Federal Court of Australia Deputy Commissioner of Taxation v Jackson Bell Pty Ltd, in the matter of Jackson Bell Pty Ltd [2023] FCA 916 File number(s): NSD 486 of 2023 Judgment of: HALLEY J Date of judgment: 4 August 2023 Catchwords: CORPORATIONS – application by sole director, secretary and shareholder of the defendant company (Company) for order under s 482 of the Corporations Act 2001 (Cth) that winding up of the Company be terminated – consideration of factors relevant to whether winding up should be stayed or terminated – application granted Legislation: Corporations Act 2001 (Cth) s 482, Sch 2, Insolvency Practice Schedule (Corporations) ss 90-15 Cases cited: Brolrik Pty ltd v Sambah Holdings Pty Ltd (2001) 164 FLR 91; [2001] NSWSC 1171 Commissioner of State Revenue (Cth) v He To Be Pty Ltd [2020] FCA 189 Re Glass Recycling Pty Ltd (ACN 001 332 654) [2014] NSWSC 439 Re MWM Sydney Pty Ltd (in liq) [2016] NSWSC 688 Re Warbler Pty Ltd (1982) 6 ACLR 526 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 55 Date of hearing: 4 August 2023 Solicitor for the Plaintiff: Ms S Tong of Mills Oakley Counsel for the Defendant: Ms N Bailey Solicitor for the Defendant: Matthews Folbigg Lawyers ORDERS NSD 486 of 2023 IN THE MATTER OF JACKSON BELL PTY LTD BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: JACKSON BELL PTY LTD Defendant order made by: HALLEY J DATE OF ORDER: 4 AUGUST 2023 THE COURT NOTES: A. The undertaking by the applicant by his Counsel to the Court, to take all reasonable steps to ensure that the respondent comply with its obligations in Order 4 by directing his solicitors to pay to the Deputy Commissioner of Taxation within two (2) business days the amount of $374,573.76 from the monies held for him on trust by his solicitors. THE COURT ORDERS THAT: 1. Pursuant to s 482 of the Corporations Act 2001 (Cth) (Act), the winding up of Jackson Bell Pty Ltd (In Liquidation) (Company) is terminated with immediate effect. 2. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Act, the remuneration of Christian Sprowles as liquidator of the Company for the period from the date of his appointment to the date of lodgement of any necessary final notices or returns to the Australian Securities and Investments Commission be approved in the amount of no more than $29,380.14 (including GST). 3. Mr Sprowles is directed to return to the Company the funds held by him as liquidator, including trust funds, subject to payment of the following which, for the avoidance of doubt, may be withdrawn from the funds in the bank account "Jackson Bell Pty Ltd (In Liquidation)" in his control: (a) the petitioning creditor's costs totalling $2,564.86, which are to be paid to the Deputy Commissioner of Taxation; (b) his remuneration incurred up to the amount approved by Order 2; and (c) any reasonable expenses and disbursements incurred or paid by him in the course of his duties as liquidator of the Company. 4. The respondent is to pay its outstanding taxation liabilities owed to the Deputy Commissioner of Taxation, in the amount of $374,573.76, within two (2) business days. 5. The respondent is to pay the costs incurred by the Deputy Commissioner of Taxation in relation to the Interlocutory Process filed on 2 August 2023, fixed in the amount of $1,500.00. 6. These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) HALLEY J: A. Introduction 1 The applicant, Mr Matthew Southwell, seeks an order pursuant to s 482 of the Corporations Act 2001 (Cth) (Act) that the winding up of Jackson Bell Pty Ltd (in liquidation) (Company) be terminated. 2 The applicant relies on the following affidavits in support of his application: (a) an affidavit that he affirmed on 2 August 2023; (b) an affidavit affirmed by Mr Jason Hammond, an accountant, on 2 August 2023; and (c) an affidavit sworn by Mr Jacob Reardon, a solicitor employed by Matthews Folbigg Pty Ltd, the solicitors for the applicant, on 5 August 2023. 3 For the reasons that follow, I am satisfied that the winding up of the Company should be terminated. The applicant is and always has been, the sole director, secretary and shareholder of the Company. A. Background B.1. Business of the Company 4 The Company was incorporated on 21 May 2014. 5 On 11 July 2023, the Company was wound up pursuant to orders made in this proceeding on the application of the Deputy Commissioner of Taxation (DCT) and Mr Christian Sprowles (liquidator) was appointed liquidator of the Company. The registered office of the Company is also the office of the Company's accountant, Mr Hammond. 