Castrisios v McManus; McManus v Castrisios

[1990] TASSC 77

Serial No 77/1990
List "A"

COURT:  SUPREME COURT OF TASMANIA

CITATION:              Castrisios v McManus; McManus v Castrisios [1990] TASSC 77; A77/1990

PARTIES:  CASTRISIOS, Peter
  v

McMANUS, Robert

McMANUS, Robert
  v
  CASTRISIOS, Peter

FILE NO/S:  LCA 142/1987

LCA 146/1987

DELIVERED ON:  20 December 1990
JUDGMENT OF:  Cox J

Judgment Number:  A77/1990
Number of paragraphs:  33

Serial No 77/1990
List "A"
File Nos LCA 142/1987

LCA 146/1987

PETER CASTRISIOS v ROBERT JOHN McMANUS
ROBERT JOHN McMANUS v PETER CASTRISIOS

REASONS FOR JUDGMENT  COX J

20 December 1990

1. These two appeals were heard together. I shall refer to Mr Castrisios as the appellant. He was convicted on a first complaint of twenty–five offences against the Companies (Tasmania) Code s556(1). The following charge is representative of those upon which he was convicted, the others alleging the incurring of debts to other trade creditors in the period June 1984 to February 1985.

"1        That Peter Castrisios was a director of Prima Foods Pty Ltd (thereafter called 'the said Company'), a Company duly incorporated pursuant to the provisions of the Companies (Tasmania) Code (thereafter called 'the said Code'), and now in the course of being wound up, at a time when the said Company incurred a debt with Allen Sweets (Tas) Pty Ltd in the sum of $5,447.94 on or about the 8th day of October 1984, when immediately before the time when the said debt was incurred there were reasonable grounds to expect that the said Company would not be able to pay all its debts as and when they became due or there were reasonable grounds to expect that, if the Company incurs the said debt, it would not be able to pay all its debts as and when they become due, CONTRARY to the provisions of Section 556(1) of the said Code."

1. In addition he faced eighteen similar charges on that complaint, it being alleged that in like circumstances the company had between June 1983 and February 1985 incurred debts by way of an obligation to pay sales tax to the Commissioner of Taxation. The learned magistrate dismissed these matters of complaint and the second appeal relates to that decision.

1. The appellant was also convicted on a second complaint of nine offences against the Companies (Tasmania) Code s229(3) in the period September 1984 to March 1985. The following is a representative charge:

"1 That before and at the time of committing the offence hereinafter mentioned Peter Castrisios was a director of a corporation namely Prima Foods Pty Ltd and that he the said Peter Castrisios acquired by virtue of his position as such an officer information that the said company was experiencing liquidity problems and having acquired that information the defendant made improper use of the information on or about the 14th day of September, 1984 in that he drew a cheque in the sum of $1,600 on the said corporation's bank account in favour of the ANZ Bank and through such improper use the said Peter Castrisios gained for himself or Theo Castrisios an advantage namely the payment of a liability under a loan at the ANZ Banking Group Limited in the name of Peter and Theo Castrisios CONTRARY to Section 229(3) of the Companies (Tasmania) Code."

1. The learned magistrate found that the company Prima Foods Pty Ltd (the company) was incorporated in 1962 and carried on business as a wholesale distributor of goods until an order winding up the company was made on 18 March 1985 on the petition of the Deputy Commissioner of Taxation, and that the company had ceased to operate following the advertising of the petition on 25 February 1985. Section 556, so far as is material, provides:

"556 — (1)   If –

(a)      a company incurs a debt, whether within or outside Tasmania;

(b)      immediately before the time when the debt is incurred –

(i)there are reasonable grounds to expect that the company will not be able to pay

all its debts as and when they become due; or

(ii)there are reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and

(c)the company is, at the time when the debt is incurred, or becomes at a later time, a company to which this section applies,

any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred is guilty of an offence and the company and that person or, if there are 2 or more such person, those persons are jointly and severally liable for the payment of the debt.

Penalty: $5,000 or imprisonment for 1 year, or both.

(2)    In any proceedings against a person under sub–section (1), it is a defence if the defendant proves –

(a)that the debt was incurred without his express or implied authority or consent; or

(b)that at the time when the debt was incurred, he did not have reasonable cause to expect –

(i)     that the company would not be able to pay all its debts as and when they became due; or

(ii)    that, if the company incurred that debt, it would not be able to pay all its debts as and when they became due."

