Federal Court of Australia Deputy Commissioner of Taxation v Discountgroceries.com.au Pty Ltd [2022] FCA 592 File number(s): NSD 1083 of 2021 Judgment of: ABRAHAM J Date of judgment: 13 May 2022 Date of publication of reasons: 20 May 2022 Catchwords: CORPORATIONS – winding up – balance of defendant company's debt to Commissioner unsatisfied – formal requirements for the making of a winding up application met – company's insolvency established – application allowed PRACTICE AND PROCEDURE – ex parte hearing – defendant company failed to appear – orders made in the company's absence pursuant to r 30.21 of the Federal Court Rules 2011 (Cth) – company's sole director regarded as party to the proceedings – application for winding up not opposed until the day before the hearing – matter adjourned previously on three occasions Legislation: Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth) Taxation Administration Act 1953 (Cth) Corporations Regulations 2001 (Cth) Federal Court (Corporations) Rules 2011 (Cth) Federal Court Rules 2011 (Cth) Cases cited: Deputy Commissioner of Taxation v Peter Sleiman [2016] NSWSC 1657 Deputy Commissioner of Taxation v Swoosh Hand Car Wash Pty Ltd [2014] FCA 73 Deputy Commissioner of Taxation v T.D. Preece Pty Ltd [2013] FCA 1365; (2013) 96 ATR 361 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 43 Date of last submission/s: 24 March 2022 Date of hearing: 13 May 2022 Solicitor for the Plaintiff: Mr K Metlej of Craddock Murray Neumann ORDERS NSD 1083 of 2021 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: DISCOUNTGROCERIES.COM.AU PTY LTD Defendant order made by: ABRAHAM J DATE OF ORDER: 13 May 2022 THE COURT ORDERS THAT: 1. Discountgroceries.com.au Pty Limited ACN 132 950 095 be wound up in insolvency under the Corporations Act 2001 (Cth). 2. Peter Hillig and Erwin Rommel Alfonso of Smith Hancock be appointed as liquidators of the defendant. 3. The plaintiff's costs (including reserved costs) be taxed and reimbursed out of the property of the defendant in accordance with s 466(2) of the Corporations Act 2001 (Cth). THE COURT NOTES THAT: 1. These orders are made ex parte pursuant to r 30.21 of the Federal Court Rules 2011 (Cth). Although these proceedings are against the company, Mr Robert Hunt, as sole director of the company, has attended the proceedings on the last two occasions on which it was listed. The Court regards him as a party for the purposes of r 30.21. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT ABRAHAM J: 1 By Originating Process filed on 15 October 2021, the plaintiff, the Deputy Commissioner of Taxation (the Commissioner), seeks that the defendant, Discountgroceries.com.au (the Company), be wound up in insolvency, or alternatively, on just and equitable grounds, and that liquidators be appointed for the purposes of the winding up. 2 The Commissioner read the following affidavits in support of the application: (1) an affidavit of Maria Victoria Llorca sworn 15 October 2021; (2) an affidavit of Maria Victoria Llorca sworn 23 March 2022; (3) an affidavit of service of Max Stewart Heptonstall sworn 23 March 2022; and (4) an affidavit of publication and lodgement of Dennis Olthof sworn 23 March 2022. 3 The Commissioner tendered the following documents in support of the application: (1) Exhibit ML-1, 3 volumes of material which support Ms Llorca's affidavit sworn 15 October 2021; (2) Exhibit J, an affidavit of Robert Lincoln Hunt sworn 1 March 2021; and (3) a consent to act as liquidator, of Mr Peter Hillig and Erwin Rommel Alfonso of Smith Hancock. 4 The Commissioner also tendered a document which Mr Hunt lodged with ASIC on 27 April 2022, giving notice that the Company had changed address. The new address is a public workspace, where people pay to use the facilities in a shared office space. It was said that this was brought to the Court's attention for completeness, given the ex parte nature of the hearing. I have not used this material in considering this matter. Factual background 5 The Company was incorporated on 27 August 2008. Since that time, Mr Robert Lincoln Hunt was its sole director and shareholder. 6 Between October 2019 and November 2020, the Company applied for and was issued with approximately 3,943 ABNs as trustee of various trusts, each of which applied and became registered for GST. Between January 2020 and November 2020, the Company in its capacity as trustee of those trusts claimed GST refunds, resulting in the Commissioner paying to the Company an amount of $1,347,42.00. 7 On or around 21 September 2020, the Commissioner initiated a review of the BAS lodged by the trusts associated with the Company and determined that neither the trusts nor the Company were conducting an enterprise for GST purposes. The Commissioner determined that the trusts were never entitled to an ABN nor GST registration and that the refunds made should be reversed on the basis that there was no entitlement to claim them. As a consequence of the review, the Commissioner cancelled the ABN and GST registrations of each trust and issued notices of amended assessment of net amounts and notices of assessment of administrative penalty for intentional disregard of a taxation law. 8 On 22 December 2020, the Commissioner commenced proceedings against the Company and obtained freezing orders against the Company up to the value of $3,137,250.00. On 1 March 2021, pursuant to orders made on 31 December 2020, the Company filed and served an affidavit setting out the extent of the Company's assets in Australia. On 22 June 2021, judgment was entered in the recovery proceedings by consent, in favour of the Commissioner and against the Company for $3,271,395.41. 