• Legal database
Legal database

Mandalinic v Stone (Liquidator) & Ors

Judges:
Stewart J
McElwaine J
Button J

Court:
Federal Court of Australia, Full Court

MEDIA NEUTRAL CITATION: [2023] FCAFC 146

Judgment date: 4 September 2023

Stewart and Button JJ

Introduction

1. We have had the considerable benefit of reading a draft of the reasons for judgment prepared by McElwaine J. His Honour ' s explanation of the proceedings, the primary judgment ( PJ ) and the questions arising on the appeal, and his identification of the various statutory provisions and their history, make it unnecessary for us to canvass those matters in any detail. In our view, the appeal can and should be decided with reference to the first question that the primary judge determined. For the reasons that follow, that question is to be decided against the appellant. It is therefore unnecessary to decide any of the remaining questions, although for reasons that we will come to, we will say some things with regard to the second question.

2. At the request of the parties, the primary judge agreed to determine four separate questions, only the first two of which are presently relevant:

  • (a) can an affidavit filed by a director in proceedings brought by the Commissioner against a director of a company for recovery of an estimate constitute an affidavit for the purposes of s 268-40 of Schedule 1 to the TAA [ie, Taxation Administration Act 1953 (Cth)];
  • (b) if yes to (a), can an affidavit filed by a director in proceedings brought by the Commissioner against a director of a company in liquidation for recovery of an estimate constitute an affidavit for the purposes of s 268-40 of Schedule 1 to the TAA; …

3. For clarity, and because the proceeding against the director is not to recover the estimate but to recover a penalty, the first question can be rephrased as follows:

Can an affidavit filed by a director of a company in a proceeding brought by the Commissioner against the director for recovery of a debt arising from a director penalty notice which is in turn based on a notice of estimate by the Commissioner of

ATC 26970

the company ' s indebtedness constitute an affidavit for the purposes of item 2 in s 268-40(1) of the TAA?

4. It can be seen, as recognised in its wording, that the second question only arises if the first question is answered affirmatively. Indeed, if the first question is answered negatively, it follows as a matter of logic that the second question, which is narrower and encompassed within the parameters of the first question, must be also be answered negatively, ie, if in the penalty notice proceeding against the director an affidavit filed by the director cannot cause the company ' s penalty estimate to be revoked then that conclusion also applies, only with more force, in the event that the company is in liquidation. Also, any reasoning in support of answering the first question affirmatively would inevitably be relevant to answering the second question. For those reasons, in our view it is necessary to answer the first question.

5. On the first two questions, his Honour concluded (at PJ [15]):

  • (a) an affidavit filed by a director in proceedings brought by the Commissioner against a director of a company for recovery of an estimate cannot constitute an affidavit for the purposes of s 268-40 of Schedule 1 to the TAA;
  • (b) an affidavit filed by a director in proceedings brought by the Commissioner against a director of a company in liquidation for recovery of an estimate cannot constitute an affidavit for the purposes of s 268-40 of Schedule 1 to the TAA; …

6. For simplicity, all section references below, unless the contrary is indicated, are to Sch 1 of the TAA, ie, the Taxation Administration Act 1953 (Cth).

The essential facts

7. By way of recapitulation, the essential facts are straightforward. They are extracted here from the primary judgment (at PJ [16]).

8. The Commissioner issued an estimate for PAYG withholding to the company, RIC Admin Pty Ltd, which the company has never paid although a small amount was recovered by way of garnishee notice.

9. The Commissioner subsequently issued a director penalty notice to the appellant, Mr Mandalinic, who was at all relevant times a director of the company, for the unpaid amount of the PAYG withholding estimate.

10. The company took no steps to contest the estimate. The Commissioner then served a creditor ' s statutory demand on the company and thereafter successfully applied for the company to be wound up.

11. The Commissioner then commenced a proceeding in the Supreme Court of New South Wales against Mr Mandalinic to recover the debt reflected in the director ' s penalty notice. Mr Mandalinic filed an affidavit in the Supreme Court proceeding purporting to challenge the debt underlying the notice of estimate and to thereby revoke the debt of the company under item 2 of the table in s 268-40(1).

