FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Brilliant Homes Management Pty Ltd [2011] FCA 1539 Citation: Deputy Commissioner of Taxation v Brilliant Homes Management Pty Ltd [2011] FCA 1539 Parties: DEPUTY COMMISSIONER OF TAXATION v BRILLIANT HOMES MANAGEMENT PTY LTD ACN 093 793 581 File number: NSD 916 of 2011 Judge: RARES J Date of judgment: 16 December 2011 Catchwords: CORPORATIONS – winding up application – winding up application opposed on ground of solvency TAXATION – signature – whether running balance account statement had been signed by Deputy Commissioner for purposes of requirement in s 8AAZI(2) of Taxation Administration Act 1953 (Cth) – whether computer printed or typed name of Deputy Commissioner is sufficient as a due signing in place of his or her signature within the meaning of reg 45(2) of Taxation Administration Regulations 1976 (Cth) Legislation: Consumer and Competition Act 2010 (Cth) Corporations Act 2001 (Cth) ss 459P, 459Q(c), 459S Federal Court (Corporations) Rules 2000 (Cth) r 5.4(2)(c) Taxation Administration Act 1953 (Cth) ss 8AAZC, 8AAZF, 8AAZG, 8AAZH, 8AAZI, 8AAZJ Taxation Administration Regulations 1976 (Cth) reg 45(2) Trade Practices Act 1974 (Cth) ss 44ZZRF and 47ZZRG Cases cited: Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 considered Coshott v Coshott (2010) 184 FCR 495 followed Re United Medical Protection Limited (2003) 47 ACSR 705 considered Williams v Silver Peak Mines (1915) 21 CLR 40 applied Date of hearing: 16 December 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 28 Solicitor for the Plaintiff: Mr J Ferguson of Australian Taxation Office Legal Services Branch Counsel for the Defendant: Mr A G Martin Solicitor for the Defendant: Wordsworth Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 916 of 2011 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: BRILLIANT HOMES MANAGEMENT PTY LTD ACN 093 793 581 Defendant JUDGE: RARES J DATE OF ORDER: 16 DECEMBER 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The defendant be wound up in solvency under the Corporations Act 2001 (Cth). 2. Christopher John Palmer of O'Brien Palmer, Level 14, 9 Hunter Street, Sydney, NSW be appointed liquidator of the defendant. 3. The costs of the plaintiff be paid out of the assets of the defendant fixed in the sum of $3,580. AND THE COURT ORDERS THAT: Upon the undertaking of Boris Ganke by his counsel to the Court that until further order he will not: (1) cause the defendant to undertake any transaction other than in the ordinary course of business; and (2) otherwise dispose of or deal with any asset of the defendant. 4. Orders 1, 2 and 3 made today be stayed up to and including 5pm on 21 December 2011. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 916 of 2011 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: BRILLIANT HOMES MANAGEMENT PTY LTD ACN 093 793 581 Defendant JUDGE: RARES J DATE: 16 DECEMBER 2011 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 This is an application to wind up Brilliant Homes Management Pty Limited in insolvency. The Deputy Commissioner of Taxation served Brilliant Homes with a statutory demand dated 23 February 2011 claiming payment of $247,364.07. The affidavit accompanying the statutory demand identified that the amount due by Brilliant Homes related to a running balance account (RBA) deficit debt as at 22 February 2011 for debts due by it under the BAS (business activity statement) provisions of the taxation legislation. It is common ground that no payment was made by Brilliant Homes within 21 days after service of the demand. 2 On 14 June 2011 the Deputy Commissioner filed an originating process seeking an order under s 459P of the Corporations Act 2001 (Cth) that the company be wound up on the ground of its insolvency. Brilliant Homes seeks to oppose the applicant on the ground that it is solvent (see: s 459S). A procedural question 3 There is no dispute that all formal requirements in the Federal Court (Corporations) Rules 2000 (Cth) and the Act, bar one, have been satisfied. The issue is whether the Deputy Commissioner complied with his obligations under s 459Q(c)(i) and (ii) of the Act. That provided that because the debt relied on was not a judgment debt when the application to wind up in insolvency was filed, the application had to be accompanied by an affidavit that complied with the Rules and verified that the total of the amounts of the debts was due and payable by the company. Rule 5.4(2)(c) of the Federal Court (Corporations) Rules provided that such an affidavit had to: "… state whether and, if so, to what extent the debt, or each the debts, to which the demand relates is still due and payable by the company at the date when the affidavit is made." 4 Earlier this week the Registrar extended the period of time in which this application was to be determined to up to and including 22 December 2011. The matter has come before me urgently today. The statutory context 5 Part IIB of the Taxation