FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Interactive Printer Solutions Pty Ltd [2017] FCA 438 File number: VID 1054 of 2016 Judge: DAVIES J Date of judgment: 5 April 2017 Catchwords: CORPORATIONS – application for an adjournment of the application for winding up of the company on the ground of insolvency Legislation: Corporations Act 2001 (Cth), ss 459A, 459P Cases cited: Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 69 NSWLR 374 Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2011] HCA 18; (2010) 244 CLR 1 Fortuna Holdings v Deputy Commissioner of Taxation [1978] VR 83 Date of hearing: 5 April 2017 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 10 Solicitor for the Plaintiff: Mr K Metlej of Craddock Murray Neumann Lawyers Counsel for the Defendant: Mr J Evans QC Solicitor for the Defendant: Mills Oakley Solicitor for an Interested Person: Ms P Hettiarachchi of the State Revenue Office ORDERS VID 1054 of 2016 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: INTERACTIVE PRINTER SOLUTIONS PTY LTD ACN 162 757 002 Defendant JUDGE: DAVIES J DATE OF ORDER: 5 APRIL 2017 THE COURT ORDERS THAT: 1. Interactive Printer Solutions Pty Ltd be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth). 2. Robert Scott Woods of Deloitte, official liquidator, be appointed the liquidator of the defendant. 3. The plaintiff's costs of these proceedings be taxed and paid out of the assets of the defendant in accordance with the Corporations Act 2001 (Cth). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) DAVIES J: 1 The Deputy Commissioner of Taxation ("the DCT") has applied to wind up Interactive Printer Solutions Pty Ltd ("the company") on the ground of insolvency. The DCT relies upon a failure to comply with a statutory demand sent by registered post to the company on 6 June 2016 for payment of the amount of $670,329.85 in respect of goods and services tax, PAYG withholding amounts, administrative penalties and general interest charges. The company failed to make the payment and did not apply to have the statutory demand set aside. In consequence, the company is, by force of s 459C(2)(a) of the Corporations Act 2001 (Cth) ("the Act"), deemed to be insolvent. The company opposes the application on the ground that it is solvent and relies upon the Court's discretion pursuant to s 459A of the Act. 2 The application first came on for hearing on 25 November 2016 and was adjourned to 16 December 2016. On 16 December 2016, the application was further adjourned on the application of the company and referred for hearing before a Judge on a date to be fixed. At the time, the company's parent company, Pressed Juices Holdings Pty Ltd, ("PJH"), had an outstanding research and development tax refund claim for the 2015/2016 income year in the amount of $2,510,386.65 ("the R & D tax refund claim"). The Australian Taxation Office ("ATO") had still to finalise the refund claim. Further, on 19 October 2016, PJH had signed an irrevocable authority and direction to the DCT to withhold from any R & D tax offset payment to PJH, an amount sufficient to discharge the debt of the company to the DCT. At the commencement of the hearing this morning, senior counsel for the company applied for a further adjournment pending the finalisation of the R & D tax refund claim. It was submitted that, if accepted, the amount of the refund would be sufficient to discharge the company's debt to the DCT. 3 It was submitted that it was clear from authorities such as Fortuna Holdings v Deputy Commissioner of Taxation [1978] VR 83 ("Fortuna Holdings"); Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 69 NSWLR 374 ("Australian Beverage Distributors Pty Ltd"); and Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2011] HCA 18; (2010) 244 CLR 1 ("Lanepoint Enterprises") that the Court has a clear discretion to stay or adjourn a winding up proceeding where there is a more suitable alternative means of resolving the claims of the parties than by a winding up proceeding or where the processes of the Court are being abused by a party. It was submitted that it is, and has been since 6 October 2016, when the R & D tax refund claim was lodged, entirely within the power of the ATO to undertake processes which appear, on the evidence, reasonably likely to result in the payment of the debt upon which the application to wind up the company is founded. The DCT has opposed any further adjournment. 4 Fortuna Holdings was a case under the law as it was before the enactment of Part 5.4 of the Act. In that case, eight related companies sought an interlocutory injunction to restrain the DCT from presenting to the Court a petition for the winding up of the companies on the basis that the companies genuinely disputed the tax liabilities on which the demands were founded and the presentation of petitions would be an abuse of process. McGarvie J observed that the cases established the principle that the presentation of a petition may be restrained by injunction where the presentation of a petition would amount to an abuse of process and referred to two distinct situations, which his Honour referred to as the "first and second branches" of the principle, which entitled a Court to restrain the presentation of a petition to prevent an abuse of process, namely: (1) where the application to wind up must fail and the presentation of the petition might cause irreparable damage to the company ("the first branch"); and (2) where the petitioner asserts a disputed claim by a procedure that might cause irreparable damage to the company, there was a more suitable alternative means of resolving the disputed claim against the company ("the second branch"). McGarvie J reasoned that the cases to which the second branch applies are