1. The learned magistrate found that the company was, at the relevant time, a company to which that section applied and had incurred the trade debts the subject of the twenty–five charges on which he was convicted thereunder. None of these facts nor the fact of his being a director at all material times was in issue before the learned magistrate. What was disputed under s556(1) was the proposition that immediately before the time when the debt in question was incurred there were reasonable grounds to expect that the company would not be able to pay all its debts as and when they became due, or that if it incurred the debt, it would not be able to pay all its debts as and when they became due.

1. The learned magistrate directed himself in accordance with dictum laid down by Foster J in 3M Australia v Kemish (1986) 4 ACLC 185 at p187:

"That the reasonableness of the grounds relied upon by the prosecution andor a civil plaintiff must be judged by the standard appropriate to a director or manager of ordinary competence."

In Dunn v Shapowloff [1978] 1 NSWLR 235 Mahoney JA said, at p243:

"The subsection refers not merely to expectation, but to a ground of expectation ..... If, subjectively [the appellant Shapowloff] had an expectation that the company would be able to pay the debt, he would still be open to conviction, if there was no such ground in existence objectively."

Clearly, the subsection imposes an objective test to be judged and, I respectfully agree with Foster J, by the standard appropriate to a director or manager of ordinary competence.

1. The learned magistrate found that the company had traded profitably from its incorporation until the financial year 1980, but that thereafter there had been a decline in its financial position. For the years ending 30 June 1982, 1983 and 1984 the books showed operating losses of $25,885.00, $28,218.00 and $44,701.00 respectively, while in the same period there was an increase in the deficiency in working capital from $23,405.00 as at 30 June 1982 to $52,355.00 as at 30 June 1984. On 30 June 1984 the company had trade creditors of $53,652.00 representing 19.4% of purchases for that financial year, or 71 days trading, and at the same date total liabilities exceeded total assets by $113,262.00. It was the liquidator's opinion that at the end of each of the last three financial years the company was insolvent and a manager of ordinary experience would have ceased trading at that time, or alternatively made arrangements to provide additional funds to the company.

1. The appellant did provide funds from his own resources and borrowings from his wife, a partnership between himself and his brother, Theo, and a private company, Castrisios Bros Pty Ltd, in which he had an interest. Large sums were injected into the company's funds during the four years preceding the winding up (some $250,000.00 was alleged to have been paid in, although the evidence seems to suggest payments in of the order of $150,000.00 of which, at the time of winding up, there remained owing to the appellant and his family some $90,000.00). The learned magistrate found that the injection of these funds did not halt the financial decline of the company. Various lending institutions were approached but declined to lend funds, and an application to the Tasmanian Development Authority originally made in May 1984 was unsuccessful. He also found that although the appellant and his associates (collectively referred to in these proceedings as "the Castrisios empire") had substantial assets in the form of real estate and a considerable equity in those assets, there was an attempt to sell only one of those properties and this property was not put on the market until early in 1985, was not sold until much later in that year, and was not of any foreseeable benefit to the company at the time at which the debts were incurred.

1. The learned magistrate also found that large amounts of sales tax were not paid by the company. On 1 February 1984 the amount outstanding was $29,452.00 and this had increased to $40,008.00 by 26 October 1984. During that period, the only payments made were in February and April. The appellant had entered into an arrangement for the payment of the tax by instalments, but did not adhere to that arrangement.

1. The learned magistrate found that the company was unable to pay the sales tax which was then owing at the time the trade debts were incurred. Although he held that the incurring of the obligation to pay sales tax was not the incurring of a debt within the meaning of s556(1)(a) (as to which the second appeal relates) he was, in my view, clearly entitled to regard the amount of that obligation as one of the debts of the company it was unable to pay as they became due within the meaning of s556(1)(b)(i) and (ii). In any event, he held that even were that to be put out of consideration for present purposes, the elements of the section had been clearly established beyond reasonable doubt by the financial position of the company without reference to that amount. He found that the company was insolvent as at 30 June 1984 and that continued to be the case as each debt was incurred. The evidence was that the appellant had been a slow payer of his trade debts, that no creditor had ever sued him, but that his promises to pay were not being met. His Worship rejected a suggestion put to a major creditor (and competitor) that it refused supplies to the company in order to put it out of business and take over its customers without having to pay for the goodwill. He found that this creditor, along with the other trade creditors, had become restless at the delay in payment and that they were pressing for payment of the amounts outstanding and for payment of the amount of one invoice before another order would be delivered. He found "it was objectively apparent that any extended terms for payment would no longer be given and that debts should not be incurred" and that "this situation existed prior to the first of the subject debts being incurred in October 1984".

