FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Statewide Contracting Qld Pty Ltd [2015] FCA 636 Citation: Deputy Commissioner of Taxation v Statewide Contracting Qld Pty Ltd [2015] FCA 636 Parties: DEPUTY COMMISSIONER OF TAXATION v STATEWIDE CONTRACTING QLD PTY LTD ACN 115 182 299 File number: QUD 624 of 2014 Judge: DOWSETT J Date of judgment: 28 April 2015 Catchwords: CORPORATIONS - application to wind up company in insolvency - where one company proposes to pay the debts of another - where sole director of both companies is the same person and proposes to carry on his current business using a different corporate entity - where financial capacity to meet obligations is uncertain - where unsecured creditors are not represented at hearing - whether interests of creditors justify winding up. Legislation: Corporations Act 2001 (Cth) Cases cited: Unifor Office Systems Aust. Pty Ltd v Brewer Partnership Pty Ltd (1999) 17 ACLC 642 Date of hearing: 28 April 2015 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 11 Solicitor for the Plaintiff: Ms A Roberson of ATO Dispute Resolution Solicitor for the Defendant: Mr D Alexander of Irish Bentley Lawyers IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 624 of 2014 IN THE MATTER OF STATEWIDE CONTRACTING QLD PTY LTD BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: STATEWIDE CONTRACTING QLD PTY LTD ACN 115 182 299 Defendant JUDGE: DOWSETT J DATE OF ORDER: 28 APRIL 2015 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. Statewide Contracting Qld Pty Ltd ACN 115 182 299, be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth); 2. Blair Alexander Pleash and Anne Marie Barley, official liquidators, be appointed as liquidators of the company; and 3. the plaintiff's costs be fixed in the sum of $5,154.00 and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth). THE COURT DECLARES THAT: Anything that is required or authorised by the Corporations Act 2001 (Cth) to be done by the Liquidator is to be done by one or both of them. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 624 of 2014 IN THE MATTER OF STATEWIDE CONTRACTING QLD PTY LTD BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: STATEWIDE CONTRACTING QLD PTY LTD ACN 115 182 299 Defendant JUDGE: DOWSETT J DATE: 28 APRIL 2015 PLACE: BRISBANE REASONS FOR JUDGMENT 1 On 27 November 2014, the Deputy Commissioner of Taxation (the "Deputy Commissioner") filed an application to wind-up the defendant, Statewide Contracting Qld Pty Ltd ("Statewide"). The application was advertised on 21 January 2015. The original return date was 30 January 2015. On that date the application was adjourned until 27 February 2015. Subsequently, it was further adjourned until 20 March 2015. On 16 March 2015, Mr Blair Pleash and Ms Anne-Marie Barley were appointed as voluntary administrators of Statewide. On 20 March 2015 the application was adjourned until 17 April 2015. On 17 April 2015 it was adjourned until 24 April 2015. On that date, it was adjourned until 28 April 2015, so that the matter could be brought before a Judge. 2 The Deputy Commissioner now seeks to proceed with the application. Statewide resists the application upon the sole basis that there is a proposed deed, pursuant to which another company, PreUrban Civil Pty Ltd ("PreUrban"), will pay to the administrators an amount of $5000 upon execution of the deed, and a further amount of $114,840 by monthly instalments of $3190 over a period of 36 months. 3 The current financial position of Statewide appears from Mr Pleash's affidavit. He reports that the only apparent asset of the company is cash at bank totalling $5301.40. Outstanding debts total an amount in the order of $346,203.80 owed to six creditors, namely: Aaction Traffic Control, $4831.26; Australian Taxation Office, $296,544.13; Kennards Hire, $2828.50; Wilson Ross Accountants, $6000; Irish Bentley Lawyers, $30,000; and Traffex, $5999.91. There are secured creditors, but they do not seek to enforce their securities in the winding-up. There is another priority debt in the amount of $11,720.92 owed by way of superannuation guarantee charge, which amount is included in the Deputy Commissioner's debt. It has priority in any winding-up ahead of the balance of the Deputy Commissioner's debt. 4 There may be an application to set aside certain payments as unreasonable, director-related payments totalling $92,000. Presently, no funds are available with which to prosecute any such claim. 