Commissioner of Taxation v Richard Walter Pty Ltd

[1997] FCA 279

IN THE FEDERAL COURT OF AUSTRALIA  )
  )
NEW SOUTH WALES DISTRICT REGISTRY  )     No NG 3756 of 1996
  )
GENERAL DIVISION                  )

BETWEEN:THE COMMISSIONER OF TAXATION

Applicant

AND:RICHARD WALTER PTY LIMITED (ADMINISTRATORS APPOINTED)

Respondent

CORAM:    HILL J
PLACE:    SYDNEY
DATED:    28 FEBRUARY 1997

REASONS FOR JUDGMENT

In these proceedings the Commissioner of Taxation ("the Commissioner"), the applicant, applies to the Court to wind-up Richard Walter Pty Limited ("Richard Walter"), the first respondent. On 20 November 1996, the directors of Richard Walter resolved, pursuant to s436A of the Corporations Law ("the Law") to appoint Messrs Gregory Hall and Allan Watson as administrators of Richard Walter.

The proceedings were in fact commenced in the Supreme Court of New South Wales but transferred to this Court under the Jurisdiction of Courts (Cross-Vesting) Act 1987 by order of McClelland J of the Supreme Court. The time period in which the application to wind-up Richard Walter was to be determined was extended to 1 April 1997.

The administrators have prepared a report which has been submitted to a meeting of creditors.  According to that report Richard Walter had liabilities of some $80 million and was, on any view of the matter, insolvent.  The amount owing to the Commissioner, which stems from assessments of income tax the subject of challenge in this Court, totals some $19,537,000.  Of this amount some $6 million concerns penalties which the administrators believe may well have been incorrectly imposed.

It is unnecessary to canvass all of the detailed matters dealt with in the administrators' report.  Four matters, however, bear mention.

The first is that the Commonwealth Bank of Australia ("the CBA") is a secured creditor and it seems that the security held by the CBA has been strengthened.  In saying this I do not mean to suggest for a moment that that security has been strengthened so far as Richard Walter is concerned, although it does appear that perhaps additional securities may have been taken in respect of other companies.

Secondly, an application has been made by the administrators to the Commissioner to remit penalties and that application remains presently undecided.  Thirdly, and more importantly, negotiations have taken place from time to time effectively through the mediation of Mr Hall between interests which may loosely be described as being interests of Dr Thomas Wenkart, the principal director of Richard Walter, on the one hand, and the Commissioner, on the other, in an attempt to resolve by negotiation the final amount of indebtedness to the Commissioner.

Finally, notices have been given pursuant to s218 of the Income Tax Assessment Act 1936 (Cth) against various companies of which it is said that they owe money to Richard Walter, requiring that those moneys be paid to the Commissioner. It is alleged that those moneys are not yet due and payable. The administrators, for their part, have made demands upon the same companies for payment of the moneys to Richard Walter. Of course, that demand could not be complied with if the s218 notices issued are valid. There are, pending in this Court, proceedings challenging the validity of those notices.

A second meeting of creditors of the company was held on 14 February 1997 at which the administrators tabled their report indicating that Mr Hall believed there was a reasonable prospect of some negotiated settlement with the Commissioner. In the minutes of that meeting it is reported that Mr Hall referred to the major uncertainties in the administration as being; the s218 notices; the remission of penalties; the issue of the CBA "new securities"; and the fact that a special leave application had been made to the High Court of Australia against the judgment of the Full Federal Court of this Court upholding an appeal which, in turn, had upheld the Commissioner's decision on objections lodged by Richard Walter. In the meantime, the High Court has refused special leave to appeal.

At that meeting, Mr Hall indicated that he was of the opinion that it was in the best interests of the creditors of Richard Walter that it execute a deed of company arrangement allowing a moratorium to continue until 31 December 1997.  The minutes indicate lengthy discussion following which various motions were proposed.  There was no consensus of opinion among the creditors as to what should happen.  In the result, those present at the meeting resolved that it be adjourned for a maximum of 60 days.

In the meantime, the Commissioner's application to wind up Richard Walter now comes before me. A number of creditors who may, with some looseness, be described as members of the Wenkart group of companies, and some, if not all, of whom are recipients of the notices under s218 to which reference has already been made, have sought leave to intervene to put submissions to me.

In essence, what was proposed by the administrators, and supported by senior counsel for the creditors, was that there be an adjournment of the application to wind up for a period of two weeks to permit further negotiations to take place through the medium of Mr Hall between Dr Wenkart, on the one hand, and representatives of the ATO, on the other.  In oral evidence Mr Hall indicated to me that, in his view, the only point of the adjournment was to facilitate the prospect of negotiations. Broadly, he said that if negotiations were unsuccessful, in his
view, there was no real alternative but to wind up Richard Walter.

Unless Dr Wenkart and the Commissioner were to come to a compromise there could be no agreement reached between the other creditors, including the CBA.  That position is not really disputed on behalf of the other creditors.  It is clear from the evidence before me that, at least since the application to wind up Richard Walter commenced, there had been discussions taking place between Dr Wenkart or his advisers and the Commissioner.  There is some evidence of the detail of those discussions.

