Federal Court of Australia Deputy Commissioner of Taxation v APSC Pty Ltd (Deregistered) [2020] FCA 1591 File number(s): QUD 311 of 2020 Judgment of: DERRINGTON J Date of judgment: 30 October 2020 Catchwords: CORPORATIONS – reinstatement of deregistered company – application for reinstatement of registration of company to enable Deputy Commissioner of Taxation to make an amended income tax assessment and pursue payment of penalty for false and misleading statement – company director resides outside of jurisdiction – whether commissioner "person aggrieved by deregistration" – whether "just" that registration be reinstated – deregistered company reinstated CORPORATIONS – winding up on just and equitable grounds – where company director no longer in Australia Legislation: Corporations Act 2001 (Cth), ss 459P, 461, 601AB, 601AD, 601AH Taxation Administration Act 1953 (Cth) s 8AAZLGA Cases cited: ACN 078 272 867 Pty Ltd (in liq) (formerly Advance Finances Pty Ltd) v Deputy Commissioner of Taxation; Binetter v Deputy Commissioner of Taxation (2011) 282 ALR 607 Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 Bell Group Ltd (in liq) v Australian Securities and Investments Commission (2018) 358 ALR 624 Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800 Callegher v Australian Securities and Investments Commissioner (2007) 218 FCR 81 Deputy Commissioner of Taxation v Australian Securities and Investments Commission (2013) 304 ALR 319 Deputy Commissioner of Taxation v Australian Securities and Investments Commission; Re Civic Finance Pty Ltd (Deregistered) (2010) 81 ATR 456 Deputy Commissioner of Taxation v Australian Securities and Investments Commission (2010) 81 ATR 456 Deputy Commissioner of Taxation v Lanstel Pty Ltd (1996) 22 ACSR 314 Deputy Commissioner of Taxation; Re James Hardie Australia Finance Pty Ltd (Deregistered) (2008) 170 FCR 545 Legrande Enterprises Pty Ltd v Australian Securities and Investments Commission [2009] FCA 718 Pacanowski v Australian Securities Commission (1995) 57 FCR 173 Re Piccoli Tesori Pty Ltd (Deregistered) (2006) 151 FCR 109 Re Proserpine Pty Ltd [1980] 1 NSWLR 745 Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 25 Date of hearing: 30 October 2020 Counsel for the Plaintiff: Mr M Cooke Solicitor for the Plaintiff: Australian Taxation Office Counsel for the Defendant: The Defendant did not appear ORDERS QUD 311 of 2020 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: APSC PTY LTD ACN 622 532 736 (DEREGISTERED) Defendant order made by: DERRINGTON J DATE OF ORDER: 30 October 2020 THE COURT ORDERS THAT: 1. APSC Pty Ltd ACN 622 532 736 be reinstated pursuant to s 601AH(2) of the Corporations Act 2001 (Cth). 2. APSC Pty Ltd ACN 622 532 736 be wound up on the just and equitable grounds under s 461(1)(k) of the Corporations Act 2001 (Cth). 3. Mr Anthony Norman Connelly and Mr William James Harris be appointed liquidators for the purposes of the winding up. 4. There be no order as to costs. AND THE COURT DECLARES: 5. 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. REASONS FOR JUDGMENT DERRINGTON J: Introduction 1 This was an application made by the Deputy Commissioner of Taxation (the Commissioner) under s 601AH(2) of the Corporations Act 2001 (Cth) (the Corporations Act) for the reinstatement of the respondent company, which was deregistered by the Australian Securities and Investments Commission (ASIC) under s 601AB of the Corporations Act. The Commissioner also sought an order that the respondent be wound up and that a liquidator be appointed. 2 The originating process was filed on 7 October 2020. There was a level of urgency in determining this application due to the time limits imposed on the Commissioner in reviewing assessments. 3 The Commissioner's application was supported by the affidavit of Mr Craig Briggs of 6 October 2020, which details the records and documents obtained by the Australian Taxation Office (ATO) in relation to the respondent company. As this application was uncontested, the matters deposed to in that affidavit have been accepted and inform the background to the questions to be considered. Background 4 The application was duly served upon ASIC on 8 October 2020. ASIC indicated in response that it did not oppose the application and not wish to be heard in relation to it. ASIC was required to be served because the respondent company, having been deregistered, had no remaining registered office, other than ASIC. The applicant also served the company at its erstwhile registered address for the sake of pursuing all methods possible by which to bring the matter to the notice of the company and its director. 