Administration Act 1953 (Cth) deals with RBA statements. Division 2 of Part IIB allows the Deputy Commissioner to establish one or more systems of accounts for primary tax debts that are called running balance accounts or RBAs, that he may establish on any basis he determines (s 8AAZC). The Deputy Commissioner may at any time prepare a statement for an RBA containing such particulars as he determines (s 8AAZG). An RBA statement can include general interest charges (s 8AAZF). If there is a balance in favour of the Deputy Commissioner, based on primary tax debts allocated to the RBA that are currently payable, the tax debtor is liable to pay the amount of that debt to the Commonwealth at the end of that day, by force of s 8AAZH(1). Thus, the Deputy Commissioner need not issue or serve any notice of assessment of liability on a taxpayer by reason of the Parliament's choice of creating this form of liability. Moreover, s 8AAZI provides: "8AAZI RBA statement to be evidence (1) The production of an RBA statement: (a) is prima facie evidence that the RBA was duly kept; and (b) is prima facie evidence that the amounts and particulars in the statement are correct. (2) In this section: RBA statement includes a document that purports to be a copy of an RBA statement and is signed by the Commissioner or a delegate of the Commissioner or by a Second Commissioner or Deputy Commissioner." Importantly, reg 45(2) of the Taxation Administration Regulations 1976 (Cth) provides: "(2) A certificate, notice or other document bearing the written, printed or stamped name (including a facsimile of the signature) of a person who is, or was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner in the place of the person's signature is taken to have been duly signed by the person, unless it is proved that the document was issued without authority." (emphasis added) 6 The unfortunate Byzantine modern tendency of Commonwealth Parliamentary drafters to include amendments to legislation that have a series of letters after them makes the explanation of these provisions more difficult and hard to comprehend. Re-enactment of legislation with appropriate renumbering of provisions such as s 8AAZJ would simplify the comprehensibility and explanation of legislation. The absurd use of such lettering was also found in the criminal cartel provisions in ss 44ZZRF and 47ZZRG of the Trade Practices Act 1974 (Cth) that was misleadingly retitled, but not comprehensibly structured, as the Consumer and Competition Act 2010 (Cth). These are the central provisions that will have to be explained to juries, using two numbers and four letters, each time the section is mentioned in argument either to the judge or jury. Was the debt proved? 7 I rejected the 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 originating 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. Subsequently, an affidavit of Ms Chapman sworn on 14 December 2011 was read. It attached a RBA statement for the period 19 February 2001 to 14 December 2011. That stated the debt due and payable by Brilliant Homes to the Deputy Commissioner as at 14 December 2011 was $920,829.07. 8 No credit entries appeared in the RBA statement in the period between the debit entry of $247,364.70, for 22 February 2011, that accords with the amount claimed in the statutory demand, and the amount due as at 14 December of well over three times that sum. Having regard to the evidence, I am satisfied that for the purposes of s 467A of the Corporations Act, any defect or irregularity in Ms Chapman's affidavit of 10 June 2011 that rendered it inadmissible insofar as it sought to verify the amount due, caused no relevant injustice, and certainly no substantial injustice, that has not been remedied by the true position being revealed in the RBA statement. Moreover, there is no evidence to suggest that the amount claimed to be due in the statutory demand was not in fact then due. Indeed, the evidence suggests that that sum was a significant understatement of the amount due for the reasons that I will give below. Was the RBA statement signed by the Deputy Commissioner? 9 Brilliant Homes objected to the admissibility of the RBA statement on the basis that it was not signed by the Deputy Commissioner as required by s 8AAZI(2) of the Taxation Administration Act or reg 45(2) of the Taxation Administration Regulations, but instead contained simply the following in type on its first page: "Jane King Deputy Commissioner of Taxation" 10 Brilliant Homes argued that this did not amount to a facsimile of the signature of the Deputy Commissioner, Ms King. It argued that the words in brackets in reg 45(2) qualified each of the three forms of name that precede it, namely it contended, a written name, a printed name or a stamped name must, in each case, include a facsimile of the signature. 