1. Finally his Worship found that the appellant had not established on the balance of probabilities that at the time each debt was incurred he did not have reasonable cause to expect that the company would not be able to pay all its debts as and when they became due, or that if the company incurred the subject debt, it would not be able to pay all its debts as and when they became due. He found that the appellant did not have any expectation at all that the company could pay its debts as and when they became due, and that what he had was no more than a hope which had little basis in fact. His Worship cited admissions made in a record of interview with the appellant in December 1985 which clearly entitled him to reach the conclusion which he expressed in these terms:

   "The defendant was aware in May 1984 that the creditors may move to wind–up the company and he was equally aware that there was a need for more capital to be injected into the company but that his source of loan funds had been severely restricted. He was attempting to obtain funds from the Tasmanian Development Authority and also credit unions and building societies but without success. His understanding of the desperate nature of the company's financial position is evident from his response when the accounts for the financial years ended the 30th June 1982 to the 30th June 1984 were put to him. It should have been aware to the defendant, as it would have been to a director of reasonable competence, that at least by the 30th June 1984 the company was not able to pay all its debts as and when they became due at least without a massive and immediate introduction of capital funds, and he was equally aware that such funds would not be available. The situation had not changed at the time the company incurred the subject debts and the defendant has not shown that at that time, being the relevant time, that he had reasonable cause for an expectation of an ability to pay.

   I find proved counts 1 to 9 and counts 11 to 26 of complaint 0013187."

2. The basis of the appellant's challenge to the convictions under s556 is far from clear. The grounds relevant to them are as follows:

"1THAT the Learned Magistrate was wrong in law and wrong in fact in convicting the Applicant of breaching Sections 229 (3) and 556 (1) of the Companies (Tasmania) Code, and that on all the evidence all the complaints ought to have been dismissed.

2THAT the Learned Magistrate erred in law by finding that there were reasonable grounds to expect that Prima Foods Pty Ltd would not be able to pay all its debts as and when they became due.

6THAT the Learned Magistrate erred in law by holding that there was no requirement on the prosecution to establish beyond reasonable doubt or at all any mental element in relation to any of the relevant alleged breaches of the Companiees (sic) (Tasmania) Code.

7THAT the Learned Magistrate erred in law by failing to properly direct himself on the defence on honest and reasonable mistake."

1. As to grounds 1 and 2, I am of the view that there was ample evidence to justify the learned magistrate's findings. At the relevant times, the company was clearly insolvent, loan funds were not available, the appellant, his wife, his brother and their company had not taken steps sufficient to realise and make available further assets to enable the company to continue trading, the sales tax authorities were pressing for payment of a large amount of tax which had not been paid notwithstanding the earlier negotiation of arrangements to pay by instalments, and the trade creditors were restless. It was put that three things had combined to bring the company down: the Commissioner of Taxes had "without warning" issued a formal demand under s364(2)(a) and followed it up with a petition for winding up; a major trade creditor had halted supplies prior to the Christmas period; and there was a sudden down–turn in the market which militated against the realisation of the Castrisios empire's assets which the appellant wished to utilise. As to the first, the action of the Commissioner could scarcely be called unexpected notwithstanding the vigour of the plea of learned senior counsel for the appellant who said of the "unexpected" petition to wind up:

"I say 'unexpected' because the department, the taxation office, had been threatening it on and off for years and years and years, and then without any real warning at all did it!"

