Casatex Australia P/L (In Liq) v Deputy Commissioner of Taxation

IN THE MATTER OF: CASATEX AUSTRALIA PTY LIMITED (In Liquidation)
CASATEX AUSTRALIA PTY LIMITED (In Liquidation) v. DEPUTY
COMMISSIONER
OF TAXATION
No. NG3243 of 1993
FED No. 1088/94
Number of pages - 12

COURT

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION DAVIES J

HEARING

SYDNEY, 9 December 1994 #DATE 9:12:1994 #ADD 1:5:1997

Counsel for the Applicant: T S Hale

Solicitors for the Applicant: Michell Sillar

Counsel for the Respondent: M R Aldridge

Solicitor for the Respondent: Australian Government Solicitor

JUDGE1

DAVIES J 1. This is an application brought by the liquidator of Casatex Australia Pty Limited ("Casatex") against the Deputy Commissioner of Taxation. The liquidator seeks to recover sales tax amounting to $170,336.95 paid to the Deputy Commissioner from 9 December 1991 to 9 April 1992. Casatex went into liquidation on 13 August 1992.

Section 565 of the Corporations Law provides, inter alia:- "(1) A settlement, a conveyance or transfer of property, a charge on property, a payment made, or an obligation incurred, before the commencement of Part 5.7B, by a company that, if it had been made or incurred by a natural person, would, in the event of his or her becoming a bankrupt, be void as against the trustee in the bankruptcy, is, in the event of the company being would up, void as against the liquidator."
Section 122 of the Bankruptcy Act 1966 (Cth) provides, inter alia:- "122(1) A conveyance or transfer of property, a charge on property, or a payment made, or an obligation incurred, by a person who is unable to pay his debts as they become due from his own money (in this section referred to as 'the debtor'), in favour of a creditor, having the effect of giving that creditor a preference priority or advantage over other creditors, being a conveyance, transfer, charge, payment or obligation executed made or incurred: (a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt; or (b) on or after the day on which the petition on which, or by virtue of presentation of which, the debtor becomes a bankrupt is presented and before the day on which the debtor becomes a bankrupt; is void as against the trustee in bankruptcy. ...

122(2) Nothing in this section affects: (a) the rights of a purchaser, payee or encumbrancer in good faith and for valuable consideration and in the ordinary course of business; ... 122(4) For the purposes of this section: ... (b) a payment of tax, or of any other amount payable to the Commonwealth, or to the Commissioner of Taxation, under or because of an Act of which the Commissioner has the general administration, is taken to be made for valuable consideration and in the ordinary course of business; and (c) a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good faith if the conveyance, transfer, charge, payment or obligation was executed, made or incurred under such circumstances as to lead to the inference that the creditor knew, or had reason to suspect: (i) that the debtor was unable to pay his debts as they became due from his own money; and (ii) that the effect of the conveyance, transfer, charge, payment or obligation would be to give him a preference, priority or advantage over other creditors. ...

At the relevant date, the Sales Tax Assessment Act (No 1) 1930 (Cth), the provisions of which were incorporated into the other Sales Tax Assessments Acts, provided, inter alia:- "24(1) A person liable under this Act to pay sales tax upon the sale value of any goods - (a) sold by him; (b) treated by him as stock for sale by retail; or (c) applied by him to his own use, during a month shall, within 21 days after the close of that month, pay sales tax upon the sale value of the goods.