12. The Commissioner then commenced the proceeding below against Mr Mandalinic in which claims for insolvent trading and unreasonable director-related transactions were brought. A component of the insolvent trading claim arises from the company ' s indebtedness to the Commissioner as reflected in the notice of estimate. In respect of that aspect of the claim, Mr Mandalinic sought to rely on the affidavit filed in the Supreme Court proceeding to contend that the estimate had been revoked by operation of the item 2 referred to. It was the validity of that contention that arose for determination by the primary judge in an interlocutory application.

The appellant ' s submissions

13. The appellant submits that the Commissioner ' s powers to create a liability by issuing an estimate are " extraordinary " and, unsurprisingly, are tempered by legislative safeguards, which are consistent with the purpose of the TAA to facilitate the recovery of unpaid amounts that are actually owed. The opportunities afforded by the legislative scheme " to overcome the potentially harsh consequences " of the estimates regime are indicative of a legislative purpose to encourage taxpayers to engage with the Commissioner " with a view to ascertaining the true liability " .

14. The appellant submits that the conclusion reached by the primary judge on the

ATC 26971

first question is wrong for essentially five reasons.

15. First, it is said that the primary judge erred by construing the words " relate to " and " you " in s 268-40 narrowly when a broad reading of those words is not merely open but proper. The words " relate to " in s 268-40 are of " wide import " and broad enough on their face to apply to director penalty proceedings, a position which was noted by the New South Wales Court of Appeal in
Lee v Deputy Commissioner of Taxation; Silverbrook v Deputy Commissioner of Taxation [2020] NSWCA 95 ; 102 NSWLR 825 at [41] , and the primary judge considered that director penalties " relate to " unpaid amounts of estimates elsewhere in the primary judgment (at PJ [6]). The appellant submits that the primary judge ' s construction of the word " you " in item 2 of s 268-40 is incorrect because each of the items in s 268-40 are independent of each other, providing a separate source of power to reduce or revoke an estimate that may become available at different times. The appellant accepts that the word " you " in item 1 of s 268-40 refers to the company, but contends that the word " you " has a sufficiently flexible meaning such that, in item 2, it can encompass proceedings against a director. It is said that this is a logical reading of item 2 in circumstances where it is conceivable that the Commissioner could elect to bring director penalty proceedings against a director before, or instead of, pursuing a company and so it would be " curious " and unjust if a director were unable to swear an affidavit reducing or revoking the estimate in the context of a director penalty proceeding, rendering them " liable for the payment of taxes that did not exist " should the estimate be wrong.

16. Secondly, the appellant submits that the fact that there are different statutory defences available for directors does not mean that there are no other means by which a director might defend themselves and the existence of those provisions does not limit the plain words in item 2 of s 268-40.

17. Thirdly, the appellant submits that there is no anomaly in finding that the legislative scheme enables a current but not a former director to swear an affidavit because s 268-40 empowers a person with knowledge of the asserted facts to provide information to the Commissioner and that descriptor befits a current but not a former director.

18. Fourthly, the appellant submits that it is not inimical to the legislative purpose of efficiency to provide multiple opportunities to taxpayers to correct estimates when the legislative scheme puts timeframes on each such opportunity.

19. Finally, it is said that it is not " telling " that the Explanatory Memorandum to the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 (Cth) does not identify that a director can extinguish their personal liability by filing an affidavit in director penalty proceedings to reduce or revoke the estimate because the Explanatory Memorandum is only directed to methods of extinguishing the personal liability of directors rather than eliminating the estimate.

Consideration and disposition

20. There are a number of cumulative considerations which lead to the conclusion that in item 2 of the table in s 268-40(1) the " you " who can file an affidavit is the person or entity that is the subject of the estimate notice and not some other person or entity the claimed liability of whom is in some way based on or related to the liability under the estimate notice. In the factual circumstances of the present case, the company to whom the estimate notice was directed could avail itself of the opportunity provided by item 2 to revoke or reduce the estimate, but the director who was the subject of a director ' s penalty notice could not.