1. The learned magistrate's finding as to the restlessness of the trade creditors in general cannot be impugned and neither can his finding that only one piece of Castrisios empire property was put on the market, and then only in early 1985. No doubt the appellant had injected a lot of family funds into the business, but clearly they had not been enough. He may have had an expectation that some of his creditors would give him extended terms in view of their past dealings, but the learned magistrate was entitled to conclude, looking at the position overall, that not only were there objectively reasonable grounds to expect that the company would not be able to pay all its debts as and when they became due, but that he was not persuaded that at the time the relevant debt was incurred the appellant himself did not have reasonable grounds to expect that this was the case. He was entitled to conclude that the company's position was not one of temporary reverse which it could reasonably expect to be able to trade out of but was one of progressive decline where continuation of trading would put its creditors in serious jeopardy of not being paid.

1. As to ground 6 the learned magistrate did not so hold. At one stage he said:

"The expectation of the defendant is irrelevant in a consideration of subsection 1(b) and is to be considered only in the context of the defence provisions in subsection 2(b)."

That, in my view, was quite correct. The test under subs(1)(b) is purely objective. The learned magistrate correctly directed himself as to the elements which the prosecution had to prove beyond reasonable doubt and found them proved. Likewise, he has not been shown to have been in error in respect of the exculpatory provisions of subs.(2). After finding the charges proved, when passing sentence, his Worship said:

"I am satisfied that in none of the charges was there any intention to defraud the creditors of the company or to act dishonestly, but a dishonest state of mind is not an ingredient of offences under either section."

This is clearly the case. This ground is not made out.

1. No argument was advanced in respect of ground 7 and I can find nothing in the material before me which bears upon it. In my view, the appellant's conviction on the twenty–five charges under s556 cannot be assailed and must stand.

1. I deal now with the nine charges under s229(3). Each of them involved a payment at the instance of the appellant out of funds belonging to the company. Particulars of the payment are as follows:

"(i)Count 1:   On the 14th September 1984 a cheque for $1,600 was drawn in favour of the ANZ Bank and was credited to the cheque account in the name of P and T Castrisios to meet the roll over cost of a commercial bill and to reduce the overdraft.

(ii)Count 2:   On the 13th December 1984 a cheque for $2,000 was drawn in favour of the ANZ Bank and was credited to the cheque account of P and T Castrisios.

(iii)Count 3:   On the 1st November 1984 a cheque for $1,897.50 was drawn in favour of Piggott, Wood and Baker and was appropriated to a mortgage over a property at 89–93 Goulburn Street which was a mortgage to secure a loan to P and T Castrisios.

(iv)Count 4:   On the 29th January 1985 a cheque for $1,782.50 was drawn in favour of Piggott, Wood and Baker and was appropriated to the mortgage referred to in (iii) above.

(v)Count 5:   On the 1st February 1985 a cheque was drawn in favour of P and T Castrisios and was credited to the cheque account of P and T Castrisios.

(vi)Count 6:   On the 3rd December 1984 a cheque for $500 was drawn for 'cash' and was credited to the cheque account of P and T Castrisios.

(vii)Count 7:   On the 22nd February 1985 a cheque for $1,783.50 was drawn for 'cash' and was used to purchase a bank cheque for $1,782.50 payable to Piggott, Wood and Baker and was appropriated by that firm to the mortgage referred to in (iii) and (iv) above.

(viii)Count 8:   On the 26th February 1985 a cheque for $2,501 was drawn for 'cash' and was used to purchase a bank cheque for $2,500 payable to the ANZ Bank and was credited to the cheque account of P and T Castrisios.

(ix)Count 9:   On the 14th March 1985 a cheque for $4,000 was drawn for 'cash' and was credited to the account of Castrisios Bros Pty Ltd at the National Australia Bank."

1. Section 229(3) of the Companies (Tasmania) Code provides:

"229 — (3)      An officer or employee of a corporation, or a former officer or employee of a corporation, shall not make improper use of information acquired by virtue of his position as such an officer or employee to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation."

1. The learned magistrate found that all of these payments were made towards the payment of interest on loans or overdraft facilities which were used to provide capital funds for the company and were provided by the partnership of P and T Castrisios, of which the appellant was a member, or Castrisios Bros Pty Ltd, of which he was a shareholder. The amount drawn from the company account to meet these commitments was $18,064.50, and it was a commitment which primarily was that of P and T Castrisios and Castrisios Bros Pty Ltd and not that of the company. There was no direct financial relationship between the company and the recipients of the proceeds of the cheques and the effect of the appellant's actions in drawing the cheques was to meet the commitments of himself, his brother and Castrisios Bros Pty Ltd with company funds. The learned magistrate found that in making the payments the appellant had gained an advantage for himself, his brother and Castrisios Bros Pty Ltd namely the payment of interest on debts for which they were responsible. Such a conclusion was, in my view, unarguable.