24(2) Subject to sections 27 and 28, sales tax is due and payable at the end of the period of 21 days referred to in sub- section (1) of this section. ... 26(1) Subject to sub-section (1A), where the Commissioner finds in any case that tax has been overpaid by a person, the Commissioner shall - (a) refund the amount of any tax overpaid... 26(2) Where a registered person has sold goods upon the sale value of which he has paid tax, and has subsequently written off as a bad debt the whole or any part of the amount for which the goods were sold, the Commissioner may - (a) on proof to his satisfaction that the whole amount is a bad debt - refund to the registered person the amount of tax paid on the sale value of the goods; (b) on proof to his satisfaction that a part of the amount payable is a bad debt -refund to the registered person so much of the tax as bears to the total amount of tax the same proportion as the amount so proved to be a bad debt bears to the total amount for which the goods were sold: Provided that if any amount in respect of which tax has been so refunded is at any time wholly or partly recovered by the taxpayer, he shall within 21 days after the close of the month in which the amount is so recovered, repay to the Commissioner so much of the tax refunded as bears to the total amount of that tax the proportion which the amount so recovered bears to the amount in respect of which tax was so refunded. ... 28(1) The Commissioner may, in such cases as he thinks fit- (a) extend the time for payment of tax as he considers the circumstances warrant; or (b) permit the payment of tax to be made by instalments within such time as he considers the circumstances warrant. 28(2) In sub-section (1), 'tax' includes- (a) further tax; and (b) additional tax under Part VIII. 29(1) If any tax remains unpaid after the time when it became due and payable or would, but for section 28, have become due and payable, additional tax is due and payable by way of penalty by the person liable to pay did tax at the rate of 20% per annum on the amount unpaid, computed from that time-or, where, under section 28, the Commissioner has extended the time for payment of the tax or has permitted the payment of the tax to be made by instalments, from such date as the Commissioner determines, not being a date prior to the date on which the tax was originally due and payable. 29(2) Where additional tax is payable by a person under this section in relation to an amount of tax and- (a) the Commissioner is satisfied that- (i) the circumstances that contributed to the delay in payment of the tax were not due to, or caused directly or indirectly by, an act or omission of the person and (ii) the person has taken reasonable action to mitigate or mitigate the effects of, those circumstances (b) the Commissioner is satisfied that- (i) the circumstances that contributed to the delay in payment of the tax were due to, or caused directly or indirectly by, an act or omission of the person; (ii) the person has taken reasonable action to mitigate, or mitigate, the effects of, those circumstances; and (iii) having regard to the nature of those circumstances, it would be fair and reasonable to remit the additional tax or part of the additional tax; or (c) the Commissioner is satisfied that there are special circumstances by reason of which it would be fair and reasonable to remit the additional tax or part of the additional tax, the Commissioner may remit the additional tax or part of the additional tax. 29(3) Where judgment is given by, or entered in a court for the payment of- (a) an amount of tax; or (b) an amount that includes an amount of tax, then- (c) the tax shall not be taken, for the purposes of sub-section (1), to have ceased to be due and payable by reason only of the giving or entering of the judgment; and (d) if the judgment debt carries interest, the additional tax that would, but for this paragraph, be payable under this section in relation to the tax shall, by force of this paragraph, be reduced by- (i) in a case to which paragraph (a) applies - the amount of the interest; or (ii) in a case to which paragraph (b) applies - an amount that bears the same proportion to the amount of the interest as the amount of the tax bears to the amount of the judgment debt. 29(4) In this section, unless the contrary intention appears, 'tax' includes- (a) further tax; and (b) additional tax under Part VIII. 30(1) Tax shall be deemed when it becomes due and payable to be a debt due to the Commonwealth and payable to the Commissioner in the manner and at the place prescribed. 30(2) Any tax unpaid may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name. 30(3) In this section, 'tax ' includes- (a) further tax; and (b) additional tax under section 29 or Part VIII."

Casatex became in arrears as from September 1990. Indeed it had earlier been overdue in relation to the period May 1988 to January 1989, but had made payments during 1989 to bring itself up to date. On 26 November 1991, Ernst and Young, chartered accountants, wrote on behalf of Casatex to the Deputy Commissioner stating, inter alia:- "We write on behalf of our clients, Casatex Australia Pty Ltd ("Casatex") and Casatex Holdings Pty Ltd ("Holdings") to request an extension of time to pay outstanding sales tax and income tax.

Casatex has lodged sales tax returns for the months of August 1990 to September 1991 inclusive. However, Casatex had not paid the sales tax due for those months, a sum amounting to $396,077.59. Neither has Casatex paid $55,000 in income tax that was due to be paid on 16 September 1991. ... Over the past 12 months, Casatex has suffered from a liquidity problem. This problem has arisen because the company has remained overstocked for a long period. A perusal of the company's balance sheet for the year ended 30 June 1991... will verify this appraisal of the situation. For while the balance sheet shows Casatex to be profitable, it reveals that stock on hand represents a high proportion of the company's assets. ... To alleviate the liquidity problems arising from the factors above, Casatex has entered into an agreement with its largest supplier in Pakistan to defer the payment of its outstanding debt. ... It is proposed that, in the first instance, Casatex make 52 weekly payments of$5,000 each, commencing in the week ended 6 December 1991. After these, payments, have been made, we submit that a review be instituted to determined the optimum means of paying the remaining portion of the debt. ... In our submission, the copies of the attached financial statements of both Casatex and Holdings demonstrate that the companies have the ability to trade out of their current problems. ... We submit that, in these circumstances, any move to seek immediate payment of the outstanding tax would be unnecessarily harsh, placing these potentially profitable and enduring business enterprises in an impossible position. Further, in our submission. the fact that Casatex has asked other large creditors for the forbearance it seeks from the ATO shows that the proposals outlined above are worthy of your acceptance." (emphasis added)

