FC of T v LANSTEL PTY LTD

Judges:
Bryson J

Court:
Supreme Court of New South Wales - Equity Division

Judgment date: 27 November 1996

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Bryson J

The plaintiff by Summons dated 26 September 1996 seeks orders that Lanstel Pty Ltd be reinstated pursuant to s. 574(3) of the Corporations Law for the limited purpose of winding-up the company, that it be wound-up and that a liquidator be appointed under s. 459A or s. 461(k); and related orders. The company has been deregistered. The Summons was served on the two persons who, according to the last register information filed by the company, were its directors; Dr Molodysky on 28 September 1996 and Dr Wenkart on 18 October 1996. Neither has filed an appearance or sought leave to appear. Notice of the proceedings was also given to the Australian Securities Commission, which has not intervened. At the hearing the plaintiff's claims were not defended.

The company was formed in New South Wales on 19 November 1980. It was deregistered after administrative action under s. 574 of the Law on 9 October 1995. In the course of the administrative action a representative of the company told the Australian Securities Commission that the company was an operating company and had been unable to lodge information required by law as a result of a shareholders' dispute then currently before the courts. The last annual return filed related to the twelve months to 30 June 1990 and showed the company's net assets and total shareholders' equity as a negative figure, $343,441.00. It showed as a non-current liability ``creditors and borrowing $1,093,650.00''. The company has filed income tax returns for more recent periods, which show that all its liabilities were current, it had incurred losses, and according to the return to 30 June 1995, its shareholders' funds were a negative $612,502.

In the accounts of Richard Walter Pty Ltd are entries which show Lanstel Pty Ltd as a debtor to Richard Walter Pty Ltd in a loan account for $1,093,649.94. By inference, this is the same as the debt of $1,093,650 which existed in 1990 and was shown in Lanstel Pty Ltd's accounts. In evidence is a statement by the Financial Director of Richard Walter Pty Ltd which shows that there is no form of loan agreement for this loan, no interest is due and there is no specified repayment date.

Richard Walter Pty Ltd is indebted to the Commissioner for company tax on various assessments totalling over $18,000,000. In September 1995 the Commissioner served on Lanstel Pty Ltd notices under s. 218 of the Income Tax Assessment Act requiring Lanstel

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Pty Ltd, as a person by whom money was due to Richard Walter Pty Ltd, to pay that money up to $15,784,701.26 (which was then Richard Walter Pty Ltd's tax debt) to the Commission. These notices were not complied with.

To qualify to make an application for reinstatement of registration of Lanstel under subs. 574(3) of the Corporations Law the plaintiff must be a person aggrieved by the cancellation of the registration of the company. The facts which in my view show that the plaintiff is within this class are that, before cancellation of the registration, the plaintiff had delivered two notices under s. 218 and now wishes to maintain in legal proceedings against the company that those notices were effective. In the context of an application such as this Needham J in
Proserpine Pty Ltd and the Companies Act (1980) CLC ¶40-645; [1980] 1 NSWLR 745 cited and applied the following observations of the Privy Council in
Attorney General of the Gambia v. N'Jie [1961] AC 614 at 634: ```The words ``person aggrieved'' are of wide import and should not be subjected to a restrictive interpretation. They do not include, of course, a mere busybody who is interfering in things which do not concern him: but they do include a person who has a genuine grievance because an order has been made which prejudicially affects his interests.'''

I propose to follow Needham J and apply the same test. In other first decisions to which I was referred, a similar view has been taken:
Pacanowski v. Australian Securities Commission (1995) 13 ACLC 1127; (1995) 57 FCR 173;
Re Great Southern Produce Markets Pty Ltd (1987) 5 ACLC 462. The obstacle to the plaintiff's wish to maintain its claim for winding-up which deregistration presents brings the plaintiff within the reference to a person aggrieved in subs. 574(3). In the circumstances I will make an order as asked.

The plaintiff then asks for an order that the defendant be wound-up in insolvency under s. 459A of the Corporations Law. It is perfectly clear that the company is insolvent; its own documents show this. Its principals, who are its directors or former directors have been served and they do not oppose the application; nor, after due advertisement, does any other person. The question for consideration is whether the plaintiff is one of the persons who may apply; subs. 459P(1) provides:

``Any one or more of the following may apply to the Court for a company to be wound up in insolvency:

• ...
• (b) a creditor (even if the creditor is a secured creditor or is only a contingent or prospective creditor);
• ...''

A creditor with a contingent or prospective debt must obtain leave under subs. 459P(2). The application for winding-up was alternatively based on the just and equitable ground in s. 461(k), which would raise the same question of standing under subs. 462(2)(b).