1. His Worship found that four days prior to the date on which the first cheque was drawn the company had been served with a Notice of Demand issued by the Australian Taxation Office for $31,251.70. The appellant had, ten days earlier, been advised that the notice had issued and that payment in full of the outstanding tax was required before it would be withdrawn. He found that the appellant knew the taxation office would take proceedings to wind up the company. He also found that the company was hopelessly insolvent at the time each cheque was drawn and that the last two had been drawn after the winding up petition had been advertised. The learned magistrate also found that the financial position of the company was in the appellant's mind at the time each payment was made and that he made them in accordance with what he perceived to be the priorities of the company. In other words, he clearly applied his mind to the selection of which creditors should be paid in preference to others, and in doing so he made use of information as to the company's financial situation which he had acquired in his capacity as a director. The learned magistrate held that the appellant's action amounted to improper use of the information so acquired and that each ingredient of the offence had been made out.

1. Again the relevant grounds of appeal are very limited. The general assertion in ground 1 is relied on and ground 3 is as follows:

"3THAT the Learned Magistrate erred in law by finding that the Applicant made improper use of information acquired by virtue of his position as an officer of Prima Foods Pty Ltd and gained for himself and others an advantage contrary to Section 229 (3) of the Companies (Tasmania) Code."

1. The factual findings were clearly open that the appellant was a director, that he acquired by virtue of his position as such knowledge that the company was experiencing liquidity problems, that he used that information by drawing the cheques in question, and that he thereby gained for himself, his brother or the company, Castrisios Bros Pty Ltd, an advantage. After reviewing the relevant authorities, the learned magistrate concluded that the appellant's use of that knowledge was improper and thus found each charge proved.

1. In Grove v Flavel (1986) 11 ACLR 161 Jacobs J (with whose reasons for judgment Matheson and Olsson JJ concurred) said, at pp169 – 170:

"The word 'improper' is not a term of art. It is to be understood in its commercial context to refer to conduct which is inconsistent with the 'proper' discharge of the duties, obligations and responsibilities of the officer concerned ..... The appellant used his knowledge of [the company's] financial position, following refusal of the bank loan to gain de facto preference for internal or group creditors, by setting off the money owed to them against the money owed to [the company] by internal debtors, in a manner which had the added effect of insulating the tangible assets of group companies from the clutches of a liquidator .....

A director of a company X Ltd who, upon acquiring information which leads him to believe that the company faces a risk of liquidation, whether voluntary and because it cannot pay its debts as they fall due or at the suit of creditors, which is a real and not a remote risk, thereupon acts to protect himself and other companies of which he is a director from the consequences of such liquidation, to the possible detriment of the creditors of X Ltd, is acting 'improperly' as a director of X Ltd because there can be no doubt of such possible detriment when the action taken involves a disposition of the assets of X Ltd, in this case debts owing to X Ltd, which would be part of the fund available to creditors generally in the event of liquidation. It is in the words of Richardson J in Nicholson & Ors v Permakraft (NZ) Ltd (in liq) (1985) 3 ACLC 453, 'the creditors' money that is at stake'."

1. In the present case the direct consequence of the appellant's actions was to divert funds belonging to the company and otherwise available to the general body of creditors to the discharge of debts owned by himself and his associates. Notwithstanding the fact that the latter debts had to a considerable extent (if not totally), been incurred in order that the money borrowed might be on lent to the company, they remained the debts of the appellant and his associates whose right to a repayment of them was no greater than any other unsecured creditor. It was sought to justify this action by claiming that the appellant was seeking to retain the economic viability of the company by ensuring that the mortgagees should not enforce their securities on default of due payments under the mortgages. The submission was in effect that this was a sound commercial disposition of limited resources for the benefit of the company and its creditors notwithstanding that it had the effect of giving the appellant an advantage coincidentally. Such a submission is, however, contrary to the learned magistrate's finding. He found that the appellant, aware that liquidation was imminent, acted to protect himself and his associates from the consequences of the liquidation to the detriment of the creditors of the company. That, in my view, was a breach of his duty to the creditors and was an improper use of his knowledge acquired as a director. The appellant was rightly convicted of the charges under s229(3).

