FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Club Culture Pty Ltd [2017] FCA 338 File number: SAD 296 of 2016 Judge: WHITE J Date of judgment: 31 March 2017 Catchwords: CORPORATIONS – review of Registrar's decision to wind up a company – company wound up on failure to comply with a statutory demand – company raised objections to the decision which attack the basis of the company's liability under the statutory demand – objections should have been raised in an application to set aside the demand – refusal to argue such matters under s 459S of the Corporations Act 2001 (Cth) – failure of the company to prove otherwise that it is solvent. Held: application dismissed. Legislation: Administrative Decisions (Judicial Review) Act 1977 (Cth) s3(1), Sch 1 Corporations Act 2001 (Cth) ss 109X(1), 459A, 459C, 459E, 459F, 459G, 459P, 459S, 465A, 470(1), 471A Evidence Act 1995 (Cth) s 160 Federal Court of Australia Act 1976 (Cth) s 35A, Income Tax Assessment Act 1997 (Cth) Div 355, s 5-15 Industry Research and Development Act 1986 (Cth) s 27A Taxation Administration Act 1953 (Cth) Sch 1 ss 284-75, 284-80, 284-90, 298-25, 298-30, Pt IIA, Pt IVC s 14ZZ Corporations Regulations 2001 (Cth) Sch 2, reg 1.0.03(1) Federal Court (Corporations) Rules 2000 r 16.1, Sch 2 Pt 1 Federal Court Rules 2011 (Cth) r 10.02 Taxation Administration Regulations 1976 (Cth) reg 45 Cases cited: Bungey t/as John Bungey Real Estate v Magnate Projects Pty Ltd [2006] NSWSC 734 Callegher v Australian Securities and Investments Commission [2007] FCA 482; (2007) 218 FCR 81 Deputy Commissioner of Taxation v Commercial & General Law (SA) Pty Ltd [2011] FCA 1269 Deputy Commissioner of Taxation v Contract Synergies Administration Pty Ltd [2011] FCA 743 Deputy Commissioner of Taxation v Huon Foam Pty Ltd [2000] TASSC 99 Deputy Commissioner of Taxation v Soiland Pty Ltd (in liq) [2010] FCA 168 Dooney v Henry [2000] HCA 44, (2000) 174 ALR 41 HVAC Constructions (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd [2002] FCA 1638 In the matter of NA Investment Holdings Pty Ltd; Perpetual Nominees Ltd v NA Investment Holdings Pty Ltd [2011] NSWSC 282 In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546 IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 11 ALR 417 TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 Date of hearing: 2 February 2017 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 55 Counsel for the Plaintiff: Mr K Metlej Solicitor for the Plaintiff: Craddock Murray Neumann Lawyers Pty Ltd Counsel for the Defendant: Dr VRI Larsen appeared for and on behalf of the Defendant Table of Corrections 11 April 2017 In paragraph 30, the words "an ATO officer" have been replaced with "the DCT's lawyer" 11 April 2017 In paragraph 31, "Mr Metlej" has been replaced with "Mr Guglielmi" ORDERS SAD 296 of 2016 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: CLUB CULTURE PTY LTD ACN 104 043 615 Defendant JUDGE: WHITE J DATE OF ORDER: 31 march 2017 THE COURT ORDERS THAT: 1. The application for review filed on 1 December 2016 be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT WHITE J: 1 On 30 November 2016, a Registrar of this Court ordered that Club Culture Pty Ltd (Club Culture) be wound up in insolvency and that Mr Christopher Powell be appointed as liquidator of that company. This judgement concerns an application for review of the Registrar's decision to wind up Club Culture. 2 The order for the winding up was made on an application of the Deputy Commissioner of Taxation (DCT) under s 459P of the Corporations Act 2001 (Cth) filed on 28 October 2016. The DCT relied on the failure of Club Culture to comply with the statutory demand served on it on 15 July 2016. By that demand, the DCT had sought payment of $124,767,987.60 which sum was comprised substantially of administrative penalties imposed by the Australian Taxation Office (ATO) in respect of Club Culture's taxation liabilities for the 2012, 2013, 2014 and 2015 financial years. Two applications 3 Club Culture, by its sole director, Dr Larsen, seeks relief in respect of the Registrar's decision by two applications filed simultaneously on 1 December 2016. 4 The first is an interlocutory process in which Dr Larsen describes herself as "MD, PhD Med & Sci, Fundamental Biochemistry/Surgery/Haematology/Oncology/Radiology NCBD" and names the DCT and several other members of the staff of the ATO as defendants. By this application Club Culture seeks the following relief: 1. Judicial Review of the mistaken decision of Registrar. 