Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Kocic v Deputy Commissioner of Taxation [2011] NSWCA 322 Hearing dates: 29 July 2011 Decision date: 13 October 2011 Before: Beazley JA Handley AJA Gzell J Decision: Appeal dismissed with costs. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: TAXATION - PAYG deductions from wages and salaries of employees of company - withholdings not remitted to Deputy Commissioner - liability of directors to statutory penalty - appellant found to be sole director of company and liable for penalty - no question of principle. Legislation Cited: Corporations Act 2001 (Cth), ss 9, 201D(1), 1274B(2) Income Tax Assessment Act, ss 222AOC, 222AOD, 222AOJ(2) and 222AOJ(3) Taxation Administration Act 1953 (Cth), Sch 1, s 269-20 Category: Principal judgment Parties: Senad Kocic (Appellant) Deputy Commissioner of Taxation (Respondent) Representation: Counsel: J T Johnson (Appellant) S Lloyd SC; S Foda (Respondent) Solicitors: ERA Legal (Appellant) Deputy Commissioner of Taxation (Respondent) File Number(s): 2008/320412 Decision under appeal Citation: Deputy Commissioner of Taxation v Kocic [2010] NSWDC 185 Date of Decision: 2011-10-13 00:00:00 Before: Gibson DCJ File Number(s): DC 5658/08 Judgment 1Beazley JA: I agree with Gzell J. 2Handley AJA : I agree with Gzell J 3Gzell J: Zumuda Pty Ltd, previously called Civil Pacific (Traffic) Pty Ltd and before that Civil Pacific (Vic) Pty Ltd, made PAYG deductions from the salaries and wages of its employees but failed to remit the withholdings to the Respondent, Deputy Commissioner of Taxation. 4In those circumstances, Zumuda's director was liable to pay to the Deputy Commissioner by way of penalty an amount equal to the non-remitted withholdings under the Income Tax Assessment Act 1936 (Cth), s 222AOC if the director was appointed before the date of first withholding or under s 222AOD if appointed after that date. The penalty is now to be found in the Taxation Administration Act 1953 (Cth), Sch 1, s 269-20. 5The major issue in the court below was whether the Appellant, Senad Kocic, was a director of Zumuda. Gibson DCJ found that he was appointed as a director with his full knowledge. Her Honour made findings of credit in rejecting the defence evidence that Senad Kocic was appointed as a director without his knowledge or consent. 6Counsel for Senad Kocic did not seek to attack her Honour's findings of credit. His submission was that the document trail rebuts her Honour's findings. 7The document trail began with the takeover of two companies, Zumuda and Zenith Workforce (NSW) Pty Ltd. On 21 June 2006 Chris Tsovolos, a solicitor, sent an email to George Alex, the man from whom Mr Tsovolos took most of his instructions on behalf of Zumuda and Zenith NSW. 8The email related to the takeover of Zenith NSW. It enclosed a number of documents for execution: a letter of resignation as a director of Zenith NSW from Dennis Xenos, the sole director; minutes of a meeting of Zenith Workforce Pty Ltd, the sole shareholder of Zenith NSW appointing Senad Kocic a director and secretary of Zenith NSW; a form of share transfer of the shares in Zenith NSW from Zenith Workforce to Senad Kocic; a form 484 providing ASIC with the change in company details of Zenith NSW and a notice to the Australian Taxation Office appointing Mr Tsovolos as agent of Zenith NSW. 9Zenith NSW was trustee of the Zenith Workforce NSW Unit Trust. Zumuda was trustee of the Civil Pacific (Vic) Unit Trust. 10On 23 June 2006 Mr Tsovolos sent an email to Mr Xenos and Mr Alex in these terms: "I have attached various documents for you to sign which provide for your removal from the trustee companies and the introduction of Senad. I have also attached an advice letter to assist in this process. Please attend to the execution of all of the annexed documents and then forward by way of facsimile or courier to us so we can present to the ATO" 11The attached letter of advice was also addressed to Mr Alex and Mr Xenos. It attached similar documents to those attached to the email of 21 June 2006 but with respect to Zenith NSW and Zumuda: a letter of resignation as a director of Zumuda from Mr Xenos, the sole director; minutes of meetings of Zenith Workforce as shareholder of Zenith NSW and as shareholder of Zumuda appointing Senad Kocic as director and secretary of Zenith NSW and Zumuda; a form of share transfer of the shares in Zenith NSW from Zenith Workforce to Senad Kocic; a form 484 providing ASIC with the change in company details of Zenith NSW and notices to the Australian Taxation Office appointing Mr Tsovolos as agent of Zenith NSW and of Zumuda. 