21. First, as submitted by the Commissioner, the provisions containing the word " you " were introduced into the TAA as a result of the Tax Law Improvement Project, which aimed to simplify the legislative scheme without changing the underlying taxation policy: Explanatory Memorandum, Income Tax Assessment Bill 1996 (Cth) at 17 - 18 and 149; Joint Committee of Public Accounts and Audit, " An Advisory Report on the Delayed Provisions of the Tax Law Improvement Bill (No. 2) 1997 "
(1997) 1 . The predecessor to Div 268 used the term " person liable " rather than " you " , with the words " person liable " being defined as a person who has " become liable under a remittance provision to pay to the

ATC 26972

Commissioner " and where a " person liable " was the only person (save for their trustee) who could file an affidavit to revoke or reduce the estimate. Therefore, under the former regime the " person liable " was the person who was the subject of the remittance obligations, the recipient of the estimate and the party to the proceedings that related to the recovery of the unpaid amount of the estimate. If the legislative intention behind the amendments to the statutory scheme was to preserve their legal effect then " you " in Div 268 means the company and not the director.

22. Secondly, ss 268-40 and 268-90 are to be read and understood together. That arises from the reference to s 268-90 in note 2 to s 268-40, from the reference to s 268-40 in s 268-90(1), and from the obvious point that the statutory declaration and affidavit referred to in s 268-40 are the same as the statutory declaration and affidavit dealt with in s 268-90. While s 268-40 defines who can give or file the affidavit or statutory declaration and by when they must do so, s 268-90 sets out its requirements as to scope, content and its maker (see the headings within the section). This observation weighs against the appellant ' s submission that " you " can refer to different entities in s 268-40 and s 268-90.

23. Thirdly, the express terms of s 268-90(2) indicate that the entity giving or filing the statutory declaration or affidavit is the entity that is the recipient of the notice of estimate. No other sensible construction is possible, in particular because it refers to the amounts " you withheld " , or " you were required to pay " under the estimate of liability regime in s 268-10(1). The result is that the word " you " in s 268-90(2) must refer to the recipient of the notice of estimate. In this case, that is the company. If, as for the sake of consistent construction it must, " you " in s 268-40 has the same meaning as it does in s 268-90, then it is also a reference to the company and not to the subject of a director penalty notice.

24. Fourthly, although the words " relate to " are obviously capable of broad meaning, the breadth of meaning or relationships must be gleaned from the statutory context and purpose. There is existing authority that has considered the breadth of the phrase " you are a party to proceedings before a court that relate to the recovery of the unpaid amount of the estimate " in item 2. The existing authority must be considered.

25. In Transtar
Linehaul Pty Ltd v Deputy Commissioner of Taxation [2011] FCA 856 ; 196 FCR 271 , the Commissioner served a notice of estimate for PAYG withholding liability on the company. The company provided a statutory declaration to the Commissioner, purportedly in terms of s 268-40(1) although it was outside the applicable period. The company then brought the proceeding in question seeking declarations that the estimate was revoked, either by way of the statutory declaration having been given by the Commissioner or by way of an affidavit filed in the proceeding (at [39]). One issue was whether the proceeding " relate[d] to the recovery of the unpaid amount of the estimate " within the meaning of item 2 of s 268-40(1) (identified at [41]). Robertson J concluded (at [48]) that it was not.

26. His Honour reasoned (at [49]), first, that the statutory context suggests that the recovery proceedings referred to in item 2 are those referred to in s 268-5, the object of Div 268 being to enable the Commissioner to take prompt and effective action to recover amounts not paid as required by Pt 2-5 (ie, PAYG withholding). Secondly (at [50]), the scheme of the legislation is that the estimate is revoked in the recovery proceedings so that the court is then in a position to determine the underlying liability rather than the accuracy of the estimate. Thirdly (at [51]), paying close attention to the terms of item 2, it is proceedings which relate to the recovery of the unpaid amount of the estimate that are referred to, and the proceeding in that case being for a declaration that the estimate is revoked is not such a proceeding. That is because in that context there is a difference between proceedings that relate to the recovery of the unpaid amount and proceedings that forestall the recovery of that amount (at [52]). Lastly (at [62]), his Honour considered that the extrinsic material supports the conclusion that the affidavit would operate where the Commissioner brought proceedings to recover the unpaid amount of the estimate, and not where the debtor brings proceedings to declare that there is no liability.