1. The remaining grounds of appeal relate to the penalties and allied orders imposed by the learned magistrate. On the twenty–five counts under s556(1) he imposed separate fines of $80.00, a total sum of $2,000.00. The maximum penalty allowed on each count by the section is $5,000.00 or imprisonment for one year, or both. On the nine counts under s229(3) he imposed separate fines of $300.00, or a total of $2,700.00. The statutory maximum is $20,000.00 or imprisonment for 5 years, or both. In addition, he made an order under s229(6) that the appellant pay to the liquidator of the company the sum of $15,563.50. This sum was thought to represent the aggregate of the amounts in those charges improperly diverted to the appellant and his associates, whereas the true figure is $18,064.50. I indicated at the hearing of the appeal that if I dismissed the appeal I would not be disposed to substitute the higher figure to correct what appears to have been a mathematical error, partly because it was not the subject of any cross–appeal and partly because of the lengthy delay since the order was made.

1. An order for repayment under s229(6) was clearly a matter of discretion for the learned magistrate. No reason was advanced to establish any error in his exercise of it. As to the fines, they were very modest by comparison to the maximum authorised and even in aggregate did not represent a crushing figure for this kind of impropriety by a corporate officer. The learned magistrate was made aware of the antecedents of the appellant and there is no reason to suppose that he did not pay due regard to them. He was entitled notwithstanding them to impose a penalty which had some general deterrent effect.

1. Counsel for the appellant laid great emphasis upon the learned magistrate's findings cited above that the appellant did not intend to defraud the creditors or to act dishonestly. Such an intention is not an essential ingredient of the charge and indeed where it is present it creates a separate offence under s556(5) and exposes the offender to penalties double those prescribed for offences against s556(1). In accordance with the law laid down in Lovegrove v The Queen [1961] Tas SR 106 and R v De Simoni (1981) 147 CLR 383 the presence of such aggravating factors which could be made the subject of a distinct charge should be ignored when determining sentence. Conversely, their absence should not per se attract leniency. In my view, the penalties were not excessive. I would dismiss the appellant's appeal.

1. I turn now to the second appeal which is brought by the complainant alleging that the sentences were manifestly inadequate and that the charges relating to sales tax should not have been dismissed. The fines imposed represented only a small amount by comparison with those which are authorised by the statute. However, it would be a relatively rare case which attracted the maximum figure and a very rare case indeed which attracted on twenty–five counts on one complaint and nine counts on another an aggregate figure equal to cumulative maximum fines on each count. Looked at in their totality, fines of $2,000.00 on the offences against s556(1) plus fines of $2,700.00 on those against s229(3) still represent a fairly heavy pecuniary penalty on a person of the appellant's background and financial standing.

1. Comparison with other cases cited is not of great assistance (see, for example, Jeffree v NCSC (1989) 15 ACLR 217 and Versteeg (1988) 36 A Crim R 68) as the facts were quite different. Although the penalties, particularly under s229(3) can be very heavy, the variety of conduct covered by both sections is almost infinite. In addition the appellant has been ordered to pay back the money he wrongfully procured in the transactions prosecuted under s229. I am not persuaded that the penalties imposed for improprieties in respect of the collapse of a small company with the ultimate deficiency it had had been shown to be manifestly inadequate.

1. The final question is whether the learned magistrate erred in holding that the company had not incurred a debt with the Commissioner of Taxation for the purposes of s556(1) by reason of doing the activities which attract the periodic obligation to pay sales tax. The learned magistrate summarised the relevant statutory provisions as follows:

   "The sales tax legislation, which comprises eleven separate Acts, establishes a scheme for the levying of tax on the sale of goods in relevant circumstances. The company, as a wholesale merchant, became liable to register, and was registered, with the Commissioner of Taxation pursuant to Section 11 of the Sales Tax Assessment Act (No 1).

