Application of Michael Kandy [2008] NSWSC 314

New South Wales Supreme Court

CITATION : Application of Michael Kandy [2008] NSWSC 314

HEARING DATE(S) : 07/04/08

JUDGMENT DATE : 7 April 2008

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

EX TEMPORE JUDGMENT DATE : 7 April 2008

DECISION : Order that ASIC reinstate registration of R & L Transport (NSW) Pty Ltd. Order that R & L Transport (NSW) Pty Ltd be wound up.

CATCHWORDS : CORPORATIONS - reinstatement of deregistered company - application by sole director and shareholder - whether "person aggrieved" - factual interest in company's co-operating in taxation audit

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 601AA, 601AH2 Taxation Administration Act 1953, s 8Y

CATEGORY : Principal judgment

CASES CITED : Vukasin v Australian Securities and Investments Commission [2007] NSWSC 1341; (2007) 25 ACLC 1554 Warton v Harris [2005] NSWSC 1168; (2005) 56 ACSR 122

PARTIES : Michael Kandy - Plaintiff

FILE NUMBER(S) : SC 1857/08

COUNSEL : Mr S M Golledge - Plaintiff

SOLICITORS : Peter M Wayne & Associates - Plaintiff

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

MONDAY 7 APRIL 2008

1857/08 APPLICATION OF MICHAEL KANDY

JUDGMENT

1 The plaintiff, Mr Kandy, was the sole shareholder and sole director of R & L Transport (NSW) Pty Ltd at the time it ceased to exist on 2 December 2007 by reason of its deregistration. That deregistration occurred under s 601AA of the Corporations Act 2001 (Cth) as a result of an application by the company itself. Mr Kandy has explained in his affidavit that there was no reason for the company to continue its business and therefore no need for the company to continue in existence. 2 Matters would no doubt have been left there had it not been for receipt of a letter of 24 December 2007 from the Australian Taxation Office. The letter was addressed to Mr Kandy in his capacity as the director of the company which by then had ceased to exist. The letter informed Mr Kandy of an intention by the Australian Taxation Office to conduct an audit of activity statements lodged by the company for the purposes of goods and services tax. It was made clear that books and records of the company would need to be produced for inspection. There was reference in the letter to the possibility that penalties might be imposed in relation to tax shortfall amounts on activity statements for up to four years. 3 It is the receipt of the letter from the Australian Taxation Office and the intention of that office to conduct an audit that prompts Mr Kandy to seek an order directing that the Australian Securities and Investments Commission reinstate the registration of the company. 4 Under s 601AH(2) the court may make such an order on the application of a person aggrieved by the deregistration if it is satisfied that it is just that the registration be reinstated. 5 Mr S M Golledge of counsel has submitted on Mr Kandy's behalf that he is a person aggrieved for the purposes of the section. Mr Golledge acknowledges that in general mere status as a shareholder or director or both does not of itself cause a person to be a person aggrieved for the purposes of the section. There must be something more. In the case of a shareholder, for example, it might be shown that the deregistered company has assets exceeding liabilities in which the shareholder accordingly has an interest: for example, Vukasin v Australian Securities and Investments Commission [2007] NSWSC 1341; (2007) 25 ACLC 1554 at [12]. 6 That I might say is not the case here. Mr Kandy's evidence is that the company has no assets and no income and could not pay any debts that might arise from any audit by the Australian Taxation Office. Mr Kandy's claim to be a person aggrieved by the deregistration focuses upon his status as a director. 7 Reference has been made to s 8Y of the Taxation Administration Act 1953, subsection (1) of which states: "Where a corporation does or omits to do an act or thing the doing or omission of which constitutes a taxation offence, a person (by whatever name called and whether or not the person is an officer of the corporation) who is concerned in, or takes part in, the management of the corporation shall be deemed to have committed the taxation offence and is punishable accordingly." 8 The effect of this provision is that Mr Kandy, as the sole director, would be deemed to have committed any taxation offence that the company was shown to have committed and Mr Kandy would be punishable accordingly. 9 If the company had committed some taxation offence in the past, it might well be said, as was said in Warton v Harris [2005] NSWSC 1168; (2005) 56 ACSR 122 at [5], that it would make no difference to any derivative liability of Mr Kandy that the company existed or did not exist. But that is not really the position here. It is not shown that there has been any completed taxation offence or non-compliance. Rather, the Australian Taxation Office has indicated that it wishes to investigate matters by way of audit. 10 Mr Kandy, it seems to me, has a demonstrable interest in having that investigation take place. It is what Austin J, in Vukasin (above), at [12], described as a "factual interest". It may be that when the Taxation Office reviews the company's records it will come to the conclusion that the taxation affairs have been properly administered and that there has been no non-compliance or irregularity. In that event, there would be no taxation offence and no basis on which Mr Kandy could be liable in a secondary or derivative sense pursuant to s 8Y. It is also possible that, with the company in existence, Mr Kandy might be able to agree some compromise between it and the Australian Taxation Office if any dispute emerges. 11 I am satisfied that existence of the company and its ability, as an entity, to respond to the requests and requirements of the Australian Taxation Office is relevant to the due conduct of the foreshadowed audit and, furthermore, that Mr Kandy has, for the reason I have mentioned, a factual interest in seeing that process pursued. On that basis, he has shown that he has some interest over and above that of a shareholder or director in the abstract that causes him to be aggrieved by the deregistration. 12 It is then necessary to turn to the second enquiry made necessary by the section, that is, whether it is just that the registration be reinstated. That aspect needs to be considered in light of the fact that Mr Kandy makes a concurrent application for winding-up on the just and equitable ground immediately the company is reinstated. There would therefore be appropriate administration of the company were it brought back into existence. 13 I am of the opinion that it is just that the registration be reinstated. First, there is a public interest in the foreshadowed investigation by the Australian Taxation Office being facilitated. Second, there is the interest already mentioned of Mr Kandy in having the company play a part in likely future events which may be such as to remove from him the possible threat posed by s 8Y of the Taxation Administration Act. For these reasons, I am satisfied that both questions posed by s 601AH(2) should be answered favourably to the proposition that an order should be made. 14 Annexed to the affidavit of the plaintiff's solicitor is a letter received from ASIC on 2 April 2003 stating its intention not to oppose the application for reinstatement subject to the satisfaction of stated conditions, one of which is that the company should be wound up and a liquidator appointed. That, as I have said, is part and parcel of Mr Kandy's application in any event. The other conditions specified in the ASIC letter pose no difficulty. 15 I make the orders in the short minutes of order which I initial and date. **********