2. Grounds: Statutory Law Australian Taxation Law Acts, cited & other statutory law cited in affidavits lodged with FCA SAD296/2016 and made available to ATO SA prior to hearing with all facts addressed in ATO inclusive objections to STATUTORY DEMANDS of ATO filed immediately, requesting amendment of ATO Fraud where evidence adhering to NS Law and A-G Cth are stated. (Upper case in the original) 5 In an affidavit filed on 7 December 2016, Dr Larsen deposed to the reason for the lodgement of the application as being: [C]ase was heard in construction hearing and decided without any opportunity given to director Club Culture Pty Ltd to object [to] false affidavit & TAX FRAUD committed by ATO, which was only heard in courts prior to decision that apparently Club Culture Pty Ltd had "large profits before 2009" and that R&D-1 STATUTORY ROYALTIES ATO itself 2009-2011 matched as not taxable from GST. This allowed were other offsets from international operations ATO-Aust profits. This is [a] false affidavit by ATO. (Upper case in the original) 6 I took this to be an application pursuant to s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). That section allows a party to proceedings in which a Registrar has exercised any of the powers of the Court under s 35A(1) to apply to the Court to review that exercise. By virtue of s 35A(1)(h) and r 16.1 and Sch 2 Pt 1 of the Federal Court (Corporations) Rules 2000, a decision by a Registrar to wind up a company under s 459A of the Corporations Act is an exercise of power to which s 35A(5) refers, although it has been said that r 16.1(2) which deals with a review of the Registrar's decision is "superfluous" in this respect: Deputy Commissioner of Taxation v Commercial & General Law (SA) Pty Ltd [2011] FCA 1269 at [97]. 7 At the hearing, I directed that the individual defendants be removed as parties on the basis that their involvement was unnecessary. Counsel for the DCT accepted that their removal would not, of itself, limit the matters which Club Culture could advance at the hearing. 8 A challenge to a winding up order must be made by the company itself by a grant of leave pursuant to s 471A of the Corporations Act (as it then was): Dooney v Henry [2000] HCA 44, (2000) 174 ALR 41 at 50; HVAC Constructions (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd [2002] FCA 1638 at [34]-[36] (French J); and Deputy Commissioner of Taxation v Soiland Pty Ltd (in liq) [2010] FCA 168 at [7]-[15] (Barker J). As there has been no stay of the order of winding up, Dr Larsen is, by virtue of that order, precluded from performing or exercising any function or power as a director of the company and so could not cause it to bring the application for review. However, the DCT indicated that he had no objection to approval being granted, pursuant to s 471A(1A) of the Corporations Act, to Dr Larsen to bring this particular application. In that circumstance, I granted Dr Larsen that approval. I also granted Dr Larsen, who is not a legal practitioner, leave to represent Club Culture on the application as she is its sole director and sole shareholder. 9 The second application uses the form for applications under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the ADJR Act). The named applicants are Club Culture and Dr Larsen. The named respondent is the DCT. The body of the application indicates that the applicants seek review of a decision or decisions of the ATO identified as: ATO staff has committed intentional TAX law and TAX practice fraud in submission to Court, alleging that ACN 104 943 615 had other than R&D – 1. Sciences medical & Defence Fields (ILS analyses – NCBD) & had large trade and profits. 10 The grounds of this application were stated as follows: 1. ATO Audit & Matching in 2009-2010/2010-2011 has allowed STATUTORY TAX LAW not taxable royalties refund – see folio. 2. ATO staff has made IT mistake on account of ABN 58-104943615 & has processed refund "DR" on account instead of "CR" June 2014. 3. ATO appointed 3rd party to present false statement in court of instead of amending mistake and "CR" account. 4. Lawyer appointed by ATO did not know STATUTORY TAX LAW. 5. ATO staff has accured (sic) STATUTORY ROYALTIES to "DR" instead of crediting account falsely claiming admin fees instead of STATUTORY ROYALTIES. 6. ATO has unlawfully stated that NOD 238826 Doc.8080-763 EMDG Grant 2009/2010 19.04.2011 finalised was for trade and in 2003-2009 delivered large profits for ATO – AUSTRADE TAX offset and not the FACTS that it was Australian First IP copyright grant after 2009 Australia Act. 7. An order for ATO to amend IT ATO "DR" to "CR" on account of ABN 58-104943615 in all accrued STATUTORY ROYALTIES inclusive of the ATO allowed for 2009-2010-2010-2011 GST at 3.75% of 10% from ATO Act HQ matching for STATUTORY ROYALTIES not taxable to ABN 58-104943615 & to pay rebate 2015-2016 same amount as per stated in the ATO statements 17 law cited in the affidavit SAD296/2016 & Company tax Return has all DoD tenders/P/invoices & NLA of Australian