Deputy Commissioner of Taxation v ACN 152 259 839 Pty Ltd (formerly Maxcon Developments Pty Ltd) (No 2)
[2024] FCA 1516
•20 December 2024
FEDERAL COURT OF AUSTRALIA
Deputy Commissioner of Taxation v ACN 152 259 839 Pty Ltd (formerly Maxcon Developments Pty Ltd) (No 2) [2024] FCA 1516
File number(s): VID 585 of 2024 Judgment of: MCELWAINE J Date of judgment: 20 December 2024 Catchwords: CORPORATIONS-insolvency-application to stay the effect of a winding up order to permit appeal-no proper basis disclosed-hopelessly insolvent company-stay application dismissed Legislation: Corporations Act 2001 (Cth) s 472 (2)
Federal Court Rules 2011 (Cth) r 36.08
Taxation Administration Act 1953 (Cth) part IVCCases cited: Bechara v Bates (2021) 286 FCR 166
DeputyCommissioner of Taxation v ACN 152259839 Pty Ltd [2024] FCA 1489
Engineering Pty Ltd (2002) 42 ACSR 169
FP Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd (1993) 12 ACSR 136
Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559
HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 42 ACSR 169
Ltd (1993) 12 ACSR 136
Raymond Elzain v Deputy Commissioner of Taxation [2024] HCASJ 45
Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559
Woodgate v Garard Pty Ltd [2010] NSWSC 508
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 38 Date of hearing: 20 December 2024 Counsel for the Plaintiff: Mr S Tisher Solicitor for the Plaintiff: Mills Oakley Lawyers Solicitor for the Defendant: Diakou Faigen Solicitor Advocate for the Defendant: Mr D Diakou ORDERS
VID 585 of 2024 BETWEEN: DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND: ACN 152 259 839 PTY LTD
Defendant
ORDER MADE BY:
MCELWAINE J
DATE OF ORDER:
20 DECEMBER 2024
THE COURT ORDERS THAT:
1.The interlocutory application of the defendant filed 19 December 2024 is dismissed.
2.The defendant is to pay the plaintiff’s costs of the application.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(DELIVERED EX TEMPORE, REVISED FROM TRANSCRIPT)MCELWAINE J:
Background
The present application concerns orders made by Moshinsky J on 18 December 2024: DeputyCommissioner of Taxation v ACN 152259839 Pty Ltd [2024] FCA 1489 (PJ). The history of this matter is tortuous. A little of it should be recited.
The defendant was formerly known as Maxcon Developments Pty Ltd until 19 May 2022, the sole director of which was Anthony Elzain. He ceased to be the director on 20 May 2022, and was replaced by Dimitrios Diakou on 20 May 2022. Mr Diakou is a solicitor and the sole practitioner of Diakou Faigen Lawyers, of which the controlling legal entity is Kerrili Pty Ltd. Mr Diakou is a director of Kerrili. The office of Diakou Faigen is stated to be Suite 1215, 1 Queens Road, Melbourne, 3004, though it would seem that Mr Diakou is not often in attendance at that address. Diakou Faigen Lawyers does not have any other employed lawyers. Mr Diakou operates his practice with a part-time administrative assistant. At the time, this was also the registered office of Maxcon Developments.
Mr Diakou relevantly wears several hats, with an obvious conflict of interest. He is the solicitor for Maxcon Developments as well as its only director. He is also the solicitor for other Elzain family members and corporations that comprise the Maxcon Group in other taxation related litigation in this Court. Nonetheless, I did not uphold a submission that he should not be heard today.
The defendant is indebted to the Commissioner of Taxation for income tax, administrative penalties, shortfall interest charges and general interest charges for the financial years 2015 – 2018. The total indebtedness is presently approximately $23 million. That indebtedness arises from an audit and the issue of amended assessments by the Commissioner for the income years 30 June 2015 and 30 June 2018, that were issued between 11 December 2020 and 28 June 2022. The assessments were objected to between 9 February 2021 and 29 August 2022. Each objection was disallowed between 21 June 2022 and 19 December 2022.