27.

ATC 26973

In Re Priority Matters Pty Ltd
[2022] NSWSC 3 ; 160 ACSR 1 , the Commissioner served a notice of estimate of liability for PAYG withholding amounts on the company. The company did not pay, so the Commissioner served a statutory demand. The company commenced a proceeding seeking to set aside the statutory demand or vary the amount of the demand. It relied on an affidavit affirmed by a director of the company as an affidavit referred to in item 2 of the table in s 268-40(1) to have the effect of revoking the estimate. The issue was whether the proceeding to set aside the statutory demand was a proceeding " that relate[s] to the recovery of the unpaid amount of the estimate " . Rees J held that it was not.

28. Her Honour (at [29] and [35]) adopted the reasoning of Robertson J in Transtar at [49] - [53] and [62], in particular that the affidavit would operate where the Commissioner brought proceedings to recover the unpaid amount of the estimate. That conclusion was said to be supported by the Explanatory Memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993 (Cth) and the former s 222AHC which clearly envisaged proceedings brought by the Commissioner. Her Honour said that " the taxpayer is cast as a defendant in recovery proceedings " .

29. Further, her Honour held (at [45]) that proceedings to set aside a statutory demand, which have the aim of preventing a presumption of insolvency arising (being the effect of service of the statutory demand), have a tenuous link with the recovery of the underlying debt (being the unpaid estimate). Her Honour reasoned that the proceeding was a proceeding to forestall the recovery of the debt and was not a proceeding for the recovery of the debt, citing Transtar at [52] - [53]. On that basis, it was held that an affidavit filed by a taxpayer in a proceeding to set aside a statutory demand based upon an estimate is not a proceeding " ' that relate[s] to the recovery of the unpaid amount of the estimate ' within the meaning of item 2, s 268-40 " .

30. The application for leave to appeal against the judgment in Priority Matters was dismissed, although that was on the basis that even if the affidavit filed by the director in the proceeding to set aside the statutory demand could be an affidavit within the meaning of item 2, in the particular case the affidavit did not meet the requirements of s 268-90 because it did not verify facts sufficient to prove that the underlying taxation liability never existed:
Priority Matters Pty Ltd v Deputy Commissioner of Taxation [2022] NSWCA 208 per Griffiths AJA, Ward P and Macfarlan JA agreeing. The result is that the Court of Appeal did not consider the reasoning of Rees J on the point relevant to the present case.

31. The conclusions and reasoning in Transtar and Priority Matters are pertinent to the question that arises in the present case as they direct attention to the question of whether the proceeding in question is one that relates to recovery of the unpaid amount of an estimate. A proceeding against a director for recovery of a penalty is not a proceeding that can be said to relate to recovery of the unpaid amount of an estimate. Although recovery of a penalty will reduce the amount of the estimate (s 269-40), a proceeding against a director which results in recovery of a penalty will not, by virtue of the effect of payment of the penalty on the estimate, be a proceeding that relates to recovery of the estimate. The estimate is a separate and distinct liability, and one that is borne by a different legal entity (viz, the company, as distinct from the director). The proceeding against Mr Mandalinic is also not one in which the underlying liability of the company can be determined in the event that the estimate is revoked (cf Transtar at [50]).