Accompanying that letter were accounts which, on their face, showed, that there was an excess of assets over liabilities. Shortly after that letter was sent, there was a conference between officers of the Taxation Office, including Barry Pitt, members of the firm of Ernst and Young and officers of the company. Mr Adrian Firmstone of Ernst and Young had control of the conference on behalf of Casatex.

It is worth commenting that the letter and its accompanying accounts and what was said by Mr Firmstone in the course of the conference would have been likely to have misled the officers of the Taxation Office.
Mr Pitt understood from the letter and the accounts and from what was said that Casatex was solvent and would be likely to be able to trade profitably. Mr Firmstone has given evidence, however, that his firm was not responsible for the accounts and that he would not have used words such as "solvent" with respect to the company. Mr Firmstone gave this evidence:- "Now, it was your view, was not it, that the documents that you attached to your letter indicated that Casatex Australia had the ability to trade out of its current problems? - It was my submission, as opposed to my view. ...

And that you believed on the material before the court it was capable of being before the Tax Office - was capable of being met? --- On the basis of the financial information attached, and assuming the forbearance of the creditors as was referred to in that letter - yes, I put the submission that the company had the ability to trade out of its problems. Indeed, you described them in your letter as potentially profitable and enduring businesses, did not you? --- I think they're my words, yes. And you described the proposal as being worthy of acceptance? --- I don't recall those words, but possibly. So that, given the factors set out in your letter and in the attached documents, there is no reason for anybody who was at the meeting in receipt of those documents to believe otherwise than in due course, the arrangement would be met? --- Yes, on the basis of the documents, and assuming all the creditors agreed with what we asked, there would have been a reasonable expectation that if the company met - see, part of the documents included projections as to cash flow and profit, and assuming that occurred - yes, there was a reasonable expectation that the company could have met its obligations. In the light of that, Mr Firmstone, is it not likely that you said words that gave the effect - had the effect of that the company was solvent and should meet its liabilities?---I did not say the company was solvent. Did you say words to the effect that the company should meet its liabilities? --- Without qualification I wouldn't have said those words. I would have qualifies them by reference to the company achieving the projections which are in the attached financial data, and also if its other creditors bore with the company to enable it to achieve the budgets which had been prepared."

The subtlety of the words used by Mr Firmstone would be likely to have been missed by Mr Pitt who cannot be blamed for taking the words of Ernst and Young's letter at their face value, or for thinking that the accounts accompanying Ernst and Young's letter were accounts in the preparation of which Ernest and Young had participated.

The Deputy Commissioner of Taxation responded on 3 December 1991 by a letter which read, inter alia:- "Further to your letter dated 26 November last and subsequent meeting in this office, payment of the amounts of Sales Tax owing by the above mentioned companies will be accepted as follows:- (a) Casatex Australia Pty Ltd - $5,000.00 per week until 30 June 1992 at which time the company's financial position is to be reviewed and a new arrangement for the then outstanding balance to be considered. (b) Casatex Holdings Pty Ltd - $1,000.00 per week until 30 June 1992 at which time the company's financial position is to be reviewed and a new arrangement for the then outstanding balance to be considered.

This arrangement is conditional upon future returns and remittances being lodged and paid by the due date and strict adherence to the terms as detailed above. Failure to do so will result in the immediate commencement of legal proceedings for recovery without further notice. ... It is also noted that Casatex Australia Pty Ltd has not paid the initial payment of company tax for the 1991 year ($55,595.00) which was due on 16 September 1991. As part of this agreement this payment may be considered as a part thereof, and no collection action will be taken, but this debt will of course form part of our discussions of any new arrangement as at 30 June 1992. Meantime please be aware that additional tax for late payment of this amount is continuing to accrue at the rate of 20 per cent per annum."