The defendant has not made any application to review the amended assessments to the Administrative Review Tribunal (or to the former Administrative Appeals Tribunal) and no appeal against the assessments has been brought in this Court, despite the assertion by Mr Diakou in his affidavit of 24 October 2024 that Maxcon Developments disputes “the alleged debt” and that it “and other matters relating to the alleged debt in this proceeding” are the subject of other related proceedings in this Court. That statement is only true in part. There are other proceedings where parties for whom Mr Diakou acts, did have the benefit of suppression and non-publication orders. But none of those proceedings include an appeal to this Court pursuant to part IVC of the Taxation Administration Act 1953 (Cth).
The Commissioner formulated a statutory demand addressed to the defendant dated 20 May 2024, coincidentally the day that Raymond Elzain resigned as a director, which demanded payment of $22,888,759 comprising:
(1)income tax liability and general interest charge - 30 June 2015, $3,651,184;
(2)income tax liability and general interest charge -30 June 2018, $8,124,932;
(3)administrative penalties $2,455,650;
(4)general interest charge for late payment of administrative penalties, $569,469;
(5)administrative penalty for the tax related liabilities between July 2017 and 30 June 2018, $5,966,933;
(6)administrative penalty for late payment of administrative penalty, $1,204,913;
(7)shortfall interest charge July 2014 to 30 June 2015, $553,507;
(8)general interest charge calculated on shortfall interest charge of $187,884;
(9)shortfall interest charge July 2017 to 30 June 2018, $142,215; and
(10)general interest charge 2018 to April 2022, $32,068.
The statutory demand was served by delivery to the registered office on 20 May 2024 by an officer in the employ of the Commissioner.
The statutory demand was not complied with and no application to set it aside was made within the 21-day statutory period.
On 27 June 2024, the Commissioner filed an originating application in this Court to wind up the defendant. The application and the supporting affidavits were served by post addressed to the defendant at its registered office. On three occasions the proceeding was mentioned and adjourned before a registrar. Ultimately it was heard on 24 October 2024, when Registrar Luxton ordered that the defendant be wound up in insolvency and appointed Andrew Reginald Yeo as liquidator, following a contested hearing.
On 31 October 2024, Mr Diakou acting as the solicitor for the defendant applied for review of the order made by Registrar Luxton, for a stay of those orders until the hearing and determination of the application and ultimately that the originating application be dismissed (review application). The review application was the subject of case management on several occasions, during which Beach J made an order on 6 November 2024, appointing Andrew Reginald Yeo as the provisional liquidator of the defendant pursuant to s 472(2) of the Corporations Act 2001.
Ultimately the review application was heard by Moshinsky J on 17 December 2024. For reasons published by his Honour on 18 December 2024, he dismissed it. His Honour made the following orders:
1.The defendant’s application for review of the decision of Judicial Registrar Luxton (as set out in paragraphs 2 to 4 of the defendant’s interlocutory application dated 31 October 2024) be dismissed.
2.If and to the extent necessary, paragraph 1 of the orders made on 6 November 2024 (staying paragraphs 1 to 3 of the orders of Judicial Registrar Luxton) be vacated.
3.Paragraph 2 of the orders made on 6 November 2024 (for the appointment of Mr Yeo as Provisional Liquidator of the defendant) be vacated.
4.The plaintiff’s costs of the application for review be taxed and reimbursed out of the property of the defendant in accordance with s 466(2) of the Corporations Act 2001 (Cth).
5.The Provisional Liquidator’s interlocutory process dated 6 December 2024 be further adjourned to a date to be fixed.
6.Subject to further order, paragraphs 1 to 4 of these orders and paragraphs 1 to 3 of the orders made by Judicial Registrar Luxton on 24 October 2024 be stayed until 5.00 pm on 20 December 2024.
7.Any application by the defendant for an interlocutory stay (i.e. until the determination of any appeal) of paragraphs 1 to 4 of these orders and paragraphs 1 to 3 of the orders made by Judicial Registrar Luxton on 24 October 2024, be filed and served by 12.00 noon on 19 December 2024, together with any affidavit material in support (which must be sworn or affirmed).
