RE SCOBIE & ANOR; EX PARTE DFC of TJudges:
The applicant Deputy Commissioner of Taxation claims to be a creditor of the debtors, Raymond Kenneth Scobie and Patricia Ellen Scobie in an amount of $75,423.80. On 5 July 1994, Mr. Peter Geroff as the chairman of a meeting of creditors called to consider the debtors proposal of a Deed of Arrangement, ruled that the applicant was ineligible to vote because the applicant was in Mr. Geroff's view after taking legal advice, a contingent creditor only.
On 14 July 1994 the applicant filed an application seeking declaratory relief to establish its entitlement to vote at the meeting of 5 July 1994 or any adjournment of it. The respondent to the application was Mr. Geroff. Notice of the court application was given to Mr. Geroff on 14 July 1994. Notwithstanding such notice, an adjourned meeting was held on 15 July 1995. At the adjourned meeting it was resolved by special resolution that the debtors separately and jointly execute a Deed of Arrangement pursuant to Part X of the Bankruptcy Act 1966 (Cth) (``the Act''). On 18 July 1994 the debtors executed a Deed of Arrangement. Mr. Geroff and Mr. Gregory Moloney were appointed trustees under the deed.
On 25 July 1995 the applicant filed an application seeking to have the deed of arrangement declared void and to have it annulled. The applicant also sought to have sequestration orders made against the joint and separate estates of the debtors. The ground upon which the relief is sought is that the resolution of the creditors of the meeting of 15 July 1994 was not a valid special resolution, the applicant having been prevented from voting by the ruling of Mr. Geroff as chairman of the meetings on 5 and 15 July. The respondents to the second application are the trustees under the Deed of Arrangement and the debtors.
As at 23 February 1994 Ray Scobie Building Contractors Pty Ltd had failed to remit to the applicant tax instalment deductions under s. 221F(5)(a) of the Income Tax Assessment Act 1936 (Cth) (``ITAA'') and deductions from prescribed payment under s. 221YHDC(2) of the ITAA. The total sum due by the company as at that date for the period June 1993 to December 1993 was $75,423.80. At all material times the debtors were directors of the company. On 23 February 1994 the applicant sent to each debtor a written notice in accordance with s. 222AOE of the ITAA. The notice informed each debtor that the debtor as a director of the company was liable to pay to the Commissioner of Taxation by way of penalty an amount equal to the unpaid liability of the company. The amount unpaid was particularised and totalled $75,423.80. The notice concluded as is required by s. 222AOE:-
``The penalty in respect of any unpaid amount will be remitted if, at the end of 14 days after this notice is given to you:-
- (a) the company's liability in respect of that unpaid amount has been discharged; or
- (b) an agreement relating to that unpaid amount is in force under Section 222ALA of the Act; or
- (c) the company is under administration within the meaning of the Corporations Law; or
- (d) the company is being wound up.''
The notice was received by the debtors on 25 February 1994.
On 4 March 1994 the debtors took legal and accounting advice and gave instructions to file an application for the winding up of the company and for the appointment of a provisional liquidator. On 7 March 1994 an application seeking a winding up order was
ATC 4527filed in the Supreme Court of Queensland at Townsville and provisional liquidators were appointed on that day.
The debtors and the trustees contend that the filing of the application for winding up and the appointment of provisional liquidators constituted compliance within the meaning of s. 222AOB(2)(d) of the ITAA and that thereupon the penalty was remitted by force of the operation of s. 222AOG of the ITAA. In consequence, the respondents submit that on 7 March 1994 any penalty otherwise payable was remitted by force of the statute and the debtors were not thereafter liable to pay to the applicant the sum of $75,423.80.
Alternatively, the respondents argue that if the penalty was not remitted, then enforcement by the applicant of payment of the penalty by filing a plaint against each of the debtors in the District Court at Townsville had been resisted on the grounds pleaded in the defence of each debtor filed in those proceedings. In those circumstances the respondents submit that the applicant was at best a contingent creditor or, having regard to the conduct of the debtors deposed to in the proceedings and to the statutory ground of defence in s. 222AOJ(3) of the ITAA, the applicant was not a creditor at all.
Was the penalty remitted?
The applicant contends that the company did not begin to be wound up for the purpose of s. 222AOB(2)(d) of the ITAA until an order was made in the Supreme Court of Queensland on 22 April 1994 for the winding up of the company and the appointment of Messrs Summerson & Duus as liquidators. The applicant submits that as a matter of fact, and for the purposes of the Corporations Law (s. 514), winding up does not commence until such an order is made.
The respondents contend that such a construction ought not to be given to s. 222AOB(2)(d) because it would render compliance with a notice given under s. 222AOE impossible. The impossibility of obtaining an order for winding up within the fourteen day period, the respondents submit, stems from the notice requirements where compulsory winding up by court order is sought, or, the notice of meeting requirements where it is sought to wind up the company by a creditor's voluntary winding up. The respondents submit that the winding up option available to directors upon receipt of a notice under s. 222AOE of the ITAA would be illusory if the construction contended for by the applicant was adopted. In those circumstances, the respondents submit, such a construction is to be avoided.