9 Pursuant to Orders made on 29 November 2021, again made by consent, the Company has repaid to the Commissioner funds in the amount of $1,128,810.82. Accordingly, the Company's indebtedness to the Commonwealth of Australia remains unsatisfied in the amount of $2,275,015.20 (Judgment Debt) including interest calculated to 23 March 2022 pursuant to s 52 of the Federal Court of Australia Act 1976 (Cth). Procedural history 10 On the date the Court heard the originating process, 13 May 2022, Mr Hunt failed to attend either remotely or in person. At the hearing, the Commissioner applied for the matter to proceed ex parte. The Commissioner outlined her reasons for doing so, which were based, in part, on the history of this matter. 11 It is necessary, therefore, to outline the procedural history of this matter. 12 This matter was initially listed for hearing on 30 March 2022. That date was agreed by the parties after conferring with each other, and communicated to the Court by email on 4 March 2022. The Company was represented by legal practitioners at that time. Prior to the original date for hearing, the Court had been informed that the Company was not advancing any submission in opposition to the winding up application. Consistent with that, the Company had not, and since has not, provided notice opposing the application pursuant to s 465C of the Corporations Act 2001 (Cth). The Federal Court (Corporations) Rules 2011 (Cth) (FCCR) requires notice of the grounds of opposition be provided and an affidavit verifying the matters stated in the notice. 13 On 29 March 2022, the day before the hearing scheduled for 30 March 2022, the solicitor representing the Company wrote to the Court informing the Court that his firm, Hamilton Locke, no longer acted on behalf of the Company. The solicitor copied Mr Hunt into that email. 14 On 30 March 2022, Mr Hunt appeared and informed the Court that, as of the previous day, the Company no longer had legal representation. This was said to be a result of Mr Hunt informing his lawyers that he now wanted to oppose the application (contrary to the previous conduct of the proceedings). The hearing was adjourned on Mr Hunt's request, to allow him to seek legal advice or obtain legal representation, and orders were made for Mr Hunt to file any application, evidence and submissions on which he wished to rely in respect to representing the Company, and in respect to opposing the application, by 7 April 2022. The hearing of the application was adjourned until 12 April 2022. 15 The Company did not file any material. At the hearing on 12 April 2022, the second listing for the hearing, Mr Hunt applied for a further adjournment, requesting that the matter not proceed until a complaint which he said he had recently lodged with the Tax Department had been finalised. I note Mr Hunt did not provide any evidence of the fact of any complaint having been lodged, or the nature thereof. Mr Hunt also sought more time for the purpose of obtaining legal representation. That application was opposed by the Commissioner. I refused to adjourn the hearing until an unspecified time after any complaint was adjudicated on. That said, over the Commissioner's objection, I granted another adjournment of the hearing until 6 May 2022, and extended the time within which the Company had to comply with the orders until 28 April 2022. It was made clear to Mr Hunt that the matter would be heard on that occasion regardless of whether the company was legally represented. The Company did not file any material in compliance with the orders, nor did Mr Hunt correspond with the Court during this period. 16 To enable the matter to be adjourned until 6 May 2022, pursuant to s 459R(2) of the Corporations Act, I ordered that the time for determination of this application be extended up to and including 15 June 2022. This was necessary because the six month period, required by the Corporations Act within which this application needed to be determined, would have expired. 17 I note that despite Mr Hunt claiming he was making a complaint to the Australian Tax Office, the Court was informed on 13 May 2022 that the Commissioner's investigation revealed that no complaint had been made. The Commissioner indicated to the Court that no complaint initiated by Mr Hunt had been received by the Inspector General of Taxation. 