5 The effect of the reinstatement of the company is that it will be taken to have continued existence as if it had not been deregistered, and a person who was a director of a company immediately before deregistration becomes a director again as from the time that ASIC or the Court reinstates the company: see s 601AH(5) of the Corporations Act. Here, Mr Pairav Pahuja was the director of the company prior to its deregistration. Mr Pahuja has left Australia and now resides in India. He has no forwarding address. The Commissioner has made extensive attempts to serve Mr Pahuja by sending emails to his last known email address which he had provided to the Commissioner. An attempt was also made to serve Mr Pahuja at his last known residential address, although he was not located there. For present purposes, I am prepared to assume that Mr Pahuja has become aware of these proceedings and has chosen not to appear. Given Mr Pahuja appears to have abandoned the respondent company, it was unlikely in any event that he would respond. If it were necessary, I would be prepared to waive service on Mr Pahuja. The facts 6 The respondent company was registered on 29 October 2017. As alluded to earlier, Mr Pahuja was the sole director and shareholder. He departed Australia on 6 May 2018 and has not returned. Relevantly, on 6 November 2018, the company lodged an income tax return for the financial year ending 30 June 2018, which claimed a refundable research and development offset in the amount of $300,846. 7 On 3 December 2018, the Commissioner informed the respondent that its tax return had been selected for review. Pending this review, the Commissioner retained the respondent's research and development offset entitlement as it was authorised to do pursuant to s 8AAZLGA of the Taxation Administration Act 1953 (Cth). Consequent upon the review, the Commissioner determined that the respondent had not demonstrated that the alleged research and development expenditure claim was actually incurred on registered research and development activities for the income year ended 30 June 2018 and that it was therefore not entitled to a refundable offset. 8 He also determined that the respondent had made a false or misleading statement that resulted from recklessness as to the operation of a taxation law, and he accordingly applied a penalty, or intends to apply a penalty of $150,423. 9 On 21 March 2020, prior to the review being completed by the Commissioner, ASIC deregistered the respondent company pursuant to s 601AB of the Corporations Act, consequent upon its failure to file several documents. In effect, this was an administrative deregistration. Relief sought 10 The Commissioner now seeks reinstatement of the respondent company so that his review can be completed and the company's income tax assessment for the year ending 30 June 2018 can be amended. He also seeks the immediate winding up of the company and the appointment of a liquidator who would ensure that the company's affairs were finalised in accordance with the winding up process. Reinstatement of the company 11 Section 601AH(2) of the Corporations Act relevantly provides: 601AH Reinstatement (2) The Court may make an order that ASIC reinstate the registration of a company if: (a) an application for reinstatement is made to the Court by: (i) a person aggrieved by the deregistration; or (ii) a former liquidator of the company; and (b) he Court is satisfied that it is just that the company's registration be reinstated. Is the Commissioner a person aggrieved by the deregistration of the respondent? 12 The phrase in s 601AH, "a person aggrieved by the deregistration", is of wide import and should not be construed narrowly: Re Proserpine Pty Ltd [1980] 1 NSWLR 745, 748; Pacanowski v Australian Securities Commission (1995) 57 FCR 173, 175. Relevantly, it includes a person who has been damaged or injured in a legal sense: Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800 [22]; Callegher v Australian Securities and Investments Commissioner (2007) 218 FCR 81, 90 [50]. The Commissioner submits that he has been damaged or injured in a legal sense because he is owed a significant sum in the form of tax and penalties. That submission should be accepted: see Deputy Commissioner of Taxation; Re James Hardie Australia Finance Pty Ltd (Deregistered) (2008) 170 FCR 545, 548 [15] – [16]; Deputy Commissioner of Taxation v Lanstel Pty Ltd (1996) 22 ACSR 314. 13 As the company ceased to exist on deregistration (s 601AD(1) of the Corporations Act), while it remains deregistered, the Commissioner is unable to issue it with an amended tax assessment and unable to pursue the amount owed. As a consequence, the Commissioner is relevantly a person aggrieved by the deregistration of the respondent company and has standing to apply for its reinstatement. Is it just that the respondent's registration be reinstated? 14 Section 601AH of the Corporations Act provides that the Court may make an order for reinstatement of a company if it is satisfied that it is just to do so. In Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 (ACCC v ASIC), Austin J observed at [27] that the wording of the section is very broad, and the cases confirmed that it gives the Court a wide discretion. In determining whether reinstatement is just, the Court will take into account the circumstances in which the company came to be dissolved, whether "good use" will be made if the order is granted, whether any person is likely to be prejudiced by the reinstatement, and the public interest: see Deputy Commissioner of Taxation v Australian Securities and Investments Commission (2013) 304 ALR 319. 