The following payments were made:- "DATE CHEQUE NUMBER AMOUNT 9 December 1991 102463 $6,000.00 6 January 1992 102522 $6,000.00 6 January 1992 102497 $6,000.00 6 January 1992 102446 $33,953.07 8 January 1992 102530 $6,000.00 16 January 1992 102551 $6,000.00 21 January 1992 102563 $6,000.00 22 January 1992 102576 $6,000.00 30 January 1992 102593 $6,000.00 4 February 1992 583812 $6,000.00 10 February 1992 583838 $6,000.00 18 February 1992 583849 $6,000.00 21 February 1992 102578 $14,961.93 25 February 1992 583877 $6,000.00 28 February 1992 102577 $36,921.95 11 March 1992 583914 $6,000.00 9 April 1992 583995 $6,000.00 $170,336.95"

It is now accepted that the first payment was made on 5 December 1991 and is therefore outside the period of six months. Of the payments of $6,000 each, $1,000 was paid on behalf of and received in respect of Casatex Holdings Pty Limited. Accordingly, these sums of $1,000 were not preferences in relation to Casatex. The payment of $14,961 was also a payment in respect of Casatex Holdings and was not a relevant preference.
The payment of $33,953.07 was made in respect of the month of October 1991. This would have been due on 21 November 1991. The payment of $36,921.95 was made in respect of November 1991 and would have been due on 21 December 1991. Each was paid late, but late payments are not so unusual as of themselves to give rise to any inference that, when paid, they were preferential payments.
In the course of his evidence, Mr Pitt said that the Taxatio Office is not troubled by the fact that wholesalers from time to time Make late payments; for if wholesalers are themselves paid late they will not have received the sales tax so as to pass it on to the Deputy Commissioner of Taxation. This approach is not inconsistent with the structure established by ss 24 and 26 of the Sales Tax Assessment Act.
A report of the affairs of Casatex drawn up at the time of the liquidation disclosed unsecured creditors of $1,449,300.54, of which $1,103,479 was admitted. Of these debts, sums of $543,661 and $104,914 were shown as claimed by Azu International, of which only $302,700 was admitted at that stage. A sum of $402,533 was said to be due for sales tax, $212,076 was due to James Nelson, $60,900 was due to Liberty and $55,590 was due to the Deputy Commissioner of Taxation for income tax. The other debts were all of small amounts.
Counsel for the applicant has put the case on the footing that the subject payments were made to the Deputy Commissioner of Taxation when debts were due and owing to other creditors and were unpaid. Counsel referred to the remarks of McLelland J in Spedley Securities Limited (In Liq) v Western United Limited (In Liq) [1992] 27 NSWLR 111, where his Honour said at 115:- "For these reasons in my opinion the plaintiffs cannot succeed in respect of any payment in the absence of proof that the payment had the effect of giving Western United a preference, priority or advantage over at least one other creditor of Spedley at the time it was made. In the circumstances of this case, such proof would be sufficiently provided by evidence showing that at least one creditor of Spedley as at the date of the payment remained unpaid as at the date of the winding up."