18 On 5 May 2022, the day before the hearing scheduled for 6 May 2022, the third listing of the matter, Mr Hunt sent an email to chambers explaining he was unwell, and had been since the Monday, that being 1 May 2022. He forwarded a very brief medical certificate covering the period up until 6 May 2022. I adjourned the matter again, without objection, until 13 May 2022. 19 On 11 May 2022, two days before the hearing scheduled for 13 May 2022, the fourth listing of the matter, Mr Hunt sent an email to chambers informing the Court he was still unwell and had an appointment with his doctor the next day. In that email he did not request an adjournment. 20 On 12 May 2022, the day before the hearing scheduled on 13 May 2022, Mr Hunt sent an email to chambers attaching a very brief medical statement and requesting that the matter be adjourned until his doctors said he was fit to attend. Although more information was provided than in the previous certificate, it still consisted of only six lines, and admitted that Mr Hunt's "diagnosis isn't clear at the moment". The statement referred to Mr Hunt undergoing neurological investigation. I note that, as observed by the Commissioner, the statement does not provide any explanation, as opposed to asserting, that Mr Hunt was unfit to attend court on the day of the hearing. Nor is there any basis for the assertion that Mr Hunt needed "respite from the court process for at least 2 to 4 weeks", and why, if respite was needed, that period was appropriate. The Commissioner opposed any adjournment. As a consequence, Mr Hunt was informed that the matter would remain listed for 13 May 2022, and that if he wished to make an adjournment application he could do so then, and it would then be adjudicated on. Mr Hunt was informed he could attend court remotely, and for that purpose was provided with a link to join the hearing. No response from Mr Hunt was received by the Court. 21 In addition to the history of the proceedings, the Commissioner relied on the fact that nothing substantive has been put forward by the Company from which an inference could be drawn that there was a proper basis for it to oppose this application for winding up. 22 It was in that context that Mr Hunt failed to attend the hearing. 23 In the circumstances, I granted the request by the Commissioner for the matter to proceed ex parte. As is apparent from the above chronology, this was the fourth occasion on which the matter had been listed for hearing. The orders made referred to above at [8], as to the underlying tax debt and repayment of money, were made by consent. The Company was represented until the day before this application was first listed for hearing. As the sole director, it can be assumed that Mr Hunt provided the instructions on which the matter had been conducted until that time. This included that the Company was not providing any evidence or basis for opposing this application. Consistent with that, since the day of the first hearing, Mr Hunt has not provided any application nor any evidence on which he may have sought to challenge the making of the orders. No grounds for any challenge have been identified by him. 24 The time by which material on which the Company wished to rely had to be filed, having been extended, was 28 April 2022. That date passed before any medical issue was said by Mr Hunt to have arisen. No material was filed. Therefore, there is not material nor evidence on which Mr Hunt could rely to oppose the application. Nor has the failure to file any material by 28 April 2022 been explained, or an extension to file material been sought. Further, Mr Hunt has not provided any information as to any submission he was intending to make opposing the application for winding up. Mr Hunt was notified of the date of the hearing and he was informed of the requirement to make the application for an adjournment. This was the fourth time the matter had been listed for hearing. 25 In proceeding to hear the matter ex parte, I noted that although at this stage Mr Hunt does not have leave to represent the Company, for the purpose of r 30.21 of the Federal Court Rules 2011 (Cth), I regard him as a party in the proceedings. As such, I allowed the hearing to proceed pursuant to r 30.21(1)(b)(i). 26 A consequence of making the orders following the hearing proceeding ex parte is that Mr Hunt can apply to set aside or vary the orders made: see r 30.21(2) and r 39.05(a). Consideration 27 On 13 May 2022, I made orders winding up the Company and appointing liquidators. These are my reasons for doing so. 28 For the reasons below, I am satisfied that the Company is insolvent, has no prospects of profitable trading in the future and should be wound up in insolvency. 29 A creditor may apply to the court for an order that a company be wound up in insolvency: s 459P(1)(b) of the Corporations Act. The Court is empowered, upon application made to it, to order that an insolvent company be wound up in insolvency: s 459A of the Corporations Act. I note that the Court has a discretion which may be exercised on any ground not extraneous to the scope and purpose of the Corporations Act: see Deputy Commissioner of Taxation v Swoosh Hand Car Wash Pty Ltd [2014] FCA 73 at [10], and Deputy Commissioner of Taxation v T.D. Preece Pty Ltd [2013] FCA 1365; (2013) 96 ATR 361 at [18]. 