In order to properly understand the statutory scheme which was introduced into the ITAA by s. 16 of the Insolvency (Tax Priorities) Legislation Amendment Act 1993 it is necessary to set out in detail the following sections:-
``222ANA(1) The purpose of this Division is to ensure that a company either meets its obligations under Division 2, 3A, 3B, 4 or 8, or goes promptly into voluntary administration under Part 5.3A of the Corporations Law or into liquidation.
222ANA(2) The Division imposes a duty on the directors to cause the company to do so. The duty is enforced by penalties. However, a penalty can be recovered only if the Commissioner gives written notice to the person concerned. The penalty is automatically remitted if the company meets its obligations, or goes into voluntary administration or liquidation, within 14 days after the notice is given.
222ANA(3) A penalty recovered under this Division is applied towards meeting the company's obligations under the relevant Division. Conversely, amounts paid by the company reduce the amount of a penalty.
222ANA(4) Sections 221R, 221YHN, 221YHZJ and 221YR provide for the recovery of amounts payable under this Division.
222AOA(1) This Subdivision applies if a company incorporated under the Corporations Law of a State or Territory has made, for the purposes of Division 2, 3A, 3B or 4, one or more deductions having a particular due date.
222AOA(2) The earliest day on which the company made for the purposes of that Division a deduction that has that due date is called the first deduction day .
222AOA(3) That due date is called the due date .
222AOB(1) The persons who are directors of the company from time to time on or after the first deduction day must cause the
ATC 4528company to do at least one of the following on or before the due date:
- (a) comply with Division 2, 3A, 3B or 4, as the case may be, in relation to each deduction:
- (i) that the company has made for the purposes of that Division; and
- (ii) whose due date is the same as the due date;
- (b) make an agreement with the Commissioner under section 222ALA in relation to the company's liability under a remittance provision in respect of such deductions;
- (c) appoint an administrator of the company under section 436A of the Corporations Law;
- (d) begin to be wound up within the meaning of that Law.
222AOB(2) This section is complied with when:
- (a) the company complies as mentioned in paragraph (1)(a); or
- (b) the company makes an agreement as mentioned in paragraph (1)(b); or
- (c) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Law; or
- (d) the company begins to be wound up within the meaning of that Law;
whichever first happens, even if the directors did not cause the event to happen.
222AOB(3) If this section is not complied with on or before the due date, the persons who are directors of the company from time to time after the due date continue to be under the obligation imposed by subsection (1) until this section is complied with.
222AOC If section 222AOB is not complied with on or before the due date, each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company's liability under a remittance provision in respect of deductions:
- (a) that the company has made for the purposes of Division 2, 3A, 3B or 4, as the case may be; and
- (b) whose due date is the same as the due date.
222AOE The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice that:
- (a) sets out details of the unpaid amount of the liability referred to in section 222AOC; and
- (b) states that the person is liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount, but that the penalty will be remitted if, at the end of 14 days after the notice is given:
- (i) the liability has been discharged; or
- (ii) an agreement relating to the liability is in force under section 222ALA; or
- (iii) the company is under administration within the meaning of the Corporations Law; or
- (iv) the company is being wound up.
- (a) a penalty is payable by a person under this Subdivision; and
- (b) section 222AOB is complied with at a time when the Commissioner has not yet given the person a notice under section 222AOE, or within 14 days after the Commissioner gives the person such a notice;
the penalty is remitted because of this section.
222AOI A person who pays an amount under section 222AOC or 222AOD has the same rights:
- (a) whether by way of indemnity, subrogation, contribution or otherwise; and
- (b) against the company or anyone else;
as if the payment had been made under a guarantee:
- (c) of the liability referred to in section 222AOC; and
- (d) under which the person, and every other person who has paid, or from whom the Commissioner is entitled to recover, a penalty under this Subdivision, were jointly and severally liable as guarantors.
222AOJ(1) This section has effect for the purposes of:
- (a) proceedings to recover from a person a penalty payable under this Subdivision; or
- (b) proceedings under section 222AOI against a person of the kind referred to in paragraph 222AOI(d).
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).
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); or
- (b) there were no such steps that the person could have taken.''
The subdivision only applies where a company incorporated under the Corporations Law has made a deduction which requires payment under Division 2, 3A, 3B, 4 or 8 of the ITAA to the Commissioner by a due date provided for under the relevant division (s. 222AOA(1)). Directors of the company holding office at and after the first deduction ``must cause the company to do'' at least one of four things before the due date for the payment of the deduction. Those four things are:-
- (a) pay the amount due (s. 222AOB(1)(a));
- (b) make an agreement with the Commissioner for payment (s. 222AOB(1)(b));
- (c) appoint an administrator of the company under s. 436A of the Corporations Law (s. 222AOB(1)(c));
- (d) ``begin to be wound up within the meaning of'' the Corporations Law (s. 222AOB(1)(d)).