12The letter of advice had Senad Kocic purchasing the shares for $100 and signing and dating the share transfer form. It had instructions to him to enter details in the form 484 and to sign it. And it had him entering details in the ATO forms appointing Mr Tsovolos as agent and signing them. 13The letter of resignation of Mr Xenos as a director of Zumuda was signed by him and dated 23 June 2006. There was in evidence no signed letter of resignation of Mr Xenos as a director of Zenith NSW. 14Included with the documentation although not mentioned in the letter of advice were two letters of appointment. One by Zumuda, the other by Zenith NSW. The one by Zumuda was in the following terms: "LETTER OF APPOINTMENT Mr Senad Kocic 8 Abbey Street HUNTERS HILL NSW 2110 Civil Pacific (Traffic) Pty Limited (ACN 114 456 049) hereby appoints Senad Kocic as a Director and Secretary of Civil Pacific (Traffic) Pty Limited effective from the date this letter is signed. ................................................. Civil Pacific (Traffic) Pty Limited Date:..............." 15The appointment by Zumuda was signed by Senad Kocic and dated 23 June 2006. He also signed the form 484 for Zenith NSW and dated it 23 June 2006 and he signed the appointments of Mr Tsovolos by both companies and dated them 23 June 2006. 16There were no signed minutes in evidence. Nor was a form 484 for Zumuda lodged with ASIC as there was no entry in the national database that Senad Kocic became a director of Zumuda on 23 June 2006. 17On 26 June 2006 Mr Tsovolos's letter of advice with the attached documentation was sent again by email to Mr Xenos and Mr Alex and Senad Kocic signed the letter of appointment of him as director and secretary of Zenith NSW and dated it 26 June 2006. 18On 27 June 2006 Mr Tsovolos wrote to the ATO enclosing the letter of resignation of Mr Xenos as director and secretary of Zumuda; the letter of appointment of Senad Kocic as director and secretary of Zumuda; the notice of appointment of Mr Tsovolos as agent of Zumuda; the letter of appointment of Senad Kocic as director and secretary of Zenith NSW and the notice of appointment of Mr Tsovolos as agent of Zenith NSW. The letter also confirmed that Mr Xenos had resigned as director of Zenith NSW. 19Senad Kocic gave conflicting evidence with respect to the directorship of Zenith NSW. At first he said he intended to become a director and secretary of Zenith NSW. Later he said his directorship of Zenith NSW was also a mistake and was never supposed to happen. Of the directorship of Zumuda he said he did not know and did not consent to the appointment. In this he was disbelieved. 20In the court below, Senad Kocic acknowledged his signature on the documents but said he signed documents without reading them on occasion. He was disbelieved. Her Honour found that Senad Kocic was appointed as a director of Zumuda with his full knowledge. 21On 10 August 2006 an officer of the ATO recorded in a diary entry that she had suggested to Mr Tsovolos that Mr Xenos was still controlling Zumuda and Zenith NSW. She recorded Mr Tsovolos's response that Senad Kocic was acting in a totally independent way. Mr Tsolovos clearly regarded Senad Kocic as the director of the companies. 22On 28 August 2006 Mr Tsovolos wrote to Sam Elmer, the general manager of Zumuda, enclosing a share transfer form and a unit transfer form to be executed by Zenith Workforce in favour of Senad Kocic together with a form 484 to register the shareholding and to register the appointment of Senad Kocic as director of Zumuda in place of Mr Xenos. The letter contained the following: "We understand that the outstanding taxation liability will be paid in the near future. As discussed on Friday, we recommend that Senad Kocic remain as director until the ATO payments are made, and then Senad resign as director of Civil Pacific (Traffic) Pty Limited." 23In a memorandum of fees addressed to Zenith for the attention of Mr Alex and Nedzad Kocic, the brother of Senad Kocic, Mr Tsovolos recorded a conference at a cafe on 29 August 2006 with Mr Alex and Nedzad Kocic regarding funding issues and dealing with the ATO. 24On 10 October 2006, Saul & Associates Pty Ltd, accountants, made an electronic lodgement of a form 484 which recorded Senad Kocic having been appointed the director of Zumuda on 28 August 2006. The form stated that Senad Kocic certified that the information in it was true and complete. 