6 Prior to its liquidation, the Company conducted a business of managing residential leases and rental income and conducting property sales. The majority of the Company's business involved the management of rental properties and collection of rental income on behalf of property owners for which the Company would earn a management fee. When the Company was incorporated in 2014, it had approximately five management agreements, but by 11 July 2023, the number of management agreements had increased to 130 properties (Rental Roll). B.2. Outstanding BAS 7 In the period between February 2021 and May 2023, the Company employed a bookkeeper to undertake internal accounting activities for the Company, including the preparation and lodgement of monthly business activity statements (BAS). 8 I have, earlier, made reference to the Company's accountant, Mr Hammond. Mr Hammond is a public accountant and certified tax specialist. He has been practising as an accountant for over 27 years. He regularly acts as an external accountant for companies. In the period between December 2021 and 11 July 2023, Mr Hammond was engaged by the Company to prepare and finalise year-end financial reports and prepare and lodge the Company's tax filings. 9 In about September 2022, Mr Hammond commenced the preparation of the Company's end of year accounts for the 2021/2022 financial year. 10 In the course of undertaking that work, it came to his attention that the Company's monthly BAS had not been prepared or lodged for June 2010 or at any time in the period between 1 November 2020 and 31 July 2022, in aggregate, a total of some 23 months. 11 On 3 September 2022, Mr Hammond arranged for the 23 outstanding BAS to be prepared and lodged with the ATO. The lodgement of these BAS resulted in a liability owed by the Company to the DCT of some $184,878. Shortly after lodging the outstanding BAS on 3 September 2022, Mr Hammond had a conversation with the Company's bookkeeper regarding future BAS lodgements. In the course of that discussion, the bookkeeper stated that he would ensure, in the future, that all GST liabilities of the Company would be recorded in its books and he would prepare and lodge each monthly BAS by the due date. 12 The following year, in May 2023, in the course of commencing the preparation of the accounts of the Company for that year, Mr Hammond realised after viewing the Company's ATO portal account that the Company's BAS for the period 1 September 2022 to 30 April 2023 had not been lodged. On 20 May 2023, Mr Hammond informed the applicant that the bookkeeper had failed to lodge BAS for that period and he had received a creditor's statutory demand from the DCT. He also advised the applicant that there would be a liability arising from the BAS that had not been lodged on time by the bookkeeper, which needed to be sorted out as soon as possible. B.3. Proposed payment plan 13 On or about 22 May 2023, the applicant was advised by Mr Hammond that all BAS lodgements would need to be brought up to date before the DCT would enter into any payment plan and that he was working on finalising those lodgements. 14 In late June 2023, Mr Hammond informed the accountant that all lodgements were now up-to-date and that a payment plan of $10,000 per month had been entered into with the DCT. 15 On or about 29 June 2023, Mr Hammond had a conversation with an ATO debt officer in which the officer said to him words to the effect that now that a payment plan had been agreed, the DCT would take no further enforcement action. 16 On or about 3 July 2023, Mr Hammond had a further telephone conversation with a debt officer of the ATO in which the officer informed him that the payment plan had been initiated and would be made live on the tax portal. The debt officer also informed Mr Hammond in the course of that conversation that as there were no outstanding lodgements and there was a payment plan in place, the DCT would discontinue all recovery action. 17 The first payment under the payment plan was due on 20 July 2023. Although Mr Hammond received a copy of the statutory demand served at the request of the ATO, on 20 May 2023, he did not receive any court documents from the DCT, including the originating process filed in these proceedings or other documents relied upon by the DCT. He assumed, notwithstanding receipt of the statutory demand, that, as all BAS had been brought up to date and, as he understood it, the ATO had agreed to a payment plan with the Company, no further action would be taken against the Company by the DCT. 18 The applicant states that had he been aware that there had been an application to wind up the Company, he would have caused the Company to defend the application on the basis that the Company was solvent. He gives evidence that he was not aware of any application until he was notified of the appointment of the liquidator on 12 July 2023. B.4. Financial position of the Company 19 The evidence before me as to the financial position of the Company includes, relevantly, unaudited, signed financial accounts for the financial year ended 30 June 2023 that were prepared jointly by the applicant and the Company's accountant, Mr Hammond (Financial Report). The Financial Report was prepared from the Company's books and records, including ledgers. Each of the applicant and Mr Hammond have given evidence that they are satisfied that the Financial Report accurately reflects and records their Company's financial position. The Financial Report discloses that the income of the Company for the financial year ended 30 June 2022 was $728,543 and for the financial year ending 30 June 2023, it was $680,584. The Financial Report also discloses that the profit from ordinary activities before income tax was $71,422 for the financial year ending 30 June 2022 and $22,525 for the financial year ending 30 June 2023. 