The positive obligation which s. 222AOB places on directors is discharged when the section is complied with. It is important to recognise that compliance with the statutory obligation cast on directors under s. 222AOB(1) has only two relevant aspects; firstly, that factually at least one of the four specified events occurred, and secondly, the date on which the first event occurred and its temporal relationship with the due date for the payment of the deduction. Whether or not the directors caused [the] particular event to occur is irrelevant; the fact that it occurred is of itself sufficient compliance (s. 222AOB(2)).
If compliance with the obligation under s. 222AOB(1) does not occur at or by the due date in that one of the specified events has not happened the obligation to comply nevertheless continues from and after the due date. That obligation continues until it is satisfied by compliance (s. 222AOB(3)). The obligation binds those directors of the company at and after the due date (s. 222AOB(3)).
The failure of directors to discharge the obligation cast upon them by s. 222AOB results in the directors becoming liable to a penalty. Directors of the company holding office after the first deduction day and at or before the due date become ``liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company's liability'' in respect of unremitted deductions outstanding on the due date (s. 222AOC). Persons who become directors after the due date where the obligation under s. 222AOB remains unsatisfied themselves become liable to the penalty referred to in s. 222AOC if the obligation has not been complied with within a period of fourteen days from becoming a director of the company (s. 222AOC).
Once directors have become personally liable to pay a penalty equal to the unremitted deductions it is necessary to analyse the situation in terms of outstanding obligations on the one hand and recovery of unremitted deductions and penalties on the other. The company under Division 2, 3A, 3B or 4, as the case may be, of the ITAA remains obliged to
ATC 4530remit the deductions payable under the relevant division or divisions. The directors remain under the obligation imposed by s. 222AOB(1) until it is satisfied by compliance in accordance with s. 222AOB(2). For so long as the obligation remains unfulfilled the directors remain liable to pay the penalty. For the directors to be relieved from the obligation to pay the penalty the company must do one of the acts specified in s. 222AOB(1) which thereby constitutes compliance in terms of s. 222AOB(2). Where there is partial payment of the unremitted deductions by either the company or a director, the liability of the company and the penalty payable by the director is to that extent discharged (s. 222AOH).
The above observations follow from a consideration of the structure and terms of the sections themselves. They are also consistent with statutory statement of object and outline in s. 222ANA(1), (2) and (3) of the ITAA.
A penalty imposed by s. 222AOC or s. 222AOD of the ITAA cannot be recovered by the Commissioner until fourteen days after the Commissioner gives notice in accordance with s. 222AOE. Recovery of amounts due under Division 9 of Part VI of the ITAA, which includes penalties under s. 222AOC and s. 222AOD, are recovered under ss.221R, 221YHN, 221YHZJ and 221YR as the case may be of the ITAA (s. 222ANA(4)). The penalties presently under consideration fell to be recovered under s. 221YR (see s. 222YR(1A) as debts due to the Commonwealth and are recoverable as such by proceedings commenced in a court of competent jurisdiction (s. 221YR(1)). If at the time the notice is given or within the fourteen day period of the notice s. 222AOB has been or is complied with, the penalty is remitted by the operation of s. 222AOG and such remission occurs when the act of compliance occurs. Upon remission of the penalty, there is nothing to recover under s. 221YR and the Commissioner has no statutory cause of action enforceable against the directors.
The statutory defence provided in s. 222AOJ only has any relevant operation when there remains in existence a penalty recoverable as a debt due to the Commonwealth by proceedings instituted in a court of competent jurisdiction. For the Commissioner to be in that position the following circumstances must exist:-
- (a) a company liable to pay unremitted deductions under the ITAA has defaulted in payment in accordance with the provision of the ITAA;
- (b) the directors of the company have not discharged the obligation imposed on them by s. 222AOB(1) to cause the company to comply by causing one of the events specified in s. 222AOB to occur;
- (c) the directors are by virtue of s. 222AOC or s. 222AOD liable to pay a penalty in the amount of the unremitted and unpaid deductions;
- (d) the Commissioner has given a notice in accordance with s. 222AOE;
- (e) the period of fourteen days has expired;
- (f) the directors' obligation under s. 222AOB(1) remains to be satisfied by compliance with s. 222AOB(2).
If the above circumstances exist, the Commissioner is entitled to recover the penalty as a debt due to the Commonwealth in a court of competent jurisdiction and upon proof of the above facts is entitled to judgment against the directors for the amount of the penalty. The Commissioner's right to such a judgment may only be defeated by the directors raising in the appropriate manner the statutory defence provided in s. 222AOJ and proving by admissible evidence the facts and circumstances specified in ss. 222AOJ(2) or (3). In the absence of the person against whom the recovery proceedings are brought discharging the onus to prove the facts giving rise to the statutory defence, the Commissioner is entitled at law to judgment in the sum of the penalty.
The respondents' submission that the phrase ``begin to be wound up'' means, and is satisfied by, the filing of an application seeking an order for winding up, and the alternative argument that the directors in this case took all reasonable steps within the terms of s. 222AOJ(3), rely upon the contention that the directors' obligation was only referrable to the contents of the notice given by the Commissioner as required by s. 222AOE. In their written submissions, the respondents said:-
``4. The applicants argument is dependent on the words in s. 222AOB begin to be wound up within the meaning of [the Corporations] Law' being a reference to the
ATC 4531date at which winding up is deemed to have begun or commenced under s. 513A of the Corporations Law.
