FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation, in the matter of SMAR Nominees Pty Ltd (in liq) v SMAR Nominees Pty Ltd (in liq) [2017] FCA 1384 File number: SAD 210 of 2017 Judge: WHITE J Date of judgment: 20 November 2017 Catchwords: CORPORATIONS – Registrar ordered winding up of company in insolvency and appointed a liquidator – application to set aside winding up order – evidence that company is solvent – parties agreed on the form of orders to be made. Legislation: Corporations Act 2001 (Cth) s 482 Federal Court Rules 2011 (Cth) r 39.05 Cases cited: Binetter v Deputy Commissioner of Taxation [2011] FCA 184 Deputy Commissioner of Taxation v Annesley Plant Hire [2010] FCA 755 Double Bay Newspapers v The Fitness Lounge [2006] NSWSC 226; (2006) 57 ACSR 131 George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 Workers Compensation Nominal Insurer v Detailed Flooring Pty Ltd [2010] NSWSC 1056; (2010) 80 ACSR 1 Date of hearing: 20 November 2017 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 13 Counsel for the Plaintiff: Ms R Smith Solicitor for the Plaintiff: Australian Taxation Office Counsel for the Defendant and the Sole Director of the Defendant: Mr R Ross-Smith Solicitor for the Defendant and the Sole Director of the Defendant: PGC Legal Counsel for the Liquidator of the Defendant: Mr S Hagivassilis Solicitor for the Liquidator of the Defendant: Charlton Rowley ORDERS SAD 210 of 2017 IN THE MATTER OF SMAR NOMINEES PTY LTD (IN LIQUIDATION) ACN 133 379 441 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: SMAR NOMINEES PTY LTD (IN LIQUIDATION) ACN 133 379 441 Defendant JUDGE: WHITE J DATE OF ORDER: 20 NOVEMBER 2017 THE COURT ORDERS THAT: 1. Upon Mr Ruggiero undertaking by his Counsel to pay the sum of $222,555.75 to the Deputy Commissioner of Taxation by close of business today, the winding up order made on 13 September 2017 is set aside. 2. The company SMAR Nominees Pty Ltd is, by close of business today, to pay the Liquidator's fees and disbursements totalling $59,159. 3. The originating process filed on 7 August 2017 is adjourned for mention only to 9 am on 4 December 2017, noting that the parties expect to have provided to the Court before that date a minute providing for the dismissal by consent of that process. 4. There be no order as to the costs of the application. 5. There be liberty to apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. EX TEMPORE REASONS FOR JUDGMENT WHITE J: 1 On 13 September 2017, a Registrar of the Court ordered the SMAR Nominees Pty Ltd (SMAR) be wound up in insolvency and ordered that Christopher Powell be appointed as its liquidator. That order was made on the application of the Deputy Commissioner of Taxation (DCT) who relied on the failure of SMAR to comply with a statutory demand for a payment of $199,397.22. 2 On 26 October 2017, Mr Ruggiero, who is the sole director of SMAR, lodged an interlocutory process seeking orders staying and setting aside the winding up orders. The application indicated that Mr Ruggiero sought those orders pursuant to r 39.05 of the Federal Court Rules 2011 (Cth) and s 482 of the Corporations Act 2001 (Cth). Section 482 contemplates orders staying or terminating a winding up. Counsel for Mr Ruggiero has indicated that he seeks a setting aside of the winding up order rather than a termination of the winding up and accordingly that he relies on r 39.05 only. 3 The circumstances in which the application is made are these. The DCT served the originating process seeking the winding up at SMAR's registered office on 11 August 2017. The registered office is at the premises of SMAR's accountants. The accountants did not bring the proceedings to Mr Ruggiero's attention, and he was unaware of the application and of the hearing on 13 September 2017. Hence the order for winding up of SMAR was made in the absence of any representative from SMAR. 4 Since his appointment, Mr Powell has continued to trade the two franchise businesses carried on by SMAR and has done so profitably. He deposes that he has received cooperation from Mr Ruggiero in that respect. 5 Mr Ruggiero deposes that SMAR is able to pay the outstanding debt to the Australian Taxation Office (ATO) in full, together with the costs of the DCT. Mr Parr, a member of the firm of solicitors retained by Mr Ruggiero, has deposed that the sum of $222,555.75 has been paid into the firm's trust account for the purpose of payment of the ATO debt and of the costs incurred by the ATO. 6 Mr Powell has deposed to be holding a total of $94,822.80. This means that, after payment of the expenses associated with the conduct of the business, he has net available cash of $56,659.66. 7 There is evidence from which it can be inferred that SMAR is solvent, and probably was solvent at the date the winding up order was made. Mr Powell's report to creditors indicates that SMAR has a surplus of assets over liabilities of some $34,255, and that its assets included loans it had made to persons associated with it. Those loans seem to be recoverable. 8 Rule 39.05(a) of the FCR authorises the Court to set aside a judgment or order made in the absence of a party. That is the case presently. An applicant seeking a setting aside order under r 39.05(a) must usually establish that there is a proper explanation for the order having been made in the party's absence, and that there are matters of sufficient merit to warrant the setting aside of the order. The arrangements which the parties propose for payment of the outstanding debt of the ATO and of Mr Powell's fees and expenses, together with the evidence concerning the solvency of SMAR, indicate that the latter considerations are established. 9 I proceed on the basis that Mr Ruggiero, as the sole director of SMAR, does have standing to apply for the setting aside. There was no suggestion by the DCT or by the Liquidator to the contrary. Accordingly, it is unnecessary to enter into the controversy as to whether a director of a company in litigation has standing, without obtaining the leave of the Court, to bring proceedings in the name of the company: see the judgment of Perram J in Binetter v Deputy Commissioner of Taxation [2011] FCA 184 at [11]. 10 As to the exercise of the discretion to set aside the order, counsel for Mr Ruggiero referred to the statement of Hodgson J in George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 at 465: In my view, if an order winding up a company is made in the absence of the defendant company, and an application is brought promptly by the company, with notice being given to the liquidator, to the plaintiff and to any creditor who appear at the hearing; and if the evidence shows an explanation for the non-appearance at the hearing and indicates solvency of the company; and there is consent to setting aside, or at least non-opposition; and if the liquidator indicates that nothing in his investigations to date shows a reason for the company to be stopped from trading, then the Court will normally set aside the order. 11 Although Hodgson J in this passage suggested that the consent of the liquidator is required, that is not necessarily so: see Deputy Commissioner of Taxation v Annesley Plant Hire [2010] FCA 755 at [13]. 12 I also note that it has been said that an application to set aside an order under r 39.05 or its analogues has a lower onus than an application under s 482, in that the applicant need not demonstrate positive proof of the company's solvency. Instead, satisfaction that there is an "arguable case of insolvency" or "some evidence of insolvency" may be sufficient: see Workers Compensation Nominal Insurer v Detailed Flooring Pty Ltd [2010] NSWSC 1056, (2010) 80 ACSR 1 at [35]; Double Bay Newspapers v The Fitness Lounge [2006] NSWSC 226, (2006) 57 ACSR 131 at [24]; and Deputy Commissioner of Taxation v Annesley Plant Hire at [12]. 13 Ultimately, the parties reached agreement on the form of orders to be made. For the reasons given above, I am satisfied that it is appropriate to give effect to the parties' agreement and will make the orders they propose. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate: Dated: 24 November 2017