20 The Financial Report discloses that the current assets of the Company for the financial year ending 30 June 2023 included a deposit by the applicant that was stated to be held in trust of $374,574. Further, the financial statements disclose the taxation liability relating to prior years' debts, crystallising on 29 June 2023, of some $366,324.77. Finally, the financial reports record net assets for the financial year ending 30 June 2022 of $123,545 and $174,148 for the financial year ending 30 June 2023. 21 The main asset of the Company is the rent roll from which all management fees are derived. An appraisal report prepared in February 2023, disclosed that the indicative market value of the rent roll was between $613,440.24 and $633,228.60. During the period 1 July 2022 to 30 June 2023, the management fees derived by the Company from the rent roll were $313,477. The management agreements between the Company and landlords are not subject to a fixed term and can be terminated by notice by either party. As at 2 August 2023, no landlords had given notice to terminate their management agreements with the Company. 22 The Company has also derived revenue from commissions of the sales of property included in the rent roll. 23 As at 11 July 2023, the Company also had $31,962.24 in its trading bank account. 24 The liabilities of the Company as at 2 August 2023 amounted to $374,573.76 and comprised (a) the debt owed by the Company to the DCT of $372,008.88, being $284,896 in BAS and $87,112.88 in general interest charges, and (b) $2564.88 for the DCT's costs as a petitioning creditor. 25 The applicant provided an unsecured loan to the Company of some $35,739, but he has since forgiven that loan and thus, there is a consequent decrease in the Company's liabilities from the financial year ending 30 June 2022, as shown in the Financial Report. 26 The DCT is the Company's only creditor which has not been paid within terms, and there are no other debts owing by the Company to any other creditor. 27 On 24 July 2023, the applicant paid an amount of $374,574 into the trust account of his solicitors. That amount was paid from the applicant's own funds and by way of a contribution to the capital of the Company. It is that amount that the applicant proposes to utilise for the purpose of the Company paying its outstanding liabilities to the ATO. B.5. Future prospects of the Company 28 The applicant gives evidence that if the Court grants the application, the Company is returned to his control and the liquidation is terminated, the Company will continue to operate its rent roll business. Based on the current rent roll, the applicant expects the Company to derive $28,500 per month during the period from August 2023 to February 2024. 29 Thereafter, he expects that the Company's monthly revenue will increase to $35,000 per month, based on recent trends in the growth of the rent roll, such as increases in the number of landlords being managed by the Company. 30 The proposed future operating expenses of the Company can be summarised as follows: (a) the employment of a property manager and an assistant property manager resulting in payroll expense of some $11,925.04 per month; (b) advertising and subscriptions associated with monthly listing and advertising website, an expected average monthly expense of $4333; (c) office expenses such as computer and general expenses, insurance, accounting, repairs and matters of that nature in an amount of an average monthly expense of $3488; and (d) motor vehicle expenses which relate to fuel and sundry expenses paid to the property managers for the use of their motor vehicles, which is expected to be a monthly expense of $500. 31 Significantly, the applicant has worked with Mr Hammond to prepare a forecast of the Company's expected income and expenses for the 12 months from 1 July 2023 to 30 June 2024 (Forecast), based on the above assumptions as to the future operations of the Company, together with the applicant's review of the Company's books and records and his knowledge of the Company's operations. 