5. This construction renders the option of winding up the company illusory since a company cannot be wound up within the 14 day period referred to in s. 222AOE: see Kern Paras. 6 & 7.
6. It is unlikely that the legislature intended to prescribe a method of compliance which is in fact a nonsense.
13. Alternatively, it is a defence to any claim by the applicant to recover the penalty that the directors took all reasonable steps to comply with s. 222AOB(1): see s. 222AOJ.
14. Here the prompt approach to the solicitors on 4 March 1994: Kern para. 2, the filing of the winding up application on the 7th and the appointment of provisional liquidators was as far as the debtors could reasonably go in complying with the option referred to in the notice. What the notice stated was that the penalty would be charged if after 14 days `the company is not being wound up'. On any ordinary construction of language `the company was being wound up' within that time, albeit the technical date `the commencement of the winding up' which has a significance for relation back periods and the like had not arrived.''
In my view the approach of the respondents is misconceived. They seek to equate the giving of a necessary notice as a condition precedent to recovery proceedings for a penalty with the point in time at which a duty of compliance by the directors arises. They also seek to set the requirements of compliance as the doing or causing to be done of one act specified in the notice within the period specified in the notice. It is only because the respondents seek to impose a 14 day time limit on the occurrence of all factual circumstances described in the notice that the submission can be made that ``the option of winding up the company [would be] illusory'' if the time for compliance was fixed when the process of winding up commenced, in fact, or by the operation of s. 513A of the Corporations Law. As I set out earlier in these reasons, the obligation imposed on directors arises from the first deduction day and continues until compliance by the occurrence of one of the events specified in s. 222AOB(2). The submissions of the respondents totally ignores the obligation cast upon the directors in the period prior to receiving the notice.
The obvious purpose of Division 9 of Part VI of the ITAA is to force directors to address the issue of compliance before the due date and to take whatever action is appropriate to bring about compliance. The duty is enforced by penalty which arises if there is non-compliance on the due date. There is nothing in the scheme of the division which necessitates a construction of the compliance requirements in s. 222AOB(2) which enables each of the four circumstances to occur on or before the due date without the imposition of a penalty. This is particularly so where the Division provides for the remission of any penalty by operation of the statute at any time prior to the expiration of fourteen days after the giving of a notice as provided for in s. 222AOE upon compliance within the terms of s. 222AOB. It is entirely contrary to the purpose of the division to construe the requirements of compliance on the basis that directors are free to ignore the continuing statutory obligation imposed upon them by s. 222AOB(1) until receipt of the notice.
The statutory purpose in s. 222ANA(1) bears repeating:-
``222ANA(1) The purpose of this Division is to ensure that a company either meets its obligations under Division 2, 3A, 3B, 4 or 8, or goes promptly into voluntary administration under Part 5.3A of the Corporations Law or into liquidation.''
In terms of s. 222AOB(2) that statutory purpose is achieved ``when... the company begins to be wound up...''. The terms ``liquidation'' and ``wound up'' are not defined in either the Corporations Law or the ITAA. However, in my opinion, there is no material difference between the ordinary meaning of the terms and their meaning as understood in the company law context. A helpful and correct statement of their meaning and use may be found in Palmers Company Law Precedents 17th Ed. (1960) Part II Winding Up at p.1:-
``Without attempting a precise definition, the winding up of a company may be described as a statutory process for bringing the operation of the company to a close, realising its assets, and distributing the proceeds amongst its creditors in due course
ATC 4532of administration, and amongst its contributories in accordance with their rights and interests, such realisation and distribution being followed by a dissolution of the company.
Condition of Company which is being Wound Up
As from the commencement of the winding up (commonly called the `liquidation') of a company, the company ceases to be a going concern, and to exercise a free and independent action. Its corporate existence still subsists, but it exists only for the purpose of being wound up. Its directors are displaced from their office, and in their stead its affairs are placed in the hands of a liquidator - a statutory official charged with the duty of conducting the winding up and procuring the dissolution of the company.''
Where the winding up involves a compulsory winding up by the court, the winding up does not in fact begin or commence until the winding up order is made by the court (
Fleet Motor & General Insurance Co. (Aust.) Pty. Ltd. v. Tickle  1 NSWLR 210 at 214;
Re Crust 'N Crumb Bakers (Wholesale) Pty. Ltd.  2 Qd.R. 76 at 78).
A company begins to be wound up for the purposes of s. 222AOB(2) when in accordance with the provisions of the Corporations Law a statutory process available under that law is enlivened by any statutory mechanism provided for in the Corporations Law. The filing of an application for an order for compulsory winding up by the court is not in itself such a mechanism.
The argument before the court proceeded on the basis that it was impossible to obtain a winding up order within fourteen days of an application because of the requirements of the various rules of court. Mr. McGill on behalf of the applicant conceded in argument that it was so. On reflection, at least insofar as the Federal Court is concerned I am not persuaded that this concession ought to have been made.