25On 13 November 2006 an officer of the ATO wrote two letters to Mr Tsovolos, one with respect to Zenith NSW, the other with respect to Zumuda. Both letters referred to protracted negotiations and rejected the current offers, stating that unless the entire debts were paid by 20 November 2006 the ATO would proceed to issue a creditor's statutory demand for payment. 26On 14 November 2006 Mr Tsovolos sent out a copy of an SMS sent to Nedzad Kocic. It said that the ATO was to issue a statutory demand and "I have sent a copy of the letter to senad at the address I have on the asic records. If payment arrangements or other arrangements are not made then senad will begin to have personal liability." Again, Mr Tsolovos clearly regarded Senad Kocic as the director of Zumuda and Zenith NSW/ 27Mr Tsovolos sent both letters to Senad Kocic on 15 November 2006. He said he learned he was a director of Zumuda on 16 November 2006. He was not sure but thought it was when he received the letters. But they make no mention of him being a director. His reaction was to telephone Nedzad Kocic and shout at him. 28Scott Turner was a business adviser to Mr Xenos and Nedzad Kocic. He was contacted by Senad Kocic and asked to have Senad Kocic's name as director taken off the records with respect to Zumuda. Mr Turner approached Saul & Associates who, on 17 November 2006, lodged electronically a form 484 in the name of Nedzad Kocic dated 28 August 2006 recording Senad Kocic ceasing to be a director on 28 August 2006. 29Thus a search of the ASIC records subsequent to 17 November 2006 reveals that Senad Kocic was purportedly appointed a director of Zumuda on 28 August 2006 and purportedly ceased to be a director on the same day, albeit that the evidence supports the conclusion that Senad Kocic was appointed a director on 23 June 2006 and ceased to be a director on 17 November 2006. 30Counsel for Senad Kocic pointed to a number of aspects of the document trail that he submitted supported the conclusion that Senad Kocic was not a director of Zumuda. 31First, there was no minute of a meeting of the director of Zumuda appointing Senad Kocic as a director. 32But that informality does not mean that Senad Kocic could not be a director. The term "director" is defined in the Dictionary in the Corporations Act 2001 (Cth), s 9 to include de facto and shadow directors. The former is a person who acts as a director although not formally appointed. The latter is a person whose wishes the directors are accustomed to follow. The definition, without the note to it, is as follows: " director of a company or other body means: (a)a person who: (i)is appointed to the position of a director; or (ii)is appointed to the position of an alternate director and is acting in that capacity; regardless of the name that is given to their position; and (b)unless the contrary intention appears, a person who is not validly appointed as a director if: (i) they act in the position of a director; or (ii) the directors of the company or body are accustomed to act in accordance with the person's instructions or wishes. Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person's professional capacity, or the person's business relationship with the directors or the company or body." 33Secondly, it was submitted there was no consent signed by Senad Kocic. 34The Corporations Act , s 201D(1) provides that a company contravenes the section if a person does not give the company a signed consent to act as a director of the company before being appointed. 35But failure to comply with that provision does not mean that Senad Kocic could not be a director for the same reason as that set out above. 36Furthermore, Senad Kocic's signature on the letter of appointment with respect to Zumuda is evidence of consent. A person would not knowingly sign such a document unless he or she consented to the appointment. 37Thirdly, all communications by Mr Tsolovos were on instructions from, and reporting to Mr Xenos and Mr Alex and to a lesser extent Nedzad Kocic. 38But a solicitor does not have to communicate with all directors. And throughout his communications Mr Tsolovos named Senad Kocic as the director of Zumuda. The documents forwarded by Mr Tsolovos on 23 June 2006 and again on 26 June 2006 had Senad Kocic named as the director and had him signing key documents. When the suggestion was made that Mr Xenos was controlling Zumuda, Mr Tsolovos said it was Senad Kocic who was acting independently. In his letter to Mr Elmer he referred to Senad Kocic as the director of Zumuda and he enclosed a form 484 to record Senad Kocic's appointment as the director of Zumuda. And in the SMS of 14 November 2006, Senad Kocic was regarded by Mr Tsolovos as the director. It was a personal liability as a director to which Mr Tsolovos was referring. 