Section 218, which has existed in several forms through amendments has had much judicial consideration. The structure of subs. (1) is that it empowers the Commissioner to require a debtor of a taxpayer to pay money becoming due or being held to the Commissioner, and subs. (2) makes it an offence not to comply. Subsection (4) provides to the effect that any person making any payment in pursuance of the section ``shall be deemed to have been acting under the authority of the taxpayer...''. A conclusion that, quite apart from prosecuting a recipient of a notice for an offence, the Commissioner has a legal right to compel the payments to be made to the Commissioner, and to sue for the amount if it is not paid, is left to implication, but the implication is clear. The effect of the section and the notice is to work an assignment of the debt, so that it is no longer payable to the original creditor, but to the Commissioner.

In my view this conclusion is required by the terms of s. 218. It is supported by some observations in case law which do not deal with exactly the same subject, but contain expressions of opinion supporting the view I have expressed.

In
Clyne & Anor v. DFC of T & Anor 81 ATC 4429 at p 4442; (1981) 150 CLR 1 Brennan J at p 26 said: ``The statute thus works an assignment of the moneys to be paid to the Commissioner as though the taxpayer had charged the moneys otherwise payable to him with payment of his tax liability.'' In saying this his Honour clearly did not adopt a concession which counsel for the Commissioner had made in that case that s. 218 did not purport to create a charge over or interest in the moneys in favour of the

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Commissioner. Mason J (at ATC 4437-4438; CLR 18) doubted whether this concession was correct. Gibbs CJ described the workings of the section at ATC pp 4433-4434; CLR pp 11 and 12 in terms which show that the original creditor who was the recipient to the notice no longer had any power to deal with the debt, and in my view these statements involve by implication the view that only the Commissioner had any power to require or receive payment of it.

In
DFC of T v. Donnelly & Ors 89 ATC 5071 the Full Court of the Federal Court of Australia considered the operation of s. 218 and the question whether after a s. 218 notice had been given the Commissioner was for the purposes of bankruptcy law a secured creditor of the creditor payment to whom had been interrupted by the notice; the Full Court held that the Commissioner was a secured creditor. Some observations in the judgments have a bearing on the present matter. At 5075 Lockhart J said: ``Section 218 does not in terms require the recipient of the notice to comply with the requirements of the notice, but a duty to comply rises by implication: see sec. 218(2) which makes it an offence to fail to comply with a notice under the section.'' And later at 5075: ``The section operates as a statutory assignment of the moneys payable by the recipient to the taxpayer in favour of the Commissioner in the nature of a charge over those moneys.''

Von Doussa and Hill JJ reached the same conclusion with respect to the Commissioner's being a secured creditor. Hill J examined the analogy between the operation of s. 218 notice and an order in garnishment proceedings, a subject introduced by the observation of Mason J in Clyne at ATC p 4438; CLR p 19 that there was a quite striking similarity. There is not a complete analogy however as garnishment is a method of attachment in execution of the judgment of a court, and the sums attached are usually, perhaps invariably, payable to a registrar or other officer of the court making the garnishment order, and not to the execution creditor. (Yet it seems that the execution creditor may sue where there is non- compliance, see
Pritchett v. English and Colonial Syndicate [1899] 2 QB 428). Hill J at p 5089 and following reviewed case law in which courts have considered whether s. 218 creates a charge or works an assignment of the debt; as his Honour said, the matter cannot be said to have been authoritatively determined. Hill J's conclusion at 5091 was: ``In my view the effect of a sec. 218 notice is to charge the debt owed to the taxpayer preventing the debtor from paying it and obliging him to pay it to the Commissioner.... it charges the debt in the hands of the debtor (here the Health Commission) who has to pay it. It has, therefore the effect of making the Commissioner a secured creditor.'' The holding did not relate to the matter now in issue but in my respectful view his Honour's statement about the effect of a s. 218 notice is correct. Whether or not the assignment is absolute or by way of charge, the effect of the rights created by the delivery of a s. 218 notice is that the debtor has a legal duty to pay the money to the Commissioner, the creditor has no power to deal with the debt at all and the Commissioner's rights can be enforced by suing the debtor for the money. To my mind s. 218 does everything which an assignment or legislation expressly creating a deemed assignment would do, and the Commissioner is a creditor for the purposes of standing to bring winding-up proceedings.

As I have decided that the company should be reinstated it is obviously necessary to address the question who should be placed in charge of it. However that can be answered readily, as a winding-up order should be made under s. 459A of the Corporations Law and a Liquidator must be appointed.

For these reasons I made orders restoring the company to the register and winding it up on 27 November 1996.