By s. 462(2) of the Corporations Law, a company may apply for a winding up order. Order 71 r.36 of the Federal Court Rules sets out the formal requirements of an application for a winding up order under s. 462 of the Corporations Law.
The only rule which prevents service of prescribed documents on or about the day of filing the application is r.36(8). Rule 36(8) requires a notice of the application (in accordance with Form 93) to be published in the Gazette and in certain newspapers (r. 104) not earlier than three days after service of the application on the company and not later than seven days before the day appointed for directions under O. 4 r. 8. By O. 71 r. 36(9) the court may hear and determine the winding up application on that day.
Therefore, in the Federal Court at least, it appears to be possible to have an application for winding up heard and an order made on the eleventh day after filing said application.
Further it is always possible in an appropriate case to apply to the court to abridge time or to dispense with the requirements of advertising, particularly where the application for winding up is that of the company itself (see for example
Dikwa Holdings Pty. Ltd. v. Oakbury Pty. Ltd. (1992) 10 ACLC 925).
I have come to the view, which I hold irrespective of whether or not a winding up order can be obtained within fourteen days of the filing of an application, that the construction contended for by the respondents is erroneous. If it can be obtained within that time as a practical matter by the application of some will and effort, it substantially undermines the necessity of the construction contended for by the respondents.
The respondents further submit that the appointment of a provisional liquidator was a sufficient beginning of the company being wound up. The function of a provisional liquidator is not to begin to wind up a company. On the contrary, the appointment is as the name says, provisional only; it is interlocutory in nature and a winding up order in fact may not follow such an appointment. The provisional liquidator is primarily performing an interlocutory function designed for the purpose of preserving the assets of the company for the benefit of those who may ultimately be found to be entitled to the benefit of them (
Re Rothwells Ltd.  2 Qd.R. 181 at 186). A company does not begin to be wound up for the purposes of s. 222AOB(2) upon the appointment of a provisional liquidator to it (to the same effect in a not markedly dissimilar statutory context see Fleet & General Insurance Co. (Aust.) Pty. Ltd. v. Tickle at 214).
It follows in my view that neither the filing of the application nor the appointment of the provisional liquidator remitted the penalties the debtors were liable to pay to the Commissioner.
Was the applicant a contingent creditor only for the purpose of s. 198(2) of the Act?
By the operation of s. 222AOC of the ITAA, the debtors, on the default of the company to pay the unremitted deductions, became liable to pay to the Commissioner by way of penalty an amount equal to the unremitted deductions. Such sum by way of penalty became presently owing as a liquidated amount on the first and each subsequent due date when default occurred. Whether or not the debt can be said to be presently payable only on a contingency, namely the giving of a notice under s. 222AOE and non-compliance with s. 222AOB(2) within fourteen days thereafter, that contingency was satisfied in this case and the penalties were enforceable as a debt under s. 221YR. The debt was not a contingent debt in the sense of there being only the possibility of a debt at some future time or that payment of it was dependent upon some contingency; there was an enforceable debt (
Bakewell v. DFC of T (SA) (1936-1937) 58 CLR 743 at 754-755;
Community Development Pty. Ltd. v. Engwinda Construction Co. (1969) 120 CLR 455 at 459, 461-462). The existence of the statutory defence does not convert an enforceable debt into a contingent debt payable only on the contingency that the debtor does not plead and prove up the statutory defence. Rather, the statutory defence, if pleaded and made out, operates in bar to the enforcement of the debt only. It is unnecessary for present purposes to determine whether or not successful invocation of the defence extinguishes the debt. The mere fact that the debt was disputed by the filing of a defence to the District Court Plaint does not make the debt contingent for bankruptcy purposes (
Re McLean (1992) 108 ALR 360 at 370-371).
The applicant's standing to bring this application
The respondents submitted that to bring this application the applicant must establish that it was a creditor entitled to vote at the meeting. To do that they submitted, the applicant must prove on the balance of probabilities that the debtors have no effective defence under s. 222AOJ(3) by showing that that which the debtors did after receiving the notice on 25 February 1994 did not constitute reasonable steps for the purposes of s. 222AOJ(a) of the ITAA or that there were reasonable steps which could have been taken so as to deny the operation of s. 222AOJ(b) (
Re Dingle; Westpac Banking Corporation v. Worrell & Anor (1993) 47 FCR 478 at 488). The applicant by its counsel did not demur from this contention. It submits that by the operation of Division 9 of Part VI of the ITAA, and on the material before the court, it was at all material times a creditor. It further submits that on the facts in evidence before the court, which are the relevant facts for the court to have regard to in determining its status as creditor (Dingle at 488), the statutory defence could not be made out. The material also demonstrates, in the applicant's submission, that the applicant's vote would have resulted in the mandatory statutory minimum vote for a special resolution not being achieved.