32. Fourthly, if neither a proceeding by a taxpayer who is the recipient of the estimate notice for a declaration that the estimate notice is revoked ( Transtar ), nor a proceeding by a taxpayer seeking to set aside a statutory demand ( Priority Matters ), is a proceeding that " relates to " the recovery of the unpaid amount of the estimate, it is difficult to conceive how the proceeding against Mr Mandalinic for recovery of a director penalty might fall within the bounds of that relationship - it is surely even further removed because the taxpayer (the company) is not even a party and the relevant debt that is the subject of the proceeding is not the estimate.

33.

ATC 26974

Fifthly, there is the question of the appellant ' s reliance on the concession made by the Commissioner in Lee referred to at [41] and [67], that in a penalty notice proceeding, a director can file an affidavit under item 2 of s 268-40(1) which can have the effect of revoking or reducing the estimate. However, no particular consideration was given to this issue, so the judgment is no authority for the correctness of the Commissioner ' s concession. It therefore plays no role in the proper construction of the provisions.

34. Sixthly, as reasoned by the primary judge (at PJ [85]), the construction that prevents a director in a penalty notice proceeding from relying on an affidavit filed in that proceeding to revoke the estimate does not shut out a director in that position. Section 269-35 provides for " illness or for some other good reason " and " all reasonable steps " defences. As observed by the primary judge, the defences in s 269-35 are specific defences for directors the subject of proceedings brought by the Commissioner seeking to recover by way of penalty amounts equal to unpaid amounts of estimates issued to a company.

35. For those reasons, we agree with the primary judge ' s conclusion with respect to issue 1. The appeal should accordingly be dismissed. As submissions were not made on costs, the parties should have the opportunity to address costs in writing. We therefore agree with the orders proposed by McElwaine J.

Issue 2

36. Although we have disposed of the appeal based on issue 1, we should say something about issue 2 as it constitutes the basis upon which McElwaine J would determine the appeal (separate reasons - SR ) and there is little authority on the point. Issue 2 was also addressed by the primary judge.

37. Both the primary judge and McElwaine J conclude that an affidavit filed by a director in proceedings brought by the Commissioner against a director of a company in liquidation for recovery of a penalty cannot constitute an affidavit for the purposes of s 268-40 of Sch 1 to the TAA. For the reasons explained above on issue 1, we agree with this conclusion. However, as we explain below, we disagree in certain respects with the reasoning of their Honours.

38. Justice McElwaine has concluded (SR [123]) that, where there is a supervising entity, the statutory declaration " is for the [supervising] entity to make and, where it is, is ' taken ' to have been given or filed by the person or entity the subject of the supervising entity appointment " . This conclusion arises from his Honour ' s view that s 268-90(3) is to be construed on the basis that the words " if and as applicable " in s 268-90(3)(b) mean that the statutory declaration or affidavit must be made, sworn or affirmed by a supervising entity, if there is one.

39. In our view, s 268-90(3) does not provide that, where there is a supervising entity, the maker of a statutory declaration, or the deponent of an affidavit, must, and can only, be the supervising entity him- or herself (and cannot be a company director or secretary, or the public officer of a body corporate). In our view, the statutory scheme allows for a director to swear an affidavit or make a statutory declaration. The question of who can choose to file such an affidavit, or give such a statutory declaration is a separate question. In short, the question of who controls the taxation affairs of a taxpayer which has received notice of an estimate must not be conflated with the question of who the deponent of an affidavit, or the maker of a statutory declaration, must be.

40. Division 268 in Sch 1 to the TAA is concerned with estimates. The liability of an entity to pay the amount of an estimate notified by the Commissioner is separate and distinct from the underlying liability. That subdivision includes s 268-30, which provides that estimates are provable in a bankruptcy or winding up. Subdivision 268-D contains provisions for the reduction and revocation of estimates.

41. In addition to the general power of the Commissioner to reduce or revoke an estimate established by s 268-35, s 268-40 provides for a procedure whereby estimates can be unilaterally reduced or revoked by the stated means. Those means include:

  • (1) " you " giving the Commissioner a statutory declaration;

    ATC 26975

  • (2) " you " filing an affidavit in proceedings " that relate to the recovery of the unpaid amount of the estimate " and serving a copy of the affidavit on the Commissioner; and
  • (3) " the company " filing and serving an affidavit where a winding up application is made to a court following a statutory demand having been served by the Commissioner on a company.