Copyrights Protected at law. (Upper case in the original) 11 There are a number of procedural irregularities with this application. However, it is not necessary to address them. It was plain that, having regard to the definition of "decision to which this Act applies" in s 3(1) of the ADJR Act and to the list in Sch 1 to the ADJR Act of the classes of decisions to which the ADJR Act does not apply, the decisions of the ATO which the applicants wish to impugn are not capable of review under the ADJR Act. 12 On that basis, I indicated that the application under the ADJR Act would be dismissed. Again, counsel for the DCT accepted that it would be open to Club Culture to pursue on the first application the matters which she had sought to agitate under the ADJR Act application, to the extent that there was a difference. 13 As already noted, Dr Larsen did not have legal representation at the hearing. This caused more than the usual difficulties. English is not Dr Larsen's first language (her Passport shows that she was born in Odessa in the Ukraine). Dr Larsen declined the Court's invitation to arrange an interpreter to assist her. 14 Dr Larsen's business card which was included in one of her affidavits shows that she has the qualifications of a Doctor of Medicine, a Doctor of Philosophy and that she is a medical specialist. It seems, however, that these are overseas qualifications and it is not clear that they are recognised in Australia. 15 Despite Dr Larsen's apparent qualifications, it was not easy to follow and understand all the evidence which she presented and her submissions. Some of the written material was closely typed or handwritten making legibility difficult. The material was marked by repetition, a lack or coherence and a lack of particularity. Much of the evidential material which Dr Larsen presented was, on any view, irrelevant to the issues on the review. It was evident that Dr Larsen feels a strong sense of grievance towards the ATO and that this has coloured her approach to the issues. Review principles 16 It is not necessary to refer in any detail to the principles governing a review pursuant to s 35A(5) of the FCA Act. The review is a hearing de novo in which the moving party has the onus of satisfying the Court that the orders were appropriately made: Callegher v Australian Securities and Investments Commission [2007] FCA 482; (2007) 218 FCR 81 at [46]. The parties are not confined to the evidence which was before the Registrar at the time the winding up order was made and the Court is to determine the review without being fettered by the decision of the Registrar: ibid. Summary of the principles relating to the making of a winding up order 17 Pursuant to s 459A of the Corporations Act, the Court may, on an application made by a creditor under s 459P, order that an insolvent company be wound up. 18 On an application for winding up, the Court presumes that the company is insolvent if, during or after three months ending on the day on which the application was made, the company failed to comply with a statutory demand (s 459C(2)(a)). The period for compliance with a statutory demand is, if the company has not applied to set it aside, 21 days from when it is served (s 459F(2)(b)). Section 459E sets out the circumstances in which a demand may be served and its required content. 19 The Court has a discretion as to whether to make a winding up order. The guiding principle is that an undisputed and unsatisfied creditor has a prima facie right to obtain a winding up order against the company that owes the debt: TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 at [117] citing IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 11 ALR 417 (Gibbs J, Stephen and Jacobs JJ agreeing). "[T]he public interest … normally requires that an insolvent company be wound up to prevent it from incurring further debts": Bungey t/as John Bungey Real Estate v Magnate Projects Pty Ltd [2006] NSWSC 734 at [44]. 20 The Court will refuse to make a winding up order only if good reason is shown for allowing an insolvent company to carry on its business. That may be the proper course if the winding up is opposed by other creditors or if the applicant's conduct precipitated the company's liability: TS Recoveries v Sea-Slip Marinas at [118]. See also Deputy Commissioner of Taxation v Huon Foam Pty Ltd [2000] TASSC 99 at [8]-[9]. The statutory demand and the application for winding up 21 On 15 July 2016, the DCT by an officer of the ATO Mr Jaisankar, sent to Club Culture by post to its registered office, a Creditor's Statutory Demand together with an Affidavit signed by him. 22 The demand was in the form prescribed by reg 1.0.03(1) and Sch 2 of the Corporations Regulations 2001 (Cth) and complied with the requirements of s 459E(2). It specified that $124,767,987.60 was owing to the DCT and attached a schedule identifying the individual debts comprising of that sum. The demand required that Club Culture pay the debt within 21 days of service. I note that the facsimile signature of Mr Ravanello was affixed to the demand and, therefore, that it is taken to have been signed by the Deputy Commissioner of Taxation: Regulation 45 of the Taxation Administration Regulations 1976 (Cth). 