15 Here, the company was deregistered as a result of a failure to lodge certain documents. The fact that it was not deregistered due to its insolvency issues provides support for its reinstatement: Re Piccoli Tesori Pty Ltd (Deregistered) (2006) 151 FCR 109. For that reason, it is unlikely that any third party would be prejudiced by the reinstatement occurring. 16 It can also be concluded that the reinstatement would be in the public interest, as the respondent company no longer appears to have any commercial substance or purpose beyond its tax implications: see Deputy Commissioner of Taxation v Australian Securities and Investments Commission; Re Civic Finance Pty Ltd (Deregistered) (2010) 81 ATR 456 [38]. Further, reinstatement is the only means by which the Commissioner can complete his statutory function, having determined that the respondent company had a substantial tax liability prior to deregistration: Deputy Commissioner of Taxation v Australian Securities and Investments Commission (2010) 81 ATR 456, 465 – 466 [21]. 17 In all the circumstances, it is just that the company be reinstated and an order should be made accordingly. Winding up 18 It is now well established that there is nothing in s 601AH of the Corporations Act which inhibits the making of an order for the winding up of a company with effect from the date of its reinstatement: see ACN 078 272 867 Pty Ltd (in liq) (formerly Advance Finances Pty Ltd) v Deputy Commissioner of Taxation; Binetter v Deputy Commissioner of Taxation (2011) 282 ALR 607, 614 [38]. 19 In the present case, the Commissioner applied for an order that the respondent company be wound up in insolvency under s 459P of the Corporations Act. That provision relevantly provides that a creditor, even if the creditor is only contingent or prospective, may apply to the court for a company to be wound up in insolvency. Here, the Court should proceed on the basis that the Commissioner is a creditor, as the holder of a contingent or prospective debt. It is sufficiently established that when the assessment is issued, the company will owe a significant amount to the Commissioner, having been issued a penalty of approximately $150,000. There may well be other liabilities. On that basis, the Commissioner has standing to apply for leave to wind the company up. 20 The Court may give leave to wind the company up in insolvency only if there is a prima facie case that the company is insolvent. The Commissioner submitted that there is a strong prima facie case that the company would be unable to pay its debts, and was therefore insolvent. It has no good will or revenue and indeed, it appears it would lack an active director who would ensure that it attended to the discharge of the debts owed to the Commissioner. 21 There is a paucity of information about the company's financial affairs, but that is by no means a criticism. For present purposes, I am satisfied that there is sufficient material to warrant the conclusion that the company is insolvent. It may well be possible to wind the company up on the grounds of insolvency. However, the Commissioner alternatively submitted the company could be wound up on the just and equitable grounds under s 461(1)(k) of the Corporations Act on the basis that there is a severe lack of confidence in the management of the company's affairs without the company being wound up and the appointment of a liquidator. 22 There are good grounds to believe that to be so in this case, where there are no apparent directors or officers that are interested in or likely to manage the company after its reinstatement. The authorities make it clear that it will be appropriate to wind up a company on just and equitable grounds where it is without effective control: Legrande Enterprises Pty Ltd v Australian Securities and Investments Commission [2009] FCA 718 [33] - [34]. As observed by McKerracher J in Bell Group Ltd (in liq) v Australian Securities and Investments Commission (2018) 358 ALR 624, 651 at [91]: It can be readily inferred that a company is without effective control if it has been allowed to be deregistered and has remained in that state for a period of years or more without any action being taken to remedy the situation. Although the Deregistered Companies are apparently insolvent and could be wound up on that ground, the lack of effective control is obvious. 23 Overall, and given the lack of certainty as to the company's financial position, the safest course is to wind the company up on the just and equitable grounds. It is obvious that the lack of any adequate management has led to the company's deregistration. Its only former director is no longer in the country and has failed to show any interest in the company or these proceedings. 24 The Commissioner has the consent of liquidators who are prepared to wind up the company's affairs, and there is benefit in ensuring that the termination of its existence occurs in an orderly manner. Conclusion 25 For the reasons given above, there should be an order that ASIC reinstate the registration of the respondent company. Following reinstatement, the company is to be wound up on just and equitable grounds, and Mr Connelly and Mr Harris, who have both consented, are to be appointed liquidators. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. Associate: Dated: 30 October 2020