42. For the reasons we have addressed in relation to issue 1, references to " you " in s 268-40 are to the taxpayer. It follows that where s 268-40(1) sets out, as a condition, that " you give the Commissioner a statutory declaration … " , the section refers to a statutory declaration given by the taxpayer to the Commissioner.

43. Necessarily, where the taxpayer is a corporation, someone is in control of its affairs. These provisions were drafted cognisant of, and referring to, provisions of the Corporations Act 2001 (Cth) ( Corporations Act ). Section 268-100 provides that the Division is not intended to limit or exclude the operation of Ch 5 (External administration) or Sch 2 to the Corporations Act, or the Bankruptcy Act 1966 (Cth), to the extent those provisions or that Act can operate concurrently with the Division.

44. Pursuant to s 477 of the Corporations Act (which is part of Ch 5), liquidators have extensive powers. Those powers include carrying on the business of the company, dealing with its debts (including by way of compromise), and bringing and defending proceedings in the name of the company. Officers of a company under external administration must not perform or exercise a function or power of that office: s 198G(1) of the Corporations Act. As such, directors are deprived of their usual power (as provided for by s 198A, which is a replaceable rule) to manage the business of the company.

45. Section 268-40 says nothing about who the deponent of an affidavit, or the maker of a statutory declaration, is to be. It is s 268-90 that sets out the requirements for a statutory declaration that is given, or an affidavit that is filed, for the purposes of s 268-40 or s 268-45.

46. Section 268-90 establishes a single set of provisions that must be applied to both of the distinct regimes for the reduction or revocation of estimates established by ss 268-40 and 268-45. The unilateral revocation mechanism provided for by s 268-40 has already been addressed. Section 268-45 sets up another, separate, mechanism whereby estimates may be reduced or revoked. That mechanism is available where the Commissioner lodges a proof of debt relating to the unpaid amount of an estimate and " section 268-95 applies to an entity (your supervising entity ) in relation to you " : s 268-45(1). The mechanism provided for by s 268-45(2) allows " [y]our supervising entity " to " give the Commissioner a statutory declaration " to the effect that the underlying liability has been discharged in full, never existed, or is a specified and lesser amount. Where such a statutory declaration has been given, the supervising entity may reject the proof of debt in whole or in part.

47. Unlike the previous legislation (addressed further below), the proof of debt rejection mechanism (now s 268-45) and the unilateral revocation mechanism (now s 268-40) do not each have their own, bespoke, provision. Section 268-90 specifies the required contents of, and the permissible maker or deponent of, the statutory declarations and affidavits required to invoke either of those mechanisms.

48. Section 268-90 is to be read with s 268-95, which applies to a " supervising entity " in relation to " you " in the circumstances set out in that section. Sections 268-95(6) - (8) deem actions taken by a supervising entity to have been taken by the person subject to the appointment of that supervising entity. However, the section does not provide that only the supervising entity may make the statutory declaration, or swear or affirm an affidavit, the giving or filing of which by the supervising entity is subject to the deeming provision. Likewise, s 268-95 ' s deeming provision concerning affidavits is directed to the filing of the affidavit by the supervising entity. It says nothing of who is to swear the affidavit. If any requirement that a statutory declaration can only be made, or an affidavit can only be sworn or affirmed by, the supervising entity (ie, the liquidator, receiver or trustee) exists, that requirement must be found in s 268-90(3).

49.

ATC 26976

It should also be noted that, where there is a supervising entity, the mechanism for unilateral revocation or reduction under s 268-40 is still available. Section 268-30(1) expressly provides for estimates to be made after the commencement of a bankruptcy, or the " relevant date " in respect of a company under the Corporations Act. The " relevant date " is the day the winding up is taken to have commenced, which is, in some circumstances, the day when a winding up order is made or a special resolution is passed in a members ' voluntary winding up (Corporations Act ss 9, 513A, 513B).