32 The Forecast demonstrates that it is anticipated the Company will have approximately $20,000 in profit after payment of all anticipated expenses per month. The applicant gives evidences that he understands that the Company will continue to accrue a liability to the DCT in respect of its trading activity, and that he is committed to causing the Company to lodge properly and pay all taxation amounts which the Company will be liable to pay in the future. The applicant states that he has now instructed the accountant to be responsible for the Company's BAS lodgements (since the bookkeeper's employment was terminated after the discovery of the late BAS lodgements). 33 The applicant also gives evidence that if the application is granted, he intends to cause the Company to engage an external bookkeeper to ensure that all financial data is correctly prepared and entered into the Company's MYOB system and that Mr Hammond is provided with all necessary information to ensure the timely and accurate preparation and lodgement of the Company's BAS and other taxation lodgements. The applicant also gives evidence that he intends to meet with the accountant each month to ensure that all of the Company's taxation lodgements and payments are up to date and that the Company's MYOB system is properly updated and reconciled. B.6. Position of the DCT, ASIC and the liquidator 34 The applicant also gives evidence that he has liaised with the liquidator regarding the status of the liquidation and in order to progress this application, and that he has submitted his ROCAP (report of company affairs), and has responded to all queries asked of him by the liquidator. The applicant confirms, as the sole member of the company, that he supports the application. The applicant has given notice to the DCT, the liquidator and the Australian Securities and Investments Commission (ASIC) of this application. 35 The DCT appears today to support the application. The application includes an order providing for the payment by the Company of the outstanding debt owed by the Company to the ATO in full. That order is proposed to be further supported by an undertaking from the applicant that he will take all necessary steps to ensure that the money that he has placed in the trust account with his solicitors will be utilised to provide the Company with the funds to meet that order. 36 The liquidator has confirmed that, having reviewed the financial statements of the Company and the cash flows prepared by the Company's accountant, Mr Hammond, together with the affidavits of the applicant and Mr Hammond, that the Company appears to him to be solvent. The liquidator has advised the applicant that he does not oppose the application to terminate the winding up. 37 ASIC has not provided any substantive response to the notification of today's application, but nothing in the material before me causes me to have any concern that ASIC may, itself, have any concerns about the application to terminate the winding up and to restore the Company to the control of the applicant. Relevant principles 38 The Court's power to terminate the winding up of a company is conferred by s 482(1) of the Act which provides as follows: 482 Power to stay or terminate winding up (1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order. 39 In considering the exercise of the discretionary power in s 482(1), the following eight factors set out by Master Lee QC of the Supreme Court of Queensland in Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533 provide useful guidance: 1 The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary and Edmonton Land Co Ltd (in liq) (1975) 1 WLR 355 at 358–359 per Megarry J. See also sec 243 of the Act [ie, Companies Act 1961]. 2 There must be service of notice of the application for a stay on all creditors and contributories, and proof of this: Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113. 3 The nature and extent of the creditors must be shown, and whether or not all debts have been discharged: Krextile Holdings Pty Ltd v Widdows supra [[1974] VR 689]; Re Data Homes Pty Ltd supra [1971] 1 NSWLR 338]. 4 The attitude of creditors, contributories and the liquidator is a relevant consideration: sec 243(1), Re Calgary and Edmonton Land Co Ltd supra. 5 The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: Re a Private Company [1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VR 593 at 598. 6 If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd, supra [[1903] 2 Ch 174]. 7 The general background and circumstances which led to the winding-up order should be explained: Krextile Holdings Pty Ltd v Widdows, supra. 8 The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to "commercial morality" or the "public interest": Krextile Holdings Pty Ltd v Widdows, supra; Re Data Homes Pty Ltd, supra … 40 In Re MWM Sydney Pty Ltd (in liq) [2016] NSWSC 688, Black J cited the eight factors set out in Re Warbler with approval and stated, relevantly, at [17]: Master Lee noted that this list was not intended to be exhaustive and should not be regarded as a series of rigid principles, and that proposition has subsequently been endorsed in later case law: Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 at 724, Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160 at [5] and Von Riesefer v Mainfreight International Pty Ltd [2009] VSCA 129; (2009) 73 ACSR 427 at 438; Re 311 Hume Highway Liverpool Fund Pty Ltd (in liq) [2013] NSWSC 465; 93 ACSR 683 at [4]. 