The applicant submits and I find that the first and last dates for the company to remit the deductions made in the period 1 June 1993 to 31 December 1993 for the purposes of Division 2 Part VI of the ITAA were 7 July 1993 and 7 January 1994. That is, the due date for each payment was the seventh day of the month following the month in which the deduction was made. The first and last dates for the company to remit deductions made for the purposes of Division 3A of Part VI as an eligible paying authority was 14 July 1993 and 14 January 1994. That is, the due date for each remittance was the fourteenth day in the month following the deduction. The obligations of the debtors were not satisfied on 7 July 1993 or 14 July 1993 by compliance with s. 222AOB(2). In consequence, on and from those dates the debtors became liable to pay to the Commissioner a penalty equal to the unremitted deductions. From those dates the debtors' obligations remained to be satisfied in respect of outstanding payments from time to time as existing defaults remained unremedied and the coming and passing of the due dates added to the quantum of the unremitted deductions and the penalties being incurred by the operation of s. 222AOC.
The applicant on 15 March 1994 filed a separate plaint in the District Court at Townsville against each debtor claiming $75,423.80 as a debt due to the Commonwealth. Plaint No. 59 of 1994 was against the male
ATC 4534debtor. Plaint No. 60 of 1994 was against the female debtor. Each debtor pleaded by way of substantive defence that the applicant was not entitled to recover the money for the following reasons:-
``(a) That the Defendant did comply with a Notice served under Section 222AOE of the Income Tax Assessment Act 1936 by causing the filing of an application by Ray Scobie Building Contractors Pty Ltd ACN 011 006 723 (hereinafter called `the Company') for winding up on 7 March 1994 and by virtue of the appointment of a Provisional Liquidator on 7 March 1994.
In the Alternative:
(b) That the Plaintiff is estopped from recovering money which is alleged is due and owing by way of penalty against the Defendant.
(i) By way of letter dated 2 February 1994, the Plaintiff did grant the accommodation to and for the benefit of the Defendant in the following terms:
`Your request of 31 January 1994 for an extension of time to pay the above outstanding debts has been considered. An interim extension of six (6) months will be granted to the company with the first payment due on 25 February 1994 and review of this extension on 31 August 1994.'
(ii) That the accommodation granted therein did, and the Defendant was reasonable in so believing, relate to all PPS and Group Tax liabilities then alleged to be due and payable by the company.
(iii) That the said accommodation was provided to allow the company to seek further finance facilities to pay amounts outstanding against the company and to allow for the reduction of outstanding PPS and Group Tax liability in the meantime.
(iv) This accommodation was not conditional upon the company and/or Defendant entering into an agreement under Section 222AOA or otherwise.
(v) On or before 4 March 1994 and in reliance on the said accommodation the Defendant caused payment of $1,670.00 to be made in reduction of the company's then outstanding PPS and Group Tax liability.
(vi) That the Defendant relied to his detriment on the said accommodation.''
There was no defence raised at all under s. 222AOJ(3) let alone one relating to the period July 1993 to January 1994.
Throughout the period July 1993 to January 1994 it remained open to the debtors as directors to procure the company to pay the unremitted deductions. If the company was unable to pay because of lack of funds, whether temporary or permanent, then it had available to it the options in s. 222AOB(2) to bring about compliance. There is no credible basis to say that such a step could not reasonably have been taken prior to the notice under s. 222AOE dated 23 February 1994 or that no reasonable step was able to be taken.
That the company's accountant approached Ms. Lynch of the applicant's Townsville office on 25 January 1994 and told her that he was meeting the male debtor to discuss how the total debt of the company to the applicant was to be paid in full, indicates that at least by that date the company and the debtors were aware that there was a difficulty in paying the deductions then due by the company. In a letter from the male debtor dated 31 January 1994 he advises that the total debt outstanding to the applicant at that stage is $130,124.80 and that it will take eighteen months to clear the debt at $1,670.00 per week.
The proposal put by the company was:-
- (a) Payment of outstanding debt totalling $130,124.80 by equal weekly payments of $1,670.00 over an 18 month period.
- (b) A commitment that the Company keep current its ongoing Group Tax and Prescribed Payments remittance obligations.''
On 2 February 1994 the applicant replied:-
``Your request dated 31 January 1994, for an extension of time to pay the above outstanding debts has been considered.
An interim extension for six months will be granted to the company, with the first payment due 25 February 1994 and a review of this extension on 31 August 1994.
When the extension falls due for review it is expected the company will be actively seeking finance to be able to make payment in full of the balance outstanding.
Payments for the period June 1993 to December 1993 are to be paid as per the enclosed Payment Agreement.
For the debts pre June 1993, payment of these will be accepted as per the attached schedule.
Enclosed are remittance advices, which have been completed to correspond with both of the payment schedules. These MUST be used when making the payments as per the schedules. The company will have the option of bring [sic] the payment (with the relevant remittance slip) to the cashiers at 235 Stanley Street, Townsville on the prescribed date. Or alternatively posting a cheque to the PO Box shown on the payment agreement, however if the payment is posted it MUST be receipted by the Australian Taxation Office on the date prescribed in the agreement.
Additional Tax for Late Payment will continue to accrue on all outstanding amounts until payment in full is received.''