cases where, due to the availability of the more suitable alternative procedure, the Court hearing the petition would, in the circumstances, in the exercise of discretion, decline to make a winding up order at least while the circumstances remain as they are at the time of the application for an injunction. His Honour stated that the second branch thus applies where, because of the availability of the more suitable alternative procedure, the petition is unlikely to succeed in the circumstances exiting at the time. In Australian Beverage Distributors Pty Ltd, Beazley JA held that those principles still apply under the new statutory regime in Part 5.4 of the Act. More recently, the High Court in Lanepoint Enterprises considered the statutory regime under Part 5.4 of the Act and referred to the policy evident in the current statutory scheme that disputes concerning a statutory demand should, where possible, be determined prior to the determination of the winding up application and therefore, separately from that application. The Court went on to state "but such a policy says nothing about what is to occur if there remains an issue about a debt at the time the application for an order for winding up in insolvency is heard" and "sections 459A and 467(1)(c) make it plain that the Court retains a discretion to stay proceedings on an application to wind up a company in insolvency." 5 In the present case, the company relies on the "second branch of the principle " in support of its application for an adjournment: that is, there is a more suitable alternative means of resolving the claims of the parties than by winding up, namely by means of allowing for the completion of the ATO's review of the R & D tax refund claim. 6 It is undoubted that the Court has the power to stay a winding up application and to adjourn a winding up application, and that the discretion is not fettered, subject to the requirement that the exercise of the discretion must be judicial, giving effect to the scope, purpose and object of the provisions in question. 7 It would appear that the time taken thus far for the processing of the R & D tax refund claim is not attributable to any delay on the part of PJH in furnishing relevant information to the ATO. The evidence indicates that PJH has worked cooperatively with the ATO and used its best endeavours to facilitate finalisation of the claim prior to the adjourned hearing date of the DCT's application to wind up the company. There is also some evidence to indicate that some part of the claim may not be controversial and the expectation of PJH is that there will be some amount, if not the whole amount, refunded. 8 Nonetheless, I am not persuaded to grant an adjournment pending the finalisation of the R & D tax refund claim. First, this is not a case where the debt, which is the subject of the statutory demand, is disputed, unlike the circumstances of the case considered by McGarvie J in Fortuna Holdings. In this case, there is an extant liability to the DCT. The adjournment is sought to provide the opportunity for a source of funding to become available to the company, out of which it is expected that the company will be able to discharge its liability to the DCT by means of the irrevocable authority and direction from PJH that it will utilise such of the refund, if accepted, as is necessary in order to discharge the debt. This is not a case where there is any question about the existence of the debt or whether there is any offsetting or cross-claim, which would have the consequence that there is no debt upon which the DCT can move to seek the winding up of the company. The tax debt on which the statutory demand was founded is not in dispute. To put it another way, this is not a case, to use the words of McGarvie J in Fortuna Holdings where there is a more suitable alternative means of resolving the dispute involved in a disputed claim against the company. 9 Secondly, there remains the broader question of the company's solvency and its ability to pay its debts as and when they become due and payable, in the circumstances of a presumption of insolvency, following the non-compliance with the statutory demand. The fact of the possible R & D tax refund claim, as a source of funding, is a matter that may properly be taken into account in considering the company's claim that it is solvent, even though completion of the claim may not have been finalised at the time of the hearing of the application. But also relevant is the broader public interest and the interests of the creditors as a whole. In this case the application for the winding up of the company is supported by 12 asserted creditors of the company who have filed notices of intention to appear at the hearing of the application to wind up the company. Senior counsel for the company informed the Court that only one of those supported creditors had provided notification to the company of their intention to support the winding up application. Whether or not notification was given does not gainsay that there are presently 12 persons claiming to be creditors in addition to the DCT and who have supported the DCT in proceeding with the winding up application. Where there is presumed insolvency by reason of the failure to comply with the statutory demand, the wider interest of the creditors as a whole is a consideration bearing upon the exercise of discretion as to whether to adjourn the hearing of the winding up application and I consider that it is material to take their interests into account, in the determination as to whether or not to grant an adjournment. 10 Accordingly, for those reasons, the application for an adjournment is refused. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate: Dated: 28 April 2017