50. This means that, just because a company that has received an estimate is in, or goes into, liquidation does not mean that the only mechanism by which the estimate may be reduced or revoked is the rejection of proof procedure under s 268-45. Sections 268-40 and 268-90 must be construed on the basis that they apply (inter alia) where the company receiving an estimate is in liquidation.

51. Section 268-90 must be construed in light of both the tight timeframes involved for taking the steps required to invoke the estimate reduction mechanisms. Those timeframes have been imposed where the stated object of Div 268 is to enable the Commissioner to take " prompt and effective action " to recover unpaid amounts: s 268-5.

52. Section 268-90 ' s requirements as to the maker or deponent must also be construed in light of the required content of the statutory declaration or affidavit. Notably, for each type of estimate, the affidavit or statutory declaration must address not only facts concerning the liability in question, but also what has been done to comply with the taxpayer ' s obligations to comply with the taxation legislation which establishes the relevant obligations. Plainly, these are matters that those involved in the operations of a corporate taxpayer which receives an estimate will be much better placed to address than a liquidator, who would be relying on information received from company officeholders, and company records. While the provisions do not preclude a liquidator, receiver, or trustee in bankruptcy making a statutory declaration, or swearing an affidavit based on information and belief, we do not consider that the absence of a hearsay exclusion provides a strong signal that only a supervising entity may be the maker or deponent where there is a supervising entity (cf SR [120]).

53. The task of construction must be undertaken without losing sight of the distinction between who can make a statutory declaration or swear or affirm an affidavit, on the one hand, and, on the other, who controls and decides whether a statutory declaration will be " given " to the Commissioner, or whether an affidavit will be filed in proceedings to which an entity that is a company is party and a copy served on the Commissioner.

54. Section 268-90(3) is the only provision in Div 268 regulating who makes statutory declarations or swears or affirms affidavits. The construction of that provision does not need to be, and ought not be, guided by a perceived need to avoid the control of liquidators over the taxation affairs of companies in liquidation being eroded by directors taking unilateral steps. The control of liquidators over the affairs of companies, and the related withdrawal of the ordinary powers of directors, is secured and effected by the provisions of the Corporations Act (relevantly, in a corporate liquidation, ss 477(1)(a) and 198G). When a company in liquidation is in receipt of an estimate, it will be for the liquidator to decide what the company should do about it. It will be for the liquidator to decide, where a proof of debt is lodged in respect of an estimate, whether a statutory declaration should be given to the Commissioner to reduce or revoke the estimate under s 268-45.

55. But is the liquidator in that circumstance confined to swearing or affirming an affidavit him- or herself, or personally making the statutory declaration? We can perceive no such limitation in the legislation. Section 268-90(3) provides as follows (in part):

Maker or deponent

  • (3) The statutory declaration or affidavit must be made, sworn or affirmed by:
    • (a) an individual specified in the following table; or
    • (b) your liquidator, receiver or trustee in bankruptcy (if and as applicable).
      Who must make the statutory declaration or swear or affirm the affidavit
      Item A statutory declaration or affidavit in relation to an estimate of a liability of ... must be made, sworn or affirmed by ...
      1 an individual that individual.
      2 a body corporate (a) in the case of a company that has a director or a company secretary (within the meaning of the Corporations Act 2001 ) - a director of the company or the company secretary; or
      (b) in the case of an *Australian government agency - an individual prescribed by the regulations; or
          (c) in any case - the public officer of the body corporate (for the purposes of the Income Tax Assessment Act 1936 ).

      ATC 26977

56. In our view, the words " if and as applicable " in s 268-90(3)(b) do no more than enable a liquidator, receiver or trustee in bankruptcy to make the statutory declaration or swear or affirm the affidavit if such a person has been appointed, and " as applicable " depending on whether the person appointed is a liquidator, receiver or trustee. The word " or " , located between sub-sections (a) and (b), serves to expand the range of potential makers and deponents as liquidators, receivers and trustees in bankruptcy are not included in the table.