The schedule to the letter makes it clear that the unpaid remittances in respect of which an extension was granted were those which originally fell due for payment on 14 March 1993 and 14 April 1993 (so far as s. 221YHDC(2) deductions were concerned) and 7 May 1993 and 7 June 1993 (so far as the s. 221F(5)(a) and s. 221F(12)(b)(ii) deductions and penalties were concerned). These deductions and penalties are not the deductions and penalties with which the court is concerned in these proceedings. The post June 1993 deductions were subject to a separate proposal contained in a letter from the applicant to the company also dated 2 February 1993 to which was attached an agreement under s. 222ALA of the ITAA for signature. The schedule to the agreement covers the period 7 July 1993 to 7 October 1993 which is part only of the period to which the notice under s. 222AOE related. The agreement was never signed by the company. It was submitted by counsel for the respondents that it was not signed because the company was hopelessly insolvent and therefore it was unreasonable to expect the agreement to be signed. Having regard to the terms of the letter of 2 February 1994 containing the agreement for execution which warned that if the company defaulted under the agreement the directors became liable for the outstanding balance, it is more likely that the agreement was not signed because the debtors were aware of the insolvency of the company and did not wish to expose themselves to a penalty.
If, as appears likely, the debtors were aware around 2 February 1994 that the company was insolvent, and if they were unwilling to or incapable of using their own funds to satisfy the company's liability, they had two options. The first was to cause an administrator to be appointed under s. 436A of the Corporations Law. The second was to cause the company to begin to be wound up.
It was submitted by the respondents that the appointment of an administrator was not reasonable having regard to the object of Part 5.3A of the Corporations Law and the fact that the company was insolvent. I do not agree. Part 5.3A is predicated on the assumption that the company is insolvent. The object section, s. 435A, provides:-
``435A The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
- (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or
- (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company.''
The normal outcome of an administration provided by for the Part is contained in s. 435C(2), which states:-
``435C(2) The normal outcome of the administration of a company is that:
- (a) a deed of company arrangement is executed by both the company and the deed's administrator; or
- (b) the company's creditors resolve under paragraph 439C(b) that the administration should end; or
- (c) the company's creditors resolve under paragraph 439C(c) that the company be wound up.''
In order to determine which is the appropriate outcome, the Part provides in s. 438A:-
``438A As soon as practicable after the administration of a company begins, the administrator must:
- (a) investigate the company's business, property, affairs and financial circumstances; and
- (b) form an opinion about each of the following matters:
- (i) whether it would be in the interests of the company's creditors for the company to execute a deed of company arrangement;
- (ii) whether it would be in the creditors' interests for the administration to end;
- (iii) whether it would be in the creditors' interests for the company to be wound up.''
And further in s. 439A:-
``439A(1) The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6).
439A(4) The notice given to a creditor under paragraph (3)(a) must be accompanied by a copy of:
- (a) a report by the administrator about the company's business, property, affairs and financial circumstances; and
- (b) a statement setting out the administrator's opinion about each of the following matters:
- (i) whether it would be in the creditors' interests for the company to execute a deed of company arrangement;
- (ii) whether it would be in the creditors' interests for the administration to end;
- (iii) whether it would be in the creditors' interests for the company to be wound up;
- and his or her reasons for those opinions; and
- (c) if a deed of company arrangement is proposed - a statement setting out details of the proposed deed.
439A(5) The convening period is:
- (a) if the administration begins on a day that is in December, or is less than 28 days before Good Friday - the period of 28 days beginning on that day; or
- (b) otherwise - the period of 21 days beginning on the day when the administration begins.''
And further in s. 439C:-
``439C At a meeting convened under section 439A, the creditors may resolve:
- (a) that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting); or
- (b) that the administration should end; or
- (c) that the company be wound up.''
If the creditors resolve at the meeting in accordance with paragraph 439C(c) that the company be wound up, then in accordance with s. 446A of the Corporations Law the company is taken to have resolved by special resolution to be wound up voluntarily and the administrator to have become the liquidator.
The purpose of Part 5.3A is to enable the affairs of companies to be examined to determine appropriate outcomes having regard to the objects of s. 435A. The statutory scheme requires the creditors to determine within 21 or 28 days depending upon the date of appointment of the administrator whether the company ought to be wound up and if so resolved to thereafter begin to wind up the company.
For the purpose of s. 222AOB of the ITAA, an administrator is appointed when the provisions of s. 436A(1) have been complied with. The sub-section provides:-
``436A(1) A company may, be writing under its common seal, appoint an administrator of the company if the board has resolved to the effect that:
- (a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and
- (b) an administrator of the company should be appointed.''
I am not persuaded that it was reasonable to fail to appoint an administrator at some time prior to the notice under s. 222AOE of the ITAA, or within fourteen days thereafter.
As I have indicated earlier in these reasons, it is not in my view impossible to obtain an order to wind up a company so that the winding up begins within the fourteen day period, particularly where it is the company's own application for a winding up order. What is required is that the company seek to take advantage of the powers of the court to expedite the making of a winding up order where the interests of the company, creditors and the public interest are served by exercising those powers. In any event, the debtors had more than ample time in the period from July 1993 and even from January 1994 to obtain a winding up order in respect of the company before the notice under s. 222AOE issued.