In reliance upon these words, counsel for the applicant adduced evidence that Craft Industries Pty Limited was owed $3,781 by 22 October 1991, that the sum was increased by $1,067 on 29 October and that, by April 1992, the debt had risen to $13,423, at which time $4,666 was paid in part settlement of a statutory demand. Counsel also adduced evidence that a sum of $3,957.84 became due to James Nelson Tasmania Pty Limited on 31 October 1991 and that there were further invoices which, by 1 April 1992, increased the sum due to $212,076.
However, the remarks of McLelland J were, I think, misunderstood. In Spedley a preference was proved subject to proof that other debts remained due and outstanding. In the present case the principal question is whether the payments made were preferences.
A payment will not be a preference unless the recipient of a payment is given a benefit or advantage over other creditors. Preference does not generally arise from the ordinary circumstances of trading on current account, notwithstanding that there may be creditors who await payment. Thus, in Richardson v Commonwealth Banking Company of Sydney Limited (1952) 85 CLR 110, Dixon, Williams and Fullagar JJ said at 129:- "In considering what is the effect of the transaction impeached under s.95, in this case a deposit, or each of a succession of deposits, to the credit of an overdrawn account or an overdrawn trust account at a bank, there are two things that it is important to have clearly in mind. One of them is the kind of 'effect' which tile provision treats as decisive. It must be 'the effect of giving the creditor a preference a priority or advantage over the other creditors': it is then void in bankruptcy if the sequestration is within six months. Section 95 supposes a bankruptcy, and it is in relation to that bankruptcy that the question arises whether, over the other creditors, a preference priority or advantage has been given to a particular creditor." At 133, their Honours said:- "A running account of any debtor who has reached insolvency must present difficulties under s.95. A debtor who pays something off his grocer's account in order to induce the shop keeper to give him further supplies of groceries can hardly be held, as it seems to us, to give a grocer a preference, if that was the clear basis of the payment. If the grocer credited the money as a payment for the future deliveries instead of the past deliveries of groceries he would in the end be in exactly the same position and yet he could not be attacked as having received a preference. But without stating any principle with an application beyond the facts of this case, it is enough to decide that the payments into the office account possessed in point of fact a business purpose common to both parties which so connected them with the subsequent debits to the account as to make it impossible to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed and so to be adjudged a preference."
These passages were referred to with approval in Queensland Bacon Pty Limited v Rees (1966) 115 CLR 266. At 283 of that case, Barwick CJ further observed:- "In general, to pay one of a number of creditors, and neither paying, securing nor arranging with the others, is to prefer the creditor who is paid. But it seems to me that it is one thing to pay a sum of money in the liquidation of an indebtedness so as to end the relationship of debtor and creditor and, that it may be quite another to make a payment on account of a 'running' indebtedness, the payment not in anywise intended or understood to end the relationship of the debtor and creditor, but rather to ensure its continuance."
In this light, the first point I should make is that a court would be unlikely to hold that the regular payment to the Deputy Commissioner of Taxation of sales tax due in accordance with the provisions of the Sales Tax Assessments Acts constituted the payment of a preference. This is because the Sales Tax Assessments Acts provide a means for the collection of sales tax. Save in the circumstance that the wholesaler applies the goods to its own use, the scheme intends that the wholesaler win add the sales tax to the price of the goods sold and will remit the tax to the Taxation Office.
If payment is not received by the wholesaler, there may be a refund under section 26 of the Sales Tax Assessment Act (no 1). The period specified, 21 days after the end of the month, allows the wholesaler time to collect the tax from the purchaser, usually a retailer. As a matter of practice, the Taxation Office appears to be generous in its administration of the time. Whether or not the wholesaler in its invoice specifies the separate amount for sales tax, and most wholesalers do so, a purchasing retailer will understand that included in the price is an amount representing the sales tax which is imposed at the wholesale level.
Thus, in the present case, it may be assumed that Casatex invoiced its customers for the 10 per cent tax payable on its goods. I could not conclude that the regular remittance of this tax to the Deputy Commissioner of Taxation would constitute a preference priority or advantage to the Deputy Commissioner of Taxation over other creditors. Although the amount added to the price for sales tax, when received by Casatex, would not have been trust moneys, nevertheless the moneys represented tax that was specifically charged as such to the customer or was incorporated into the price as sales tax. It would have given other creditors a preference priority advantage if the sales tax, when received by Casatex, was not remitted to the Deputy Commissioner of Taxation but was applied for their benefit. Sales tax is imposed as a tax and the wholesaler is the instrument of collection.
Therefore, I cannot think that the payments of $33,953.07 and $36,921.95 were preferences. They represented sales tax due on sales made by Casatex. There is no reason to assume that Casatex did not add the 10 per cent tax to the prices at which the goods were sold or that the sums representing the amounts added were not collected or that the remittances to the Deputy Commissioner of Taxation were not made reasonably contemporaneously with the collections.
There were 13 weekly payments of $5,000 each including the first one which is conceded to be out of the period. There was also a payment of $5,500. The total was $70,500. These payments were made between early December 1991 and 9 April 1992.