11 I reject that argument. It is not necessary that a physical or handwritten signature or a facsimile of a handwritten signature be placed on a document for it to be "signed" by the person whose document it is. Indeed, the argument of Brilliant Homes, if correct, would necessarily mean that a physical handwritten signature would nonetheless need to be accompanied by a facsimile of the same signature, because a written name is what in ordinary parlance might be understood to be a signature. 12 It has long been the law that it is not necessary for there to be a handwritten signature on official documents and notices. This, in fact, dates from a time at which most people in the community could not read or write and affixed their signification to formal documents by being marksmen or using seals and wax. In Coshott v Coshott (2010) 184 FCR 495, I discussed the authorities in this regard. Relevantly, Griffith CJ held in Williams v Silver Peak Mines (1915) 21 CLR 40 at 47-48 that the Court can take judicial notice that a particular person was the holder of a particular office. That indeed is provided in reg 45(1) of the Taxation Administration Regulations with respect to those persons who hold office as among others, a Deputy Commissioner. Griffith CJ also held that a notice in a Government Gazette was signed by an official for the purposes of complying with a statutory requirement that it be signed saying: "'Signature' in this case, obviously, does not mean the personal signature of the Minister". 13 Because the name of Ms King appears in print on the RBA statement above her official title, I am satisfied that it amounts to a "printed name" in the place of her signature for the purposes of reg 45(2). In my opinion, it is not necessary for the purposes of reg 45(2) to include in every case where a written, printed or stamped name appears on a document, additionally a facsimile of the signature of the person whose name it is. Rather, the purpose of the words in brackets in reg 45(2) allows a facsimile of a person's signature to satisfy the criterion of a "written, printed or stamped name … in the place of the person's signature" but the regulation does not demand that the facsimile be present in every case where a written, printed or stamped name is used. The word "including" itself suggests that what follows it in the brackets in reg 45(2) is not an exhaustive or an essential means of satisfying the criterion of what suffices to amount to a "written, printed or stamped name". Nonetheless, it will be sufficient if a document includes a facsimile of a signature without any other form of the person's written, printed or stamped name appearing on the document. 14 For these reasons, I admitted the RBA statement. It must therefore be treated as prima facie evidence of matters referred to in s 8AAZI(1), namely that the RBA statement was duly kept and the amounts and particulars in it are correct. In any event, reg 45(2) simply provides a means of proof that a document was "signed" by, relevantly, the Deputy Commissioner for the purposes of s 8AAZI(2). For the reasons I have given, at common law and as a matter of statutory interpretation, the typewritten name, Jane King above her title as Deputy Commissioner on the RBA statement satisfies the requirement of s 8AAZI(2) that the document be signed by, relevantly, a Deputy Commissioner. Was Brilliant Homes solvent? 15 Brilliant Homes sought to argue that it was solvent for the purposes of opposing the making of a winding up order under s 459S of the Corporations Act. There was no objection to its evidence seeking to make out its solvency. Brilliant Homes' sole director, Boris Ganke, swore an affidavit on 3 November 2011 in which he recorded that the winding up application had been based on estimates made and penalties claimed by the Deputy Commissioner, which he asserted his company had not accepted as being correct or valid at the time. 16 He asserted that the company was solvent and explained that because of ongoing medical and other pressures that had been on him in recent times and the loss of the tax accountant whom he was accustomed to use to prepare outstanding accounts and returns, there had been delay by Brilliant Homes in filing returns. As at the time that his affidavit was sworn, Mr Ganke was confident that returns were being lodged electronically. That appears to have been confirmed in the RBA statement. It recorded that in the order of $650,000 in further liabilities of Brilliant Homes had been added from 4 November 2011 based on PAYG and BAS self-assessments, together with interest and administrative penalties, for various periods from 1 July 2004 onwards. 