For the above reasons I am satisfied that the applicant is a creditor of the debtors in the amount of $75,423.80 as claimed. I am also satisfied that if the applicant had been permitted a vote at the meeting of creditors, it would have voted against the proposed scheme of arrangement and the requisite majority for a special resolution would not have been obtained.
In these circumstances the applicant has the standing to bring the application under s. 222 of the Act and the earlier application for declaratory relief. The case is a proper one to review the decision of the chairman to refuse the applicant a right to vote.
In my view the decision of the chairman was in error and the applicant was entitled to vote at the meeting of creditors on 4, 5 and 15 July 1994.
Whether the discretion to grant the relief sought ought to be exercised?
It was submitted on behalf of the debtors that the deeds ought not to be set aside and sequestration orders ought not be made because it would prejudice the entitlement of the male debtor to hold an appropriate building licence pursuant to the Queensland Building Services Authority Act 1991 (Qld). However, Brian Joseph May, the manager of the Licensing Division of the Queensland Building Services Authority deposed that no distinction was drawn by the authority for licensing purposes between persons who had become bankrupt and those who had entered into arrangements under Part X of the Act. In either case the factual financial position of an applicant is relevant to determine whether an applicant has for example a sufficient net worth to obtain a Home Builders Licence in accordance with the activity levels set out in the policy published under Reg. 4A of the Queensland Building Services Authority Regulations. There is therefore no weighting for or against the maintaining of the status quo on this account.
The only argument put forward by the applicant in support of an exercise of the discretion in favour of making the orders sought is contained in paragraph 6 of the Affidavit of Ms. Lynch filed 25 July 1994 wherein she deposes:-
``6. The applicant considers that bankruptcy would be preferable to a Deed of Arrangement in this case because of two particular advantages:
- (a) In bankruptcy the provisions for compulsory contributions from income will apply for the usual period of three years until discharge from bankruptcy or for such longer period if an objection is lodged against such discharge. Under the deed income contributions are provided for, but only for a period of one year. Contributions at the same rate for an additional two years would produce additional funds which, in the light of the size of the debtors' estate, would be significant;
- (b) Until discharge after acquired assets will also be available to creditors in a bankruptcy. Although this does not always occur, it is my understanding that it does occur on occasions and can provide in some cases a useful addition to the distribution to creditors.
Accordingly I consider that it would be in the best interests of the Applicant, and of creditors as a whole, for the Deed not to have been approved, and would therefore not have voted in favour of it.''
The debtors were not cross-examined on their affidavits. The female debtor deposes that she is unemployed and cares for the debtors' two children. The male debtor deposes that at the time of swearing his affidavit he was earning $640.00 per week after deduction of PPS tax instalments. However, he estimated that his
ATC 4538income would be under $30,000.00 per annum and that if made bankrupt, having regard to his having a dependent wife and children, his income would not exceed the threshold which required contributions to his estate (see Division 4B of Part VI of the Act). On this basis the creditors received a $5,200.00 contribution which would not otherwise have been payable if sequestration orders had been made. That the creditors have received a contribution from income, which on balance they would not have received if sequestration orders had been made, is a factor weighing in favour of maintaining the status quo.
There is in the material nothing to suggest that any assets of the debtors have not been made available to the trustee for the purpose of the deed. Nor is there anything to suggest that there is a likelihood that the debtors will come into any significant after acquired property. The concern of the applicant is to obtain the benefit of any fortuitous windfall.
On balance I am of the opinion that the status quo ought not to be disturbed. This is not a case where some minute fraction of a cent in the dollar is to be made available to creditors while maintaining other assets substantially intact. The debtors have made all of their assets available and have made available for one year approximately one-sixth of the breadwinner's income for the benefit of creditors. Those contributions by the debtors on balance ought not be disturbed in order to secure the remote possibility of some fortuitous windfall on account of future income or property.
I am of the opinion that there is utility in making the declaration sought in the application filed 14 July 1994 in order to establish the applicant's right as a creditor to prove and vote. Having proceeded with the meeting in the face of the application and having lost on the legal contentions advanced to justify a refusal to allow the applicant to vote, the respondent to the application filed 14 July 1995 must pay the applicant's costs of and incidental to the application to be taxed if not agreed.
The application filed 25 July 1995 will, in the exercise of my discretion, be dismissed. However as the respondents failed on the substantive issues they contended for, save the ultimate exercise of the discretion, there should be no order for costs on the application filed 25 July 1994.
In the absence of agreement, the Taxing Officer will determine a proper allocation of costs to each application.
THE COURT DECLARES THAT:
The Deputy Commissioner of Taxation was on 4, 5 and 15 July 1994 a creditor of each of RAYMOND KENNETH SCOBIE and PATRICIA ELLEN SCOBIE and entitled to vote at any meeting of creditors of the said RAYMOND KENNETH SCOBIE and PATRICIA ELLEN SCOBIE.
THE COURT ORDERS THAT:
1. The respondent to the application filed 14 July 1994 pay the applicant's costs of and incidental to the application including reserved costs, if any, to be taxed if not agreed.
2. The application filed 25 July 1994 be dismissed with no order as to costs.