In an affidavit sworn today, Mr Hall spoke of an offer for settlement which Dr Wenkart had apparently made on 26 February 1997, but which had been rejected.  He said that he believed that further negotiations might be fruitful.  I stood the matter over for some hours to enable the parties to have further discussions so as better to be able to form a view as to whether further discussions might possibly be fruitful.  I have been told on behalf of the administrators that they are of the view that, given the difference between the parties in the discussions which took place today, it is unlikely that negotiations would produce a compromise which would bridge the gap between them.

As a result, presumably of those discussions, it is fair to say that Mr Hall really does not suggest that the additional time initially sought would be likely to be fruitful.  The Commissioner, for his part, wishes to proceed with the winding up.  Although it has not been said with great force from the bar table that the Commissioner directly believes negotiations would be unfruitful, it is obvious from the Commissioner's attitude that this is his view.  Senior counsel for the other creditors submits, however, that this is a case where there is nothing to be lost and everything to be gained by granting the adjournment for two weeks.

Whether it is right to say that there is nothing to be lost, it is certainly no longer right to say that there is much to be gained unless, of course, negotiations were to proceed in an atmosphere where they were likely to be successful. As things stand at the present that does not seem to be the case. I am mindful of the fact that the Law makes it clear that liquidation is, in essence, a last resort and that if it is possible that a corporation's business or assets may be saved through an administration continuing, that is the course which the Court should adopt.

I must therefore be satisfied, as the Law itself makes clear, that it is in the best interests of creditors that Richard Walter be wound up before I refuse the application for adjournment. I do not think it desirable that I express views about the various matters to which Mr Hall has made reference. It may very well be that the situation with the CBA is, in fact,
a red herring. Certainly, like the s218 notice matter and the remission of penalty matter, applications to set aside securities might well precede either through an administrator or a liquidator. If I thought that there was any real chance at all of negotiations being successful, I would have no hesitation in granting the adjournment.

On the other, hand I am conscious of the fact that there are times when the inevitable has to be accepted and the present seems to me to be one of them.  I am conscious also that the longer the administration continues, the more will additional administrators' costs be incurred.  In saying this, I am perfectly conscious of the fact that a large proportion of the administrators' costs to date have been concerned with investigation and that it is unnecessary for investigation matters to continue.  However, it seems to me that were I to make an order winding up Richard Walter but staying that order, the administrators would continue in control, although knowing that a stay had been ordered would restrict the amount of work to be performed to that which is absolutely necessary to administer the company without incurring additional expense that may ultimately need to be duplicated when a liquidator comes into possession.

It is not an easy decision but, in all the circumstances, I am of the view that it will be in the best interests of Richard Walter that it be wound up.  However, I am prepared, at least at the implied request of the creditors, to stay the order for some short time to see if, despite my pessimism, some settlement may be possible.

Senior counsel for the Commissioner has requested that, before making an order for winding up, I order that the administration terminate. The order sought is an order under s447A(2) of the Law that the administration end. The basis upon which the application is made is that, unless such an order be made, the period for relation back would commence only at the time the winding up order is made and not at the time the application to wind up Richard Walter occurred.

There is some suggestion in the evidence that there are transactions which have occurred between the two dates which might be set aside for the benefit of creditors, should that course be taken. There has been no opposition to that course nor would I expect there to be, either from the administrators or from the other creditors who would at least share pro rata with the Commissioner subject to any advantage which the Commissioner may obtain by force of the s218 notices.

Accordingly, I propose to make the following orders:

(1)Having formed the view that it is in the best interests of the creditors that a winding up order be made, I would refuse the application to adjourn the present proceedings for two weeks.

(2)Pursuant to s447A(2) of the Law, I am satisfied that the administration of Richard Walter should end and accordingly order that it so end.

(3)I order that Richard Walter be wound up.

(4)I would stay orders (2) and (3) until 4 pm on Monday 10 March 1997.

(5)I order that Mr Gregory Winfield Hall, of 201 Kent Street, Sydney, Chartered Accountant, be appointed to act as liquidator of Richard Walter.

(6)I direct that the applicant's costs, including reserved costs, be taxed and reimbursed out of the property of Richard Walter in accordance with sub-sec466(2) of the Law.

(7)Orders (5) and (6) will likewise be stayed until 4pm on Monday 10 March 1997, unless otherwise the matter comes before me prior to that time.

I certify that this and the
preceding eight (8) pages
are a true copy of the Reasons
for Judgment herein of his Honour
Justice Hill.

Associate:

Date: 

Counsel and Solicitors      GAA Nettle SC and M Gordon

for Applicant:              instructed by Rosenblum & Partners

Counsel and Solicitors      RH Fisher instructed by

for Respondent:             Blake Dawson Waldron

Date of Hearing:            28 February 1997

Date Judgment Delivered:         28 February 1997