57. Given the matters we have mentioned concerning the control of liquidators over the affairs of companies in liquidation, there is no need to construe " or " as excluding the individuals referred to in sub-section (3)(a) and the table to avoid any erosion of ss 268-45 and 268-95. On the contrary, the statutory requirements dictating the content of the statutory declarations and affidavits required to effect a reduction or revocation of estimates - which, as we have noted, require provision of information that a liquidator, receiver or trustee is unlikely to have and may have difficulty pulling together - together with the tight timeframes, point the other way and suggest that supervising entities are not precluded from giving a statutory declaration, or filing an affidavit, made, sworn or affirmed by a person listed in the table.

58. As we have endeavoured to emphasise, control of the decision whether to do so is not to be confused with the specific statutory issue of whether only the supervising entity may make the statutory declaration or swear or affirm the affidavit.

59. It is for these reasons that we do not share the view of McElwaine J that the effect of s 268-90(3) is that only the supervising entity may make the statutory declaration or swear or affirm the affidavit, or that the contrary conclusion erodes the regime established by ss 268-45 and 268-95 (cf SR [123] - [124]). Likewise, the issue adverted to by the Commissioner in the submission referred to in SR [126] does not arise, once questions of power to give the statutory declaration or file the affidavit are properly distinguished from questions concerning who the deponent or maker can be.

60. The construction we prefer also means that the potential difficulties in the operation of the division where a receiver is appointed to limited assets (addressed in SR [127]) do not arise. The power of any receiver to dictate the response of the recipient of an estimate will be determined by the relevant instrument(s) of appointment. It would, in our view, be a peculiar outcome if the appointment of a receiver to any company asset meant that only the receiver could make a statutory declaration or swear or affirm an affidavit, leaving the directors unable to take steps in relation to an estimate without the cooperation of a receiver whose

ATC 26978

appointor may have no interest in the company ' s tax affairs or overall solvency position.

61. We are fortified in our views by the predecessor provisions of the Income Tax Assessment Act 1936 (Cth). As noted above, when the relevant taxation laws were rewritten, they were rewritten in clearer language, but on the basis that it was not intended to alter the underlying taxation policy in significant respects: see the Joint Committee of Public Accounts and Audit, " An Advisory Report on the Delayed Provisions of the Tax Law Improvement Bill (No. 2) 1997 "
(1997) 1 [ 1.1].

62. The predecessor provisions unequivocally permitted a liquidator or trustee in bankruptcy to use a statutory declaration made by the bankrupt or a director or company secretary of a company in liquidation. This much is clear from s 222AIH, which specified the requirements for a statutory declaration under s 222AIG. Section 222AIG set out the procedures for rejection of a proof of debt relating to an estimate. As such, s 222AIG was a provision that only ever applied where there was a liquidation or bankruptcy, yet the bespoke provision stipulating who " must " be the maker of the statutory declaration expressly allowed for the bankrupt individual, a director or secretary of the company to make the declaration, or " in any case " the trustee (defined by s 6 to extend to liquidators - see SR [132]). As such, we do not agree with the conclusion stated (SR [133]) that, under the predecessor provisions, the only eligible deponent of a company in liquidation was the liquidator.

63. As issue 2 was framed, it was contingent on the answer to the first issue being that an affidavit filed by a director in proceedings brought by the Commissioner against a director of a company to recover a penalty can constitute an affidavit for the purposes of s 268-40. We have concluded that an affidavit filed in such circumstances does not constitute an affidavit for the purposes of s 268-40 and have set out the respects in which we disagree with the analysis of McElwaine J concerning who the deponent of an affidavit need be where a supervising entity has been appointed. Accordingly, we need say no more about issue 2.

64. Finally, we note that we agree with McElwaine J ' s observations regarding the harsh consequences said to be visited upon the appellant (SR [135] - [139]). As his Honour explains, the consequences for the appellant are the result of his inaction. The regime for the imposition of penalties on directors, and relief from those penalties, is set out in a separate division (Div 269). The appellant failed to avail himself of the opportunities afforded by that regime.


Back to top

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.