Supreme Court New South Wales Medium Neutral Citation: In the matter of White & Co Pty Limited [2015] NSWSC 2010 Hearing dates: 21 September 2015 Decision date: 21 September 2015 Jurisdiction: Equity - Corporations List Before: Black J Decision: Order to set aside winding up order made Catchwords: CORPORATIONS – winding up –whether winding up should be set aside Cases Cited: - Double Bay Newspapers Ltd v Fitness Lounge Pty Ltd [2006] NSWSC 226; (2006) 57 ACSR 131 - Re Joe's European Auto Specialists Pty Ltd [2014] NSWSC 195 - Workers' Compensation Nominal Insurer v TECA Pty Limited [2011] NSWSC 686 Category: Procedural and other rulings Parties: White & Co Pty Limited and Empirica Pty Limited (Applicants) Deputy Commissioner of Taxation (Respondent) Representation: Counsel: D Greenberg (Solicitor –Applicants) C Fox (Solicitor - Respondent) Solicitors: Ashurst Australia (Applicants) Hunt & Hunt (Respondent) File Number(s): 2015/129525 Judgment – ex tempore 1. By Interlocutory Process filed on 20 August 2015, the Applicant, White & Co Pty Ltd ("Company") which was the defendant in a winding up application, and another entity, Empirica Pty Ltd, applied under Rule 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) and s 482 of the Corporations Act 2001 (Cth) for, in their primary application, an order setting aside the orders made by the Court on 2 June 2015 that the Company be wound up and that a liquidator be appointed. Their alternative application is for termination of the winding up under s 482 of the Corporations Act. It seems to me preferable to approach the application, in the first instance, in the manner in which the Company approaches it, as an application to set aside the winding up order. It would only be necessary to deal with the termination of the winding up if that order was not granted. 2. The application is supported by an affidavit of Mr Nicholas White dated 18 August 2015. Mr White refers to the history of the Company, which was previously involved in the provision of financial services, with Mr White personally providing those services, either under an Australian Financial Services Licence ("AFSL") held by the Company, or subsequently, as authorised representative of another AFSL holder. Mr White refers to the profits made by the Company in the year to 30 June 2013, and identifies the small number of creditors which arose from the Company's business. 3. Mr White refers to the retainer of an accountant to provide accounting services and indicates that he was reliant on, and took for granted, the provision of those services. It is at least implicit in Mr White's affidavit, and explicit in the submissions made by Mr Greenberg on his behalf, that he now recognises that that course was not appropriate, particularly so far as compliance with the Company's tax obligations was concerned. Mr White refers to subsequent steps which were taken to incorporate another entity, for the purpose of applying for an AFSL, and for the commencement of business within that entity, but points out that he did not intend to cause the incorporation of the Company to lapse. 4. Mr White also refers to difficulties which arose, over time, in respect of the preparation of annual financial reports and other accounting issues, and to the delay of lodgement of tax returns and business activity statements for the Company, in late 2013 and early 2014. Not surprisingly, when those returns were lodged late and together, they gave rise to a significant tax liability. Mr White refers to having become aware that that tax liability, or at least part of it, was not paid, when he was contacted by the Australian Taxation Office, and having pursued that issue with his accountants, and to the fact that a payment plan was agreed with the Australian Taxation Office and then amended, with the agreement of the Australian Taxation Office, to allow payment of the Company's liabilities by monthly instalments. 5. Unfortunately, in January 2015, the Company failed to make a payment under the second payment plan, in circumstances addressed in a further affidavit to which I will refer. At least on Mr White's evidence, he became aware of the winding up of the Company in circumstances that he was looking to refinance his car, and was not aware of service of the creditors statutory demand at the Company's registered office. It appears that may be explained by the fact that the Company had relocated its offices on a temporary basis, although it of course was the Company's responsibility to ensure that documents served at its registered office came to its attention during that period. 6. There is evidence of a degree of cooperation with the liquidators appointed to the Company, although it appears the Company's books and records were not provided to the liquidators. That is perhaps explicable by the intent to make this application. Mr White gives evidence of the deposit of an amount of money into a trust account of his solicitors which would be sufficient to pay all the Company's current debts, including its debt to the Australian Taxation Office in full and the costs of the liquidation. 7. Mrs White in turn gives evidence, by an affidavit dated 1 August 2015, of her involvement in respect of the payment plan with the Australian Taxation Office. She fairly concedes that the Company did not pay the first instalment to the Australian Taxation Office required under the amended repayment plan because its principals then did not have spare money to make the payment. However, she gives evidence of a discussion with her then accountant which may not have fully disclosed, so far as the advice that she was given, the potential consequences of that failure. She also gives evidence that she was not aware of the service of the creditor's statutory demand or the winding up application until after the winding up order had been made. Again, that evidence does not suggest that the application was not served, but rather that it did not come to the attention of the Company's directors, again potentially by reason of the matters noted above in respect of the Company's registered office. 