First, I note that these amounts, were paid as a condition of the exercise by the Deputy Commissioner of Taxation of the statutory discretion conferred by s 28 of the Sales Tax Assessment Act (no 1). The exercise of that statutory power was requested by Ernst and Young on 26 November 1991 and the power was exercised by the letter of 3 December 1991. Accordingly, while the terms of the extension were complied with, the sales tax in respect of which time had been extended was not recoverable by the Deputy Commissioner of Taxation. Thus, the payments were made as a condition of obtaining the benefit granted to Casatex, the benefit being the extension of time granted under s 28.
Secondly, it should be noted that the sums of $5,000 per week were offered in the context that like arrangements were being made with other creditors. What was put to the Deputy Commissioner of Taxation was a proposal which would have appeared to the officers of the Taxation Department as a proposal for treating the sales tax liability in a manner similar to the liabilities due 'to other major creditors.
Although counsel for the liquidator relies upon the proof that the invoices of Craft Printing Industries Pty Limited which totalled $4,848 for October 1991 and also the amounts due to James Nelson Tasmania Pty Limited remained unpaid while the instalments of $5,000 were being paid, it should be noted that the debt due to the Deputy Commissioner of Taxation had developed from as far back as September 1990.
A further point is that the payments of $5,000 per week did not meet the current sales tax liabilities of Casatex. On the figures adduced in evidence by counsel for the Deputy Commissioner for Taxation, figures which I accept, the sum due for sales tax by 21 November 1991 was $461,692.07. Even taking into account the two payments of $33,953.07 and $36,921.95 and the weekly payments totalling $70,500.00, the amount due by the end of April 1992 for sales tax, including additional tax, had risen to $527,000.07. Over this period the Deputy Commissioner of Taxation did not obtain a benefit over other creditors. Rather, moneys which Casatex charged and received with reference to sales tax were diverted to the general use of Casatex including, presumably, the payment of creditors, instead of being remitted to the Deputy Commissioner of Taxation as they should have been.
On the evidence before the Court, I am not satisfied that the Deputy Commissioner of Taxation received any preferential payment.
am, moreover, satisfied that, if there was a preference, the Deputy Commissioner of Taxation is entitled to the defence provided by s 122(2), namely, that section 122 does not affect the rights of a payee in good faith and for valuable consideration and in the ordinary course of business.
Section 122(4)(b) provides that a payment of tax is taken to be made for valuable consideration and in the ordinary course of business. I am satisfied from Mr Pitt's evidence that he and other officers of the taxation office acted in good faith. Section 122(4)(c) provides that a creditor shall be deemed not to have acted in good faith if the payment was made in circumstances where the creditor knew that the debtor was unable to pay his debts as they became due, and that the, effect of the payment would be to give him preference, priority or advantage over other creditors. The taxation officers were aware that Casatex was unable to pay its debts as they fell due. However, I am satisfied that the Taxation Office did not seek and did not understand or have reason to suspect that the arrangement made with Casatex would be such as to give the Deputy Commissioner of Taxation a preference, priority or advantage over other creditors.
The substance of Mr Pitt's evidence was that he understood that there was to be some deferral of payment and that stocks were to be sold and creditors were to be paid over a period of time. The arrangement entered into by the Deputy Commissioner of Taxation fell precisely into this category. Mr Pitt would have understood from Ernst and Young's letter and from what was said to him by Mr Firmstone that the Deputy Commissioner of Taxation was being asked to accept an arrangement which was being put to other creditors, namely that there be a deferral but that creditors would be paid as stock was sold. Having regard to the size of the sales tax due and to the extension of time granted for payment, Mr Pitt had good reason to believe that the sales tax was to be paid off at the same rate as other debts.
The $5,000 per week which was offered was a modest sum having regard to the gross income of the business of Casatex. In my opinion Mr Pitt did not understand and did not have reason to suspect that the arrangement sought and the payments made would give a preference priority or advantage to the Deputy Commissioner of Taxation.
I give to the word "suspect" the effect given to it by Kitto J in Queensland Bacon at 303-4. I should add that I am satisfied that Mr Pitt placed a good deal more reliance upon the accounts than it appears from the evidence of Mr Firmstone that he should have done. Mr Pitt said in evidence that "We accept the figures that are presented to us by the accountant", and he rejected a proposition put to him by counsel for the applicant, saying "Well that's a hypothesis but that's not something I can consider when I'm presented with a set of figures by an accountant showing what the balance sheet was at that time."
In the course of his cross-examination, Mr Pitt appeared to accept that he had understood that there was a pool of cash available to creditors and that, by accepting a payment from this pool of cash, the Deputy Commissioner of Taxation would reduce the amount of the pool available to other creditors. In my opinion, however, what Mr Pitt had in mind was not an existing pool of cash but the proceeds arising from the sale of stock over a period and the remittance to the Deputy Commissioner of Taxation of the agreed sum over a period. In my opinion, Mr Pitt did not have reason to suspect that the sum agreed upon, $5,000 per week, would be such as to give a preference to the Deputy Commissioner of Taxation.
For these reasons in my opinion the application should be dismissed with costs.

[1994] FCA 1088

09 DECEMBER 1994