17 Mr Ganke asserted that there were some gaps in Brilliant Homes' records and that it had had some correspondence over the preceding two years with the Australian Taxation Office. He said that the amount due by Brilliant Homes could not be reliably estimated. He referred to his having been involved for many years in litigation with the FAI Insurance Group in respect of a number of companies that, he said, had caused his private business operations to have been severely affected. He said that he had had difficulty in finding other accountants and was prepared, personally, to guarantee the amount finally agreed between the Australian Taxation Office and Brilliant Homes in respect of the PAYG liabilities that were due. 18 Mr Ganke's personal offer of an undertaking was not extended to any other liabilities of Brilliant Homes due to the Deputy Commissioner. And, as I have explained, the undertaking was contingent. Before he was prepared to give a guarantee, he required that there be some agreement between Brilliant Homes and the Deputy Commissioner. That was hardly an unqualified guarantee that the Deputy Commissioner would be paid. The taxation laws require Brilliant Homes to make good its outstanding liabilities for tax. 19 Mr Ganke sought a further adjournment for six to eight weeks to enable the returns to be considered and assessments made, including agreements, if possible, on what penalties should be imposed. I infer that he was not able to secure such a lengthy adjournment, but in an affidavit of 13 December, Mr Ganke said that he had retained a new chartered accountant and tax agent, Martin Tosio, to prepare and lodge BAS returns and that Mr Tosio had done so for the years up to 30 June 2011. Additionally, Mr Ganke said that Brilliant Homes was attempting to secure additional contracts for services with two other corporations, its principal business being to provide management and administrative services to other corporate entities. He estimated that the new contracts, if secured, could result in Brilliant Homes earning further fees of up to $120,000 per annum. He said that there were no material external creditors apart from the Deputy Commissioner. He claimed that if the company were placed in liquidation, all creditors would receive a considerably lower return than if it continued to operate, taking into account the costs associated with the liquidations. But Mr Ganke gave no further explanation of those assertions. 20 Mr Tosio swore an affidavit on 15 December 2011 to which he attached a draft balance sheet for Brilliant Homes as at 31 October 2011. He said that he had worked on the balance sheet by reviewing the cash book, general ledger and other books and records of the company. He considered that the draft balance sheet correctly set out the financial position of the company as at 31 October 2011 to the best of his knowledge and belief and that he had been unable to prepare a balance sheet that was more recent. Mr Tosio did not think that a balance sheet prepared as at 15 December would be materially different to the one annexed to his affidavit. That balance sheet showed, together with the explanatory notes, items for: trade creditors and pre-paid fees of $88,206 that included an estimated superannuation guarantee charge of $46,206; provision for income tax of $65,572; PAYG W/H clearing of $273,065; GST clearing of $249,158; and a bank overdraft of $10,008. Brilliant Homes' total current liabilities were recorded as $686,008. On the other hand, Brilliant Homes' current assets were said to be $735,917 comprised of, among others, $100 of cash and an item called "other debtors and prepayments" for a total sum of $678,023. Mr Tosio explained that the item for "other debtors and prepayments" treated the word "prepayments" as a generic term and that there were no prepayments included in that sum. Rather, he said: "The names of principal debtors will be disclosed to His/Her Honour in a sealed envelope when matter is heard." 21 Despite that suggestion, no attempt has been made to prove who those debtors are, the nature or value of their debts or when, apart from the inference of their inclusion as part of the current assets in the balance sheet, they are due or payable. The amounts for GST and PAYG in the balance sheet were recorded in the notes as being the amounts Mr Tosio calculated as the actual liability for those taxation debts exclusive of any charges for interest and penalties. 22 The picture painted by the accounts superficially suggests that there is an excess of current assets over current liabilities of about $50,000. But this is to be seen in the context that the liabilities for GST and PAYG total over $500,000 and at 31 October 2011 the company had no cash whatsoever to pay those debts that were then immediately due and payable. As Mr Tosio said in his notes, these were actual and current liabilities. However, the nature and the source of current assets from which those liabilities could be discharged were elliptical, to say the least. No detail was given of the debtors who owed the debts or when those debts were due and payable. Moreover, they had remained outstanding from no later than 31 October 2011 to today. As evidenced by the RBA statement, no credit entries reducing Brilliant Homes' current liabilities were made at any time in the period since 31 October 2011. The RBA statement appears to contain some double counting of estimated liabilities that, if the recently failed returns are accepted, will be discharged once Brilliant Homes pays its actual liabilities of those earlier estimates. 