8. An affidavit of the liquidator appointed to the Company is also read in the application, although the liquidator has not expressly indicated a position of consenting to, opposing or reserving his position as to the application. That report indicates, however, that a process was adopted to identify the creditors of the Company, and the only creditor identified was the Deputy Commissioner of Taxation, in the amount which will now be paid, and he confirms that funds were available, in the trust account held with the Company's solicitors, to pay his remuneration, cost and expenses and the amount due to the Deputy Commissioner of Taxation. An amount has also been deposited into the liquidator's trust account, in respect of his remuneration, costs and expenses. 9. I should note that Mr White's affidavit also refers to what is likely to be done with the Company, after any termination of the winding up, namely to conduct advisory work, outside of the business conducted by the new business, and presumably subject to obtaining a further AFSL, or to continue to conduct private dealings and, possibly, depending upon profits made by the new entity, engage in other worthy activities. 10. The principles applicable to an order terminating a winding up, under Rule 36.16 of the Uniform Civil Procedure Rules 2005 (NSW), which permits the Court to set aside an order made in the company's absence, were set out by White J in Double Bay Newspapers Ltd v Fitness Lounge Pty Ltd [2006] NSWSC 226; (2006) 57 ACSR 131 in a passage which has been referred to in subsequent decisions, including my decision in Re Joe's European Auto Specialists Pty Ltd [2014] NSWSC 195 at [9]. It is common ground in this application that the Company was not present when the winding up order was made, and that may authorise, in an appropriate case, the setting aside of that order to protect the Company's right to be heard and the integrity of the Court's processes. There is some explanation as to how that may have occurred, notwithstanding proper service of the creditors statutory demand, and the winding up application, by reason of a temporary relocation of the Company's office, although that process is not, as I noted above, without fault on the Company's part so far as it needed to make arrangements for documents to come to its attention, when served at its registered office. The jurisdiction to set aside a winding up order is available, on proof of the Company's solvency, notwithstanding there was nothing irregular about the process by which the winding up order was made: Workers' Compensation Nominal Insurer v TECA Pty Limited [2011] NSWSC 686 at [4]; Re Joe's European Auto Specialists Pty Ltd above at [9]. 11. It seems to me that this is not the strongest case for setting aside a winding up order under UCPR r 36.16. Some factors support that order, so far as it appears the Company may not have received the most adequate service or advice from its former accountants, in particular at the point of time in which it fell into default under the second payment plan. Here, the Company did not have an opportunity to be heard in respect of the winding up order, and there is a possibility, on the evidence, that it could have established solvency had it had an opportunity to be heard at that point, at least if the shareholders had then provided the Company with the support which they now provide to it. The evidence of the company's solvency in the present application is also perhaps less than would be desirable, so far as such evidence would ordinarily extend to identification of the Company's future activities, the cash flow that is likely to be generated, and the debts which are likely to be incurred, at least in respect of some period to the future, and demonstration of the Company's ability to meet its liabilities as and when they fall due, so as to establish its solvency looking forward, if the winding up order is set aside. 12. Another matter which supports the order sought is that the Company, by its liquidator, took steps to identify its creditors, and the only unpaid creditor identified by that process, was the Australian Taxation Office. A third matter that supports the application is that the circumstances of the Company's dealings with the Australian Taxation Office in turn appear to reflect the difficulties with its former accountants, and that it has now taken substantial steps to address the failure to pay earlier tax, including by paying that tax in full. A fourth matter which supports an order setting aside the winding up order is that it is not opposed by the Deputy Commissioner of Taxation, or by the liquidator, who has been prepared to lead evidence that, at least implicitly, assists the Company in establishing its case. 13. On balance, albeit with a degree of hesitation by reason of the limited evidence as to the Company's future activities and cash flow, I am satisfied that the winding up order should be set aside. The primary factors that support that result are that the Company was not heard, for whatever reason, in respect of that order; and that the Company has now taken steps to pay the particular debt which was the cause of that order, and that it appears that other creditors did not have unpaid debts; that there is no reason disclosed on the evidence, to think that the Company will not comply with its statutory obligations going forward, particularly given the unfortunate experience of this matter; and, fourth, no reason of public policy has emerged to suggest that the Company would be a threat to other creditors going forward if the winding up order is now set aside. 14. For all the these reasons, I will make an order that the winding up order and the appointment of a liquidator be set aside, on terms that the amount currently held in the trust account of the Company's solicitors be paid to the solicitors for the Australian Taxation Office. I make orders in accordance with the Short Minutes of Order initialled by me and placed on the file. 15. I should also make an order that the exhibit be returned. ********** 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: 12 February 2016