23 In compliance with s 459E(3), the demand was accompanied by Mr Jaisankar's affidavit in which he deposed that the debt was due to the ATO and that there was no genuine dispute about the existence or amount of any of the debts. 24 On 29 July the documents sent by Mr Jaisankar to Club Culture's registered office were returned to the ATO with the hand-written notation "RTS" on the front of the envelope. This is the well understood abbreviation for "Return to Sender". Mr Jaisankar subsequently posted copies of the same documents to Dr Larsen at her personal address contained in the records of the Australian Securities and Investments Commission (ASIC). Those documents were not returned to the ATO. 25 A document may be served on a company by posting it to the company's registered office (r 10.02 of the Federal Court Rules 2011 (Cth) and s 109X(1) of the Corporations Act). Service is deemed to be effected, unless the contrary is proved, at the time at which the letter would be delivered in the ordinary course of the post. 26 Accordingly, I am satisfied that the statutory demand was properly served on Club Culture on 21 July 2016: s 160 of the Evidence Act 1995 (Cth). The fact that the documents were returned on 29 July 2016 with the hand written notation "RTS" may indicate that the documents were not received by the company. However, that by itself, is insufficient to prove that the documents were not delivered in accordance with the Corporations Act: Deputy Commissioner of Taxation v Contract Synergies Administration Pty Ltd [2011] FCA 743. 27 Club Culture failed to comply with the statutory demand. 28 Subsequently on 27 October 2016, the DCT filed an originating process to wind up Club Culture and attached to it the statutory demand and affidavit of Mr Jaisankar that was served on the company. On the same day, the DCT filed an affidavit of Mr Guglielmi attaching a current and historical extract of the records maintained by ASIC and Ms Chen, another employee of the ATO, lodged a notice with ASIC containing particulars of the winding up application in compliance with ss 465A(a) and 470(1)(a) of the Corporations Act. 29 On 7 November 2016, Ms Chen posted to Club Culture's registered office, a copy of the originating process, the affidavit of Mr Guglielmi, an affidavit of Mr Jaisankar affirmed 18 October 2016 and a filed notice of the consent of Mr Powell to act as the liquidator of Club Culture. Although the DCT's submissions indicated that those documents had been returned to the ATO, there was no evidence about it. Nevertheless, Club Culture by its director, Dr Larsen, appeared before the Registrar, and may therefore be taken to have been served with the documents. 30 On 29 November, the DCT's lawyer, Mr Metlej, caused a notice to be published on the "ASIC Insolvency Notices" website in compliance with s 465A(c). 31 Mr Guglielmi has deposed that, as at 25 January 2017, Club Culture owed to the ATO $124,767,987.60 and that there had been no record of payment by the Company. 32 By reason of the matters outlined above, I am satisfied that the DCT complied with the required formalities in issuing the statutory demand to Club Culture and in filing the originating application to wind up the company. The basis for the statutory demand 33 Before turning to Club Culture's objections, it is convenient to set out the background to the issuance of the statutory demand. The demand had its origins in claims made by Club Culture to be entitled to Research and Development offsets (R&D offsets) pursuant to the Industry Research and Development Act 1986 (Cth) (the IRD Act). That Act establishes a scheme by which eligible companies which engage in research approved by Austrade can receive concessional tax treatment by way of credits which reduce the income tax payable by that company. In order to be an eligible company, a company must register with Austrade as a "R&D entity" (s 27A). Once a company is so registered and has expended monies on research and development, it may be entitled to an "R&D offset" pursuant to Div 355 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). 