5 The amount to be paid by PreUrban will be guaranteed by Mr Paul Ellis, who is the sole director of Statewide. The amounts will be paid out in the following way: (a) payment of the petitioning creditor's costs, $6000; (b) administrator's remuneration, $27,145; (c) administrator's costs associated with the deed, $500; and (d) the superannuation guarantee, $11,721. The balance of $54,274 will be paid to unsecured creditors, showing a yield of 17.1 cents in the dollar. 6 The Deputy Commissioner's opposition to the scheme arises out of its assessment of the prospects that PreUrban, and perhaps Mr Ellis, the sole director of PreUrban, will be able to comply with the proposed terms. Statewide is a plumbing contractor. PreUrban's operations include work of that kind. In effect Mr Ellis proposes to carry on his current business using a different corporate entity. 7 PreUrban has only been recently incorporated. However it has a number of relatively small contracts. Some are said to involve amounts in the vicinity of $300,000. The Deputy Commissioner's primary concern is that the payments by PreUrban are to be spread over a lengthy period of time, with only a small amount to be paid "up front". Hence it is difficult to have any real confidence in the likely capacity of PreUrban to meet its obligations. There is little or no information as to the nature of Mr Ellis's assets. Hence it is difficult to know how valuable his guarantee might be. One assumes, without necessarily knowing, that his capacity to support PreUrban may depend upon the success of PreUrban's business. 8 I am concerned that unsecured creditors, other than the Deputy Commissioner are not represented at this hearing. As Hodgson J observed in Unifor Office Systems Aust. Pty Ltd v Brewer Partnership Pty Ltd (1999) 17 ACLC 642 at [5]: The views of the creditors themselves is of some importance. It seems to me, however, that the views of the 80 percent of creditors relied on for the company must be assessed having regard to the circumstance that, while they were notified of the administration, they were not notified of the pendency of winding up proceedings, and they were not, so far as the evidence goes, squarely given a choice as to whether they preferred administration or winding up. So far as the evidence goes, they were simply advised of administration and, perhaps unsurprisingly, were in those circumstances prepared to give their proxies to the administrators. 9 I am concerned that the unsecured creditors, other than the Deputy Commissioner, are in much the same position. I was minded to require service on them of notice of the present application. They have not sought to be joined in the winding-up proceedings. However they may have been lulled into a false sense of security by the subsequent history of the matter, so that they no longer expect a winding-up but, rather that they will have an opportunity to vote on the proposed deed. 10 The observation made by Hodgson J might suggest that I should order service. However that proposition must be seen in light of the scheme of the Corporations Act 2001 (Cth) (the "Act"). It requires that those who have an interest in a proposed winding-up join in the proceedings in response to public advertisement of the fact that such proceedings are on foot. In those circumstances, it would be inconsistent with the scheme of the Act to require further re-advertising at this stage, other than in special circumstances. I use the term "re-advertising" to include either re-advertising of the application for winding-up, or giving some other form of notice to known unsecured creditors. In the circumstances, I have come to the conclusion that the Deputy Commissioner's views represent a fair assessment of the situation. I have formed the same view. The prospects of receiving something in excess of $50,000 after three years is not sufficiently attractive to warrant my concluding that it is in the interests of Statewide's creditors that it continue under administration rather than be wound up. My concern is heightened by the uncertainty concerning the financial worth of PreUrban and Mr Ellis. Another matter of concern is the possibility that Statewide might continue to trade. That possibility is highly unlikely in view of the fact that it is in administration and would continue in administration. However I note it as a possibility. 11 In those circumstances I decline the application for an adjournment and make the winding-up order as sought. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Dated: 24 June 2015