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SUPREME COURT OF NEW SOUTH WALES - EQUITY DIVISION

DEPUTY COMMISSIONER OF TAXATION v WINTERBURN TRADING PTY LTD

Brownie J

15 December 1993 - Sydney

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Brownie J    In January 1993 the plaintiff served on the defendant a demand under s 460 of the Corporations Law. That demand was not met, and in July the plaintiff commenced these proceedings seeking an order that the defendant be wound up. An administrator was appointed to the defendant on 24 September, pursuant to s 436A of the Law, and a meeting of creditors under s 439A was convened for 22 October, when it was resolved that the company should enter into a deed of company arrangement under Pt 5.3A, and that the meeting be adjourned to a date to be fixed.

   The company has liabilities exceeding $1 million, but no assets, a secured creditor having seized them all in June 1993. It is said that there is a possibility that a liquidator might recover some $25,000, paid away by the company as a preference, and on the evidence, this potential recovery is the only likely source of funds for creditors, so that the likelihood is that no creditor, including the plaintiff, will receive any worth while dividend if the company is wound up.

   The debt claimed by the plaintiff consists, first, of a sum of money representing unremitted tax instalments, deducted from the salaries and wages of employees of the defendant; and, secondly, unremitted "prescribed payments" deductions. These were debts which accrued prior to the commencement of the Insolvency (Tax Priorities) Legislation Amendment Act 1993, so that the plaintiff was then a priority creditor, by virtue of ss 221Pand 221YHJ of the Income Tax Assessment Act 1936.

   Under the proposed deed, each creditor of the company, including the plaintiff, which will be treated as an ordinary unsecured creditor, and not a priority creditor, will receive some dividend. The administrator says that the proposal is in the interests of the majority of creditors, whether in number or in value, and offers the only chance of the company continuing in existence; and he points to the statement in s 435A as to the object of the Part. However, the plaintiff opposes the proposal on the ground that it involves depriving the plaintiff of the priority which he has under the provisions of the Income Tax Assessment Act .

   The administrator now seeks an order extending the time fixed by s 444B for the execution of the deed. Assuming that the adjournment of the meeting on 22 October to a date to be fixed is a permissible course under s 439B(2), which speaks of adjournments "from time to time", but to a date not more than 60 days after the first day on which the meeting was held, the administrator submits that the time fixed by s 444B has not yet expired. That section requires a deed to be executed "within 21 days after the end of the meeting of creditors", or within such extended time as the court allows, on application made within those 21 days. If this is not done, then the company is deemed to have resolved to be wound up voluntarily: s 446A(2).

   Both parties rely upon s 447A, which authorises the making of any order thought appropriate about how the Part is to operate in relation to a particular company. The plaintiff asks for an order that the administration end, on the basis that the proposed deed does not recognise, as it should, the fact that the debt owed to the plaintiff is a priority debt. The administrator asks for an order generally authorising the execution of the proposed deed, and sanctioning the procedure which has been followed.

   In DCT v Dollymore Pty Ltd (1993) 27 ATR 187, I held that the effect of the Insolvency (Tax Priorities) Legislation Amendment Act 1993 did not include the retrospective removal of the priority which had previously been accorded debts under s 221P of the Income Tax Assessment Act. It seems clear that the position as to debts under s 221YHJ is indistinguishable.

   The plaintiff relied upon some decisions under the former law, concerning priority debts to the plaintiff, and submitted that under the present law, the approach ought to be the same. That is, the court ought, at least generally, to treat creditors as having the same priorities as in the case of a winding up: see Re V & M Diagnostic Services Pty Ltd; Re Northern Newcastle Constructions Pty Ltd (1985) 9 ACLR 663 at 668, and Re Sessions Video Distributors Pty Ltd (1993) 25 ATR 458; 10 ACSR 421 at 426. This seems to me to be correct.

   It follows that the proposed deed ought not to be regarded as one to be given any approval by the court, and that the company should be wound up.

   I dismiss the administrator's motion. I make orders in terms of paras 1 and 3 of the summons. I appoint Richard Andrew Gagie the liquidator of the defendant.