34 Despite not having been registered as an R&D entity at any material time, Club Culture made claims for R&D offsets in the tax returns it lodged for the 2011 to 2015 financial years. Those returns had been prepared by Dr Larsen. Audits carried out by the ATO revealed Club Culture's lack of entitlement to the claimed R&D offsets and to other credits, to the disallowance of those claims, and to the imposition of substantial penalties on Club Culture in respect of the 2012 to 2015 financial years. These amounts have not been paid. 35 In relation to the 2011 financial year, following a review of Club Culture's income tax return, the ATO disallowed the claimed R&D tax offsets because the company was not registered as an R&D entity conducting R&D activities under s 27A of the IRD Act for that year. Club Culture was found, in any event, to have failed to substantiate its claimed R&D expenditure. The DCT gave notice to Club Culture of the decision and of the basis for it. Although disallowing Club Culture's claim to the offsets, the Commissioner did not impose, pursuant to s 284-75 of Sch 1 of the Taxation Administration Act 1953 (Cth) (the TAA) (which relates to the making of false and misleading statements to the Commissioner), an administrative penalty for that period. 36 Undeterred, Club Culture claimed substantial R&D offsets in its tax returns for the 2012 and 2013 financial years. On reviews of those returns, the ATO again determined that Club Culture was not entitled to the offsets and general deductions which it had claimed. On 27 March 2015, the Commissioner issued a notice of amended assessment for these two financial years, increasing the company's tax liability by $2,630,063.40 for the 2012 year and by $1,184,753.40 for the 2013 year and, effectively, reversing the credit Club Culture had claimed in each year. The DCT then made assessments of administrative penalties under Sch 1 s 284-75 of the TAA. The Commissioner imposed, pursuant to Sch 1 s 298-30(1) of the TAA, administrative penalties for the 2012 and 2013 years of $2,367,057.05 and $1,066,278.05 respectively. These amounts were 75% of the assessment shortfall. Notices were issued to Club Culture. 37 Club Culture objected to the ATO's decision to disallow the refundable R&D tax offsets and general deductions and the administrative penalty decisions. Subsequently, on 14 May 2015, the Commissioner reduced the administrative penalty to reflect a base penalty amount of 50% of the shortfall in each year, being the amount by which the tax credit was more than it would have been had a false or misleading statement not been made (TAA Sch 1 s 284-80). Club Culture did not make any application to review the decision to reduce the penalty. 38 A similar course of events occurred with respect to the 2014 and 2015 financial years. The ATO conducted an audit of the Company's income tax returns and determined again that it was not entitled to the even more substantial R&D offsets, general deductions and other credits it had claimed. The DCT issued notices of amended assessment for those years on 30 March 2016 and determined to impose administrative penalties in the amount of $111,536,007.90 for the 2014 year and $8,234,503.55 for the 2015 year. These penalties were determined in accordance with the formula contained in Sch 1 s 284-90 of the TAA. 39 Additionally, Club Culture became liable to pay General Interest Charges for failing to pay outstanding income tax and shortfall interest amounts as specified in the notices of amended assessment in relation to the 2012 and 2013 years (ITAA 1997 s 5-15 and TAA Pt IIA) and for failing to pay the penalties imposed with respect to the 2012 to 2015 financial years (TAA Sch 1 s 298-25 and Pt IIA). 40 While Club Culture objected to the Commissioner's decision to disallow the R&D tax offsets and general deductions and the assessment of penalty for the 2012 and 2013 years, it did not apply to the Administrative Appeals Tribunal (AAT) or to this Court to review the Commissioner's decision on those objections under Pt IVC s 14ZZ of the TAA. Nor is there evidence that it sought to challenge the Commissioner's decision to disallow the R&D tax offsets claimed in the 2014 and 2015 financial years or that it exercised the right to object against the Commissioner's assessment of the administrative penalties imposed for those years (under Sch 1 s 298-30(2) of the TAA) or the imposition of general interest charges. 