41 In circumstances where winding up orders have been made against a company on insolvency grounds, the question of solvency will be a primary consideration for the Court: Brolrik Pty ltd v Sambah Holdings Pty Ltd (2001) 164 FLR 91; [2001] NSWSC 1171 at [28] (Barrett J). In Re Glass Recycling Pty Ltd (ACN 001 332 654) [2014] NSWSC 439 at [18], Brereton J stated, relevantly: Thus it has been said that an order terminating the winding up would usually be made if all the creditors are paid out, the liquidators' costs and expenses are covered, and the members agree [Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, [58]; Re Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280]. 42 In addition, I note that Ms Bailey of counsel who appears for the applicant has drawn to my attention the decision of Banks-Smith J in Commissioner of State Revenue (Cth) v He To Be Pty Ltd [2020] FCA 189 in which her Honour made orders terminating a winding up in circumstances where (a) the directors had deposed to not having received a statutory demand issued by the Commissioner or the subsequent winding up documents, (b) the petitioning creditors' debt and priority costs had been met, (c) taxation lodgements were up-to-date, (d) a director had deposed to belief in the solvency of the Company, (e) the liquidator did not oppose the application, (f) The Commissioner consented and, (g) ASIC having been notified, did not participate in the matter. Further, there had been no indication from the liquidator of any ongoing breaches of the company in its accounting or taxation obligations. Consideration 43 I am satisfied that the evidence relied upon by the applicant provides a sufficient basis for me to conclude that the winding up of the Company should be terminated. In particular, I have regard to the following matters. 44 First, the provision by the applicant of the capital injection of $374,574 currently held in a trust account of his solicitors, which has been provided by him in order enable the Company to meet, in full, its outstanding obligations to the petitioning creditor, the DCT. 45 Second, the consequence of the provision of those funds, together with the associated undertaking that those funds will be used to enable the Company to meet those outstanding obligations to the DCT, means that the debts, that were the basis of the order winding up the Company, have been paid. 46 Third, the ATO appears today to support the application for the termination of the winding up. 47 Fourth, the orders sought today by the applicant include orders that will ensure that the liquidator is paid for the work that has been undertaken with respect to the winding up of the Company and the liquidator does not oppose the termination of the winding up. 48 Fifth, the ATO is the only creditor with any outstanding amounts due to it. 49 Sixth, the Financial Report and Forecast reveals that the Company has been trading profitably, there is substantive evidence of current contracts with property owners comprising the rent roll and the Forecast reveals that the Company expects to trade more profitably in the financial year ending 30 June 2024 based on what appear, on their face, at least, to be realistic and appropriate assumptions as to both expenses and income. 50 Seventh, the events that had led to the winding up order have been explained and the steps taken to address those matters to ensure that they do not take place in the future have been the subject of detailed evidence on this application. 51 Eighth, no issue has been raised as to any concerns about ongoing breaches by the Company of its obligations to maintain proper accounts and meet its taxation liabilities given the steps that the applicant and Mr Hammond, the Company's accountant, have taken and have proposed to take in the future to address those matters. 52 Ninth, apart from matters concerning tax liabilities, no issue has been raised in relation to any breach of statutory obligations or misconduct by any officer of the Company. 53 Tenth, no issue has been raised that would mean that there was any public interest in the affairs of the Company being wound up under the supervision of a liquidator. 54 Finally, the application is brought by the sole shareholder of the Company and, therefore, is clearly an application which all members of the company have joined. Disposition 55 For the foregoing reasons, the Court will make orders pursuant to s 482(1) of the Act for the termination of the winding up of the Company with immediate effect. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley. Associate: Dated: 4 August 2023