30 I note that before the first hearing date the Company was served with the evidence and written submissions relied on by the Commissioner in support of its application. 31 There are a number of formal requirements for the making of an application, which arise from the Corporations Act, the FCCR, and the Corporations Regulations 2001 (Cth). 32 The evidence establishes that each of those requirements has been established. 33 The Commissioner advanced seven matters which establish insolvency. For the reasons relied on by the Commissioner, based on the evidence, the Company's insolvency is established. 34 First, the Company continues to be indebted to the Commissioner for the unpaid balance of the Judgment Debt, being $2,275,015.20, a judgment obtained by the Commissioner with the Company's consent. 35 Second, no stay of enforcement of the Judgment Debt has been sought or obtained by the Company; the due time for payment of the underlying tax grounding the Judgment Debt has not been deferred by the Commissioner pursuant to s 255-10 of Sch 1 of the Taxation Administration Act 1953 (Cth) (TAA53), nor has any arrangement to pay the Judgment Debt by instalments been sought or granted pursuant to s 255-15 of Sch 1 to the TAA53. 36 Third, although the exercise of rights of objection and review afforded to the Company under Part IVC of the TAA53 would not itself warrant a conclusion that the Judgment Debt was not immediately due and payable, no such objections or relevant reviews are extant, nor is there any indication that the Company intends to pursue them. In oral submissions the Commissioner relied on the case of Deputy Commissioner of Taxation v Peter Sleiman [2016] NSWSC 1657, and submitted that the present case bore some parallels to it. There is no evidence in this case of any objection being pursued which could reduce the company's liability. This is in a context where the judgment as to the tax debt of the Company was made by consent. The fact there might, at some future time, be an objection by Mr Hunt is not a matter that is relevant to the exercise of the Court's discretion. 37 Fourth, as a result, the unpaid balance of the Judgment Debt has been payable since 23 June 2021, but the debt remains unpaid. There are no indications of 'commercial reality' which warrant a different conclusion be drawn as to payment and in respect of which the Company is required, but has neglected, to make payment as a matter of commercial reality. 38 Fifth, the Company has no significant assets from which it could pay the unpaid balance of the Judgment Debt. With the exception of office equipment of de minimis value, the Company's only assets were amounts held in the bank accounts identified in Ms Llorca's affidavit sworn 15 October 2021, and since the date of that affidavit, almost all of that has been paid to the Commissioner as required by the Orders made on 29 November 2021. Those amounts have been insufficient to discharge the Judgment Debt. 39 Sixth, there is no prospect of the Company generating revenue in the foreseeable future. The Company's ABNs and registrations for GST were cancelled, and have since not been re-issued, because the Company and its associated trusts did not conduct an enterprise. Further, the Company appears to be wholly undercapitalised, which would prevent it from engaging in any type of income-producing activities. The Company also does not hold any assets from which revenue could be derived. 40 Seventh, the prospect of the Company borrowing funds to permit it to pay the unpaid balance of the Judgment Debt is unrealistic. For the reasons above, there is little prospect of a commercial lender advancing funds to a company with no revenue, no assets and that is not engaging in enterprise. There is also no suggestion that any related parties could advance funds to the Company, or act as a guarantor. Even if those related parties had the capacity to do so, their failure to have done so since 23 June 2021 warrants a conclusion that the possibility of such borrowings by the Company is illusory. 41 Given the above circumstances, I am satisfied that the unpaid balance of the Judgment Debt is a debt due and payable, which cannot be paid by the Company either immediately or in the foreseeable future. Consequently, the Company is insolvent. 42 I also accept the Commissioner's submission that in circumstances where the Company is insolvent, there is no basis to conclude that there is any public interest served in declining or deferring the making of a winding up order, and indeed, the public interest is best protected with the Company not being permitted to continue in commercial life. As Mr Hunt did not file any material in compliance with the Court's order, nothing is advanced to the contrary. 43 Given my conclusion, it is unnecessary to consider the Commissioner's alternative submission that the Company be wound up on the grounds it would be just and equitable to do so. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Abraham. Associate: Dated: 20 May 2022