41 The amounts of the penalties for a company of Club Culture's size, astronomical. They are a consequence, however, of the very high amounts of R&D offsets claimed by Club Culture to which, on the ATO findings, it was not entitled. On their face, those claims appear to have been fanciful given the improbability of a company of Club Culture's size having incurred expenditure on research and development of the amounts claimed. Basis of Club Culture's objection 42 As I have already indicated, it has not been easy to identify the objections made by Club Culture as expressed by Dr Larsen. My review of the material and of Dr Larsen's submissions indicates that Dr Larsen asserts the following matters: (a) rather than Club Culture being a debtor to the ATO, the ATO is a debtor to Club Culture. This situation had occurred because the ATO had recorded in its assessments as liabilities to it matters which were in fact to the credit of Club Culture. Dr Larsen asserted on more than one occasion that a transposition error had occurred in the ATO documents with the effect that entries had been recorded as "DR" (for "debit") rather than "CR" (for "credit"). This was said to have occurred in particular with the ATO's treatment of "statutory royalties". Dr Larsen asserted that, in not correcting this mistake, the ATO has acted fraudulently; (b) Dr Larsen also presented a copy of an invoice prepared by her for Club Culture which she had presented to the ATO for $124,768,179.91 (which, remarkably, is almost the exactly the same sum as claimed by the ATO from Club Culture). This sum was said to constitute "royalties from budget DHA-Defence as AU law tax"; (c) ATO staff had "wrongly and unlawfully physically extorted in 2011-2014-2016 all physical property inclusive TOP-SECRET OWN DataBases and IT, and paper documents inclusive for IT platforms R&D-Implemented and Medical, Fundamental Sciences, etc, personal Copyrights Act 1968 (Cth) protected property that is only physical property of Dr Larsen … surrendered under duress within Australian Taxation Law used in the negotiations – review desks of ATO SA". (I mention that during the course of the hearing, I declined for a number of reasons, to grant Dr Larsen's request that Club Culture have leave to issue a subpoena to the ATO requiring it to produce this material. One of the reasons was that it seemed that Dr Larsen intended that the subpoena should be a means of recovering the claimed material rather than ensuring the production of evidence relevant to the proceedings); (d) ATO staff had acted contrary to "statutory law" cited in documents which Club Culture had made available to it; (e) the ATO should recover GST incurred by other entities which have used Club Culture and Dr Larsen; (f) instead of the ATO adhering to the correct code of conduct and its own processes of review, document examination and internal investigation, its staff had committed perjury, duress, treason and crimes against Australian copyright law, intellectual property law, national security laws, defence laws and record keeping rules and, in addition had acted without "due diligence"; (g) Club Culture had accrued a credit of $3 million in its ATO account. At one stage, Dr Larsen submitted that this had accrued by way of an offset but could not identify a proper basis for that offset; (h) Club Culture is not a trading entity and had not incurred large taxation liabilities. It has only received a $5,000 grant from the Government (Austrade) in 2011 "for R&D-I Copyrights Statutory Royalties"; (i) the ATO did not present any evidence that Club Culture had any trade operations or profits from trade or investment at any time since its incorporation. 43 On my assessment, Dr Larsen did not present any evidence, nor point to any other matters, capable of supporting, in a rational way, these assertions. It is improbable, to the point of being fanciful, that the ATO is indebted to Club Culture in the amount of $124,768,179.91 or for any like amount. The suggestion that the company's debt has arisen by the transposition error for which Dr Larsen contends is also fanciful. Further still, the notion that a small proprietary company like Club Culture could have incurred substantial expenditure on research and development in a single year (of the kind necessary to support the administrative penalties) is not credible. In short, Dr Larsen's claims did not seem to be based in reality. Application of principles and consideration of the exercise of discretion 44 On an application for a company to be wound up in insolvency for failing to comply with a statutory demand, the company cannot, without leave of the court, oppose that application on a ground that could have been relied upon in an application to set aside that demand (whether or not such an application was made): s 459S(1) of the Corporations Act. The Court is not to grant leave unless it is satisfied that the ground which the Company wishes to argue is material to proving that the company is solvent (s 459S(2)). The discretion is to be used "cautiously and sparingly": In the matter of NA Investment Holdings Pty Ltd; Perpetual Nominees Ltd v NA Investment Holdings Pty Ltd [2011] NSWSC 282 at [34]. Ordinarily, the question of leave is dealt with prior to the hearing of the application to wind up a company. 