39Fourthly, Mr Tsolovos did not communicate with Senad Kocic before sending him the ATO letters of 13 November 2006. 40Again, Mr Tsolovos was not obliged to communicate with Senad Kocic. The fact that he did not does not mean that Senad Kocic played no part in the affairs of the company. On 23 June 2006 and on 26 June 2006 he played the key role in the execution of documents to complete the takeover of Zumuda. And it was he who certified the accuracy of the form 484 electronically lodged by Saul & Associates that gave notice of his appointment as the director of Zumuda. While there was no evidence of further involvement in the affairs of that company, those actions of Senad Kocic were highly significant affairs of the company. 41The Corporations Act , s 1274B(2) creates the presumption that information drawn by ASIC from the national database is the proven fact in the absence of evidence to the contrary. It provided: "In a proceeding in a court, a writing that purports to have been prepared by ASIC is admissible as prima facie evidence of the matters stated in so much of the writing as sets out what purports to be information obtained by ASIC, by using a data processor, from the national database. In other words, the writing is proof of such a matter in the absence of evidence to the contrary." 42It was accepted in the court below that, in the absence of evidence to the contrary, the recording on the ASIC register was evidence of the appointment of Senad Kocic as the director of Zumuda. 43It was no doubt to this provision and to this concession that her Honour was referring when she said that Senad Kocic had failed to establish, in accordance with the burden of proof that lay upon him, that his appointment as a director of the company was without his knowledge or consent. 44Not only was her Honour entitled to her conclusion, but also the evidence supported positive findings that Senad Kocic was the director of Zumuda. 45The Deputy Commissioner filed a notice of contention that contained the following paragraphs: "1 Notwithstanding that the records of the Australian Securities and Investments Commission ( ASIC ) tendered related to the position as at 28 August 2006, it was open on the evidence for the court below to have determined that the appellant was (and was knowingly) the director of Zumuda from 23 June 2006. 2 Irrespective of whether the appellant was the director of Zumuda on 23 June 2006, the court below was entitled to (and/or was required on the evidence to) conclude that the appellant was a director of Zumuda on 28 August 2006 because the ASIC record pertaining to the appellant being a director on that date was not rebutted." 46In my view those contentions are made out. 47Senad Kocic pleaded two statutory defences. The Income Tax Assessment Act , s 222AOJ(2) and s 222AOJ(3) have effect for the purposes of proceedings to recover a penalty from a director under s 222AOC or s 222AOD. They are in the following terms: "222AOJ(2) It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at any time when: (a) the person was a director; and (b) the directors were under the obligation to comply with subsection 222AOB(1) or 222AOBAA(1). 222AOJ(3) It is also a defence if it is proved that: (a) the person took all reasonable steps to ensure that the directors complied with subsection 222AOB(1), 222AOBAA(1) or 222AOBA(1) (whichever is relevant); or (b) there were no such steps that the person could have taken." 48In the court below counsel for Senad Kocic submitted that he did not take part in the management of Zumuda for the good reason that he did not know he was a director. 49Her Honour having found that Senad Kocic was appointed as a director with his full knowledge, the first statutory defence must fail. 50And as he did nothing to ensure that the director complied with s 222AOB(1), the second statutory defence must also fail. 51It is complained that her Honour did not mention the defences. But she made the specific finding that Senad Kocic did know that he had been appointed a director and that must necessarily defeat the first statutory defence. It was also clear that there was no evidence of any step taken by Senad Kocic in compliance with s 222AOB(1) and the second defence failed. It was not necessary for her Honour to say so specifically. 52In my view the orders of the Court should be that the appeal is dismissed with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 October 2011