23 The Court will not ordinarily allow winding-up proceedings to be used as mere debt collection exercises. Solvent companies in the ordinary course ought not be wound up. But the question here is whether Brilliant Homes has established its solvency to justify the one ground of opposition currently suggested. To some degree the evidence on both sides is in an unsatisfactory state, having been served one and two days before this hearing today. Neither party attempted to do any calculations as to the amounts, which were earlier estimates of Brilliant Homes' liabilities, included in the RBA statement that could potentially be ignored if Brilliant Homes discharges in full its actual liabilities for the BAS and GST liabilities: see s 268-20(3) of the Taxation Administration Act. 24 I am far from persuaded that Mr Tosio's evidence establishes that Brilliant Homes was solvent on 31 October 2011 and I am certainly not satisfied that it is solvent today. A significant period of six weeks has elapsed since his calculations were made and some of the returns lodged, without Brilliant Homes having received any payment at all from "other debtors" of about $678,000. These facts suggest that those debts due to Brilliant Homes are not current. It is to be remembered that the company had not honoured its quarterly obligation to pay BAS and PAYG sums for a period commencing from at least the financial year ending 30 June 2005. Ordinarily, a solvent company, that had already incurred these considerable liabilities that were unpaid and had been due and accruing year after year since then, would have some cash in the bank or some other asset that could be realised to meet these debts. In Re United Medical Protection Limited (2003) 47 ACSR 705 at 718-719 [55] Austin J discussed authorities that dealt with the term "insolvent" in s 95A of the Corporations Act, and in particular s 95A(1) that provides that: "A person is solvent if, and only if, the person is able to pay all the person's debts as and when they become due and payable." 25 His Honour referred to this as the cash-flow test of solvency rather than a balance-sheet test relying on, among others, the decision of Mandie J in Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at 209-212 [370]-[380]. The commercial reality is, as I have said, that Brilliant Homes has $100 cash in the bank and a bank overdraft of $10,008. It has not tendered any evidence to disclose how the overdraft is maintained, why it has cash-on-hand of $100 or how and in what circumstances it will be able to collect what is due from any of what are said to be its significant "other debtors". Brilliant Homes' liabilities to the Deputy Commissioner have been outstanding for a very long time, although I appreciate that they have been accruing. Nonetheless, their principal totals over $500,000. But none of the company's "other debtors" have realised any cash available to pay immediately the debt due to the Commissioner even six weeks after Mr Tosio calculated the sum due before interest and penalties. I am not satisfied that there is any prospect of Brilliant Homes establishing that it is solvent; it is plainly not so on this evidence. 26 I have given some consideration as to whether it would, nonetheless, be in the public interest to exercise my discretion not to make an order that Brilliant Homes be wound up. Given that it has paid nothing, even after failing to meet the statutory demand, and has given no credible explanation of how and when it proposes to realise what it says is a very substantial amount owed by trade debtors, I am not satisfied that there is any reason in the public interest to refuse to make the order that it be wound up in insolvency. I accept that the RBA statement is likely to be altered by force of s 268-20(3) because there appear to be estimates of liability for BAS and PAYG in it for periods in respect of which, subsequently, Mr Tosio and Mr Ganke caused actual returns to be filed, so that if and when actual payments were made reflecting the discharge of the actual liabilities, together with whatever interest and penalties may be applicable to those, the estimates might be discharged so that not all of the total sum of about $920,000 may ultimately be the final amount due. 27 Nonetheless, under s 268-20 of the Taxation Administration Act, at the moment, both the estimates and the self-assessed sums are due, however incongruous that may sound. For these reasons, I am of opinion that Brilliant Homes should be wound up in insolvency. 28 The Deputy Commissioner has asked that I fix the costs in the scale amount of $3,580. He does not propose to seek the costs of previous adjournments. In the circumstances, I shall do so. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 31 January 2012