45 Black J summarised the matters relevant to an application for leave under s 459S in In the matter of Vangory Holdings Pty Ltd [2015] NSWSC 546 at [10], as: whether there is a serious question to be tried on the ground sought to be raised; the sufficiency of any explanation as to why that ground was not raised in an application to set aside the creditor's statutory demand, involving an evaluation of the reasonableness of the debtor's conduct at the time when the application might have been made; and whether the Court is satisfied that the relevant ground is material to proving whether the debtor is solvent: Chief Commissioner of Stamp Duties v Paliflex Pty Ltd [1999] NSWSC 15; (1999) 149 FLR 179 at [49]; DAG International Pty Ltd v DAG International Group [2005] NSWSC 1036; Perpetual Nominees Ltd v NA Investment Holdings Pty Ltd [2011] NSWSC 282 at [33]; Re Pegasus Capital Management Pty Ltd [2011] NSWSC 570 at [6]. 46 The objections made by Club Culture in (a)-(i) above seem to attack the basis for the company's liability to the ATO which is the subject of the statutory demand. Such objections should have been raised in an application pursuant to s 459G to set aside the demand. Accordingly, Club Culture requires leave to raise the matters in (a)-(i) and that leave may be issued only in the limited circumstance for which s 459S(2) provides. Club Culture made no such application. Dr Larsen did not provide any explanation for it not having done so. 47 As I have already said, Dr Larsen did not present any coherent or cogent evidence to substantiate any of her claims, particularly her assertion that the ATO had made a mistake in treating the amount in the statutory demand as a debit owing to Club Culture. With all respect to Dr Larsen, much of the material contained within her affidavits and submissions is incomprehensible and irrelevant. 48 It is also pertinent that Club Culture failed to exercise its review rights with respect to the Commissioner's objection decisions for the 2012 and 2013 financial years, with respect to the Commissioner's disallowance of the claimed R&D tax offsets for the 2014 and 2015 years and his imposition of administrative penalties for those years, and with respect to the imposition of general interest charges. 49 It has to be said that Club Culture's present liability to the ATO is so substantial as to be incongruous when viewed in light of Dr Larsen's submission, albeit unproven, that the company is not a trading entity. Moreover, the fact that a large proportion of the debt comprises administrative penalties imposed by the ATO raises the question whether the Commissioner's assessments of the amount of administrative penalties to impose under s 298-30 were reasonable in all the circumstances. 50 Nevertheless, I am satisfied that there is no evidence which suggests that there is a serious question to be tried on any of grounds summarised in paras (a)-(i) above. I am not satisfied that these grounds are material to proving that the company is solvent and decline to grant the company leave to argue them. 51 As to the objection summarised in para (h), I am prepared to assume that whether or not Club Culture is a trading entity is related to the question of solvency. However, as I said, Club Culture did not produce any evidence that indicates that it is solvent. Nor did it produce evidence to substantiate its claim that it had received some monies from the government in 2011. 52 Finally, insofar as the objection summarised in para (i) contends that the DCT has some onus to provide evidence on the question of solvency, it is misconceived. As Club Culture failed to comply with the statutory demand validly issued by the DCT, it is presumed insolvent unless it provides evidence to rebut that presumption. The onus is on it to prove its solvency. It has not done so. 53 I mention a submission put by the DCT that the conduct of Dr Larsen in the proceedings and the material and the submissions she put to the Court raise an issue as to whether she has the personal qualities to meet the minimum standards required by the Corporations Act to continue to be a director of a company. While that is not an issue for me to decide, I accept that it is a matter which bears upon the exercise of the discretion to wind up the company in the public interest. Conclusion 54 For these reasons, I am satisfied that I should confirm the order made by the Registrar on 30 November 2016 that Club Culture be wound up pursuant to s 459A of the Corporations Act. There is no basis on which to exercise the residual discretion to decline to make a winding up order. 55 The application for review filed 1 December 2016 is dismissed. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate: Dated: 31 March 2017