently by way of comment on the letter, Mr Daher in his affidavit indicated that had he known the ATO did not agree to the full four week adjournment, he would have asked lawyers to attend or else he would have attended the hearing and would have explained the position regarding his early discussions with the ATO and the difficulties he had had with his accountants. He would have asked for a four week adjournment. DISPOSITION 24 There are obvious, and critical, divergences in the evidence of Mr Daher and Mr Williams respectively. Neither gave oral evidence. My decision, in consequence, is based on the cogency of their affidavits and, importantly, on the inferences that properly can be drawn from the contemporary documentary evidence. As to the latter, a restrained attack was made on the accuracy – though hardly the veracity – of Mr Williams' file notes. While Mr Williams said they were each made "at the time of the conversation or shortly thereafter", the form of them does not suggest they were written during the actual telephone calls in question. However there is no reason to suggest that they were composed at such a distance from the conversations they recount as to be less than reliable. 25 As I foreshadowed at the hearing, I consider Mr Daher was unfairly treated in relation to the 3 August adjournment hearing. This provides the core of his grievance. If, as he rightly could have expected, there was to be a request for a four week adjournment unless he was notified to the contrary, he ought to have been so forewarned in a timely manner. If, as was the case, Mr Williams could not get instructions until minutes before the hearing, the Deputy Commissioner ought, as a matter of basic fairness to Mr Daher to have sought an adjournment of the matter: see Scott v Handley (1999) 58 ALD 373 at [43]-[45]. Knowing both his wishes and his reasons for not being at the hearing, the course in fact taken by the Deputy Commissioner unfairly prejudiced Mr Daher's capacity to protect his interests at that time. 26 The real question, though, is whether the irregularity in the making of the adjournment order went uncorrected or was otherwise overtaken. Mr Daher's case is that he had an agreement; he was not told it had been departed from; and he was prepared given time both to correct Marro's failings in lodging returns etc and to pay the company's debt. 27 The Deputy Commissioner's contention is that whatever vice there was in the circumstances founding the adjournment, Mr Daher was put on notice of the 17 August hearing by the 4 August communications. It was his absence from that hearing which was the operative one in the circumstances for r 39.05 purposes. 28 Mr Daher's failure to refer to a 4 August telephone conversation with Mr Williams is telling. I am satisfied that conversation occurred. It was a probable occurrence given the actual order made on 3 August and Mr Daher's absence from the hearing. I accept Mr Williams' file note account of the burden of the conversation – the more so as it is reflected in the contents of the letter and email of the same date. 29 Mr Daher received the 4 August email. His use of it in sending his 14 August email to Mr Williams' personal assistant confirms this. Equally I infer that he did open the attachment to the email which was the 4 August letter. In his 18 August email to Mr Williams, he observed (as earlier noted) that Williams sent him an email confirming the hearing had been adjourned. On the evidence that of 4 August was the only such email and the "confirming" information was contained in its attachment. To what extent Mr Daher was attentive to the contents of the letter, I cannot say. But he cannot cast onto the Deputy Commissioner responsibility for his not being aware of its contents. 30 Mr Daher was experiencing real difficulties in securing an accountant who would finalise the necessary lodgement documentation. There is some evidence, as I have noted, that this may not have been an altogether easy task. I am not prepared to infer in the circumstances that the work to be done was easy and routine. The termination of his accountant's retainer was, I accept, a misfortune. I note in passing, that when he notified the ATO of it on 14 August, he had already failed to meet the deadline imposed by the Deputy Commissioner as a condition of agreeing to his payment proposal. 31 I do not accept Mr Daher's evidence that he remained in contact with Mr Williams by telephone between 3 and 17 August 2011. My reason for this is that, after the 4 August phone call and email, it is more probable than not that, if the contact Mr Daher alleges had been made, conversations relating to their contents would have occurred. I would also note that Mr Williams has no file note of any telephone conversation for the period 4-19 August. 32 One can only surmise as to Mr Daher's understanding of his situation and his expectations (whether realistic or not) given the circumstances in which he found himself after the 4 August communications. His position was further compromised by his accountant's resignation and the passing of the Deputy Commissioner's 12 August deadline. His reason for bitterness was, I consider, heightened by his desire to use his own resources to pay Marro's debt, so saving its and his own commercial reputations. 33 My findings necessitate that the 17 August hearing be considered in a different light from that of 3 August. Mr Daher's non-appearance at the latter was without fault on his part and the order made was affected by fundamental irregularity: cf Double Bay Newspapers Pty Ltd, at [16]-[37]. Such was not the case with the 17 August hearing and order. Mr Daher had been given notice of the hearing but failed to attend for whatever reason. There was no fundamental irregularity in the order made. If there was in these circumstances to be any utility in setting aside that order under r 39.05(a), it was for Mr Daher to demonstrate this. 34 Marro had been moribund since mid-2008. It had no assets and no prospects. There could be no question of it providing evidence of its solvency: Double Bay Newspapers Pty Ltd, at [20]-[23]. The Deputy Commissioner was of the view as of 4 August that there was a high risk that the debt would not be recovered, hence the unpreparedness to countenance a four week adjournment. If Mr Daher was now to have any realistic prospect of having the Court exercise its discretion under r 39.05, he necessarily had to demonstrate he had a reasonable capacity both to satisfy the Deputy Commissioner's requirements in relation to meeting the company's lodgement obligations and to procure the payment of the company's debts. 35 I have referred already to the difficulties he has been experiencing in relation to securing effective accountancy services. There remains a real question as to whether the company could meet such lodgement obligations as it has even if further time was allowed it. More importantly, no evidence has been provided as to Mr Daher's circumstances and capacity to pay the company's debt other than that he has recently commenced work as a café manager and works long hours, seven days a week. Moreover, the proposals put by the Commissioner on 4 August were not satisfied. 36 In these circumstances I have no reasonable basis for concluding there would be any utility in setting aside the winding-up order. Mr Daher has not demonstrated he has an arguable defence to the making of such an order: Registrar of Aboriginal Corporations v Murnkurni Women's Aboriginal Corporation (1995) 58 FCR 125 at 128. 37 I will order that the application be dismissed and that Mr Daher pay the Deputy Commissioner of Taxation's costs of the application. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate: Dated: 1 September 2011