   Section 5 of the Sales Tax Assessment Act (No 2) identifies the person who is liable to pay sales tax by providing that it is payable by a person who is registered or who is required to be registered and who has purchased goods manufactured in Australia from the manufacturer of the goods and has sold the goods to an unregistered person or to a registered person who has not quoted his certificate in respect of that purchase.

   Section 7 of the No 2 Act provides that any person who makes a specified sale during any month shall, within 21 days after the close of that month, furnish to the Commissioner a return of those sales in an approved form. Section 9 of the same Act provides that 'every person liable to pay tax under Section 5 upon the value of any goods sold by him during any month shall, within 21 days after the close of that month, pay sales tax upon that sale value'.

   Section 30(1) of the Sales Tax Assessment Act (No 1), which is applicable to a wholesale merchant by virtue of Section 12 of the Sales Tax Assessment Act (No 2), provides that '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'. Subsection (2) of Section 30 enables the Commissioner or a Deputy Commissioner to recover any unpaid tax by taking action in any court of competent jurisdiction. The scheme of the legislation is that the identity of the person who is liable to pay any tax is established at the time of the sale of the goods, but any tax payable is not deemed to be a debt until it is due and payable, and it is not so due and payable until 21 days after the close of the month in which the sale is made. At that stage it is deemed to be a debt to facilitate its recovery in a court of competent jurisdiction. The amount levied on the sales maintains its character as a tax which is a levy imposed, in this instance by the Commonwealth, on the sale value of goods. The liability to pay the tax is a consequence of the contractual agreement between the wholesale merchant and the person to whom he sells, but it does not have the essential elements of an agreement which is necessary to give rise to a debtor–creditor relationship."

2. Counsel for the complainant submitted that s556(1)(a) applies not only to debts incurred by way of contract but to debts for which the company in any way becomes liable whether immediately payable or payable in the future by reason of a present obligation. He points out that the precursor to the present section (the Companies Act 1962 s303(3)) spoke of "the contracting of a debt" when the company was insolvent, whereas the Code has altered that formula and now speaks of the circumstance that "a company incurs a debt". Clearly enough the concepts differ as Foster J pointed out in Law v Coburn [1972] 1 WLR 1238 when he said, at p1243, "The words 'a debt contracted' are, in my judgment, very different from the words 'incur a debt'". Nevertheless, the real question of construction here is whether or not a tax, even though for ease of recovery deemed to be a debt owing to the Crown once it is due and payable, is a debt within the meaning of the section, and if so, whether it was incurred by the company. It is unnecessary to consider therefore whether the formula used may cover debts other than those arising by contract.

1. A tax is defined in the Oxford English Dictionary primarily as "a compulsory contribution to the support of government, levied on persons, property, income, commodities, transactions, etc". The very fact that s30 of the Sales Tax Assessment Act (No 1) for the due implementation of that Act provides that the tax imposed by the legislation shall be deemed when it becomes due and payable to be a debt due to the Commonwealth and payable to the Commissioner and may be sued for and recovered in any court of competent jurisdiction by the Commissioner distinguishes it from debts in general however recoverable in a court of competent jurisdiction. But it should be noted that the legislation did not provide that for all purposes sales tax should be deemed to be a debt when it became due and payable.

1. The learned magistrate pointed out that neither at the time of the sale of the commodity nor at the time the return is due to be lodged could it be said that the company incurred a debt in the sense that it contracted or entered into an obligation to pay an amount of money. He said, and I agree, that the legislation itself recognises the difference between a tax and a debt, and does not provide that the amount levied shall take on the character of a debt until it is due and payable and remains unpaid. If it is paid at the time provided in s9 it does not become a debt and even when it remains unpaid it is not a debt incurred by the company but is deemed to be a debt for ease of recovery in a court of competent jurisdiction. No act on the part of the company can be identified as one which brings the debt into existence. It does not incur the debt in the sense of bringing the liability of a debtor to a creditor upon itself. That arises only through failure to pay the tax. One can see the wisdom by provisions such as s556 of discouraging insolvent companies from prejudicing their creditors by acts which bring upon themselves additional liabilities. An omission to meet a liability which results in a debt for that liability arising strikes me as being of a completely different character and one not within the ambit of the section. In my view, the learned magistrate rightly dismissed those charges.