8.The plaintiff file and serve any responding affidavit material by 5.00 pm on 19 December 2024.
9.Pursuant to s 198G(3) of the Corporations Act, Dimitrios Diakou be granted leave to cause the defendant to apply for an interim and an interlocutory stay as referred to in paragraphs 6 and 7 of these orders.
On the morning of 19 December 2024, Mr Diakou caused to be filed an interlocutory application which seeks the following orders:
1.Paragraphs [1] to [3] of the orders of Judicial Registrar Luxton dated 24 October 2024 be stayed until the hearing and determination of an application for leave to appeal or judicial review of the decision made by Moshinsky J dated 18 December 2024 dismissing the Defendant’s application for review of the decision of Judicial Registrar Luxton (as set out in paragraphs 2 to 4 of the Defendant’s interlocutory application dated 31 October 2024).
2.The operation of paragraphs [1] to [3] of the orders of Judicial Registrar Luxton dated 24 October 2024 be stayed until the hearing and determination of an application for leave to appeal or judicial review of the decision made by Moshinsky J dated 18 December 2024 dismissing the Defendant’s application for review of the decision of Judicial Registrar Luxton (as set out in paragraphs 2 to 4 of the Defendant’s interlocutory application dated 31 October 2024).
3.Paragraphs [1] to [4] of the orders of Moshinsky J dated 18 December 2024 be stayed until the hearing and determination of an application for leave to appeal or judicial review of the decision made by Moshinsky J dated 18 December 2024 dismissing the Defendant’s application for review of the decision of Judicial Registrar Luxton (as set out in paragraphs 2 to 4 of the Defendant’s interlocutory application dated 31 October 2024).
4.The operation of paragraphs [1] to [4] of the orders of Moshinsky J dated 18 December 2024 be stayed until the hearing and determination of an application for leave to appeal or judicial review of the decision made by Moshinsky J dated 18 December 2024 dismissing the Defendant’s application for review of the decision of Judicial Registrar Luxton (as set out in paragraphs 2 to 4 of the Defendant’s interlocutory application dated 31 October 2024).
5. The Plaintiff pay the Defendant’s costs.
6. Any further or other order as the Court sees fit.
It is convenient to refer to this as the interim application. As duty judge, the interim application was made returnable before me at 2:30 pm this afternoon. When filed, the interim application was supported by an eight-paragraph affidavit made by Mr Diakou on 19 December 2024. A matter of interest, which I explain later, is that in that affidavit Mr Diakou states that the address of Diakou Faigen Lawyers is Suite 1215, 1 Queens Road, Melbourne 3004 and that is also the address for service in this proceeding.
Mr Diakou made two preliminary oral applications when the matter was called on. One that I recuse myself because of findings I had made in earlier litigation involving related parties in March and April 2024, which decisions were the subject of non-publication orders made by other judges of this Court, and ultimately pending the determination of proceedings in the High Court of Australia. Those decisions may now be published, as Edelman J earlier today dismissed each of the High Court proceedings: Raymond Elzain v Deputy Commissioner of Taxation [2024] HCASJ 45. I refused the recusal application as having no merit in fact or law.
The other, that today’s hearing be adjourned to permit the defendant to adduce more affidavit material in support. The material concerned claimed catastrophic economic consequences for persons not parties to this proceeding. I refused to adjourn the matter. Justice Moshinsky made it very clear that his timetable was to be strictly complied for the filing of relevant material, the application to adjourn was not consistent with the overarching purpose and the relevance of economic damage to persons who are not parties was not explained. Further, contrary to the submission of Mr Diakou, there could not be a short adjournment at this late stage in the year: inevitably the matter could not be brought on until February 2025. I also accepted the submission that there is a likelihood of prejudice to the Commissioner in delaying a full investigation of the affairs of the defendant and the general statutory purpose that delay should not attend winding up applications.
I return to the urgent interim application.
The defendant made no attempt before Registrar Luxton or Moshinsky J to demonstrate that it is solvent. The argument centred on whether the statutory demand was served in accordance with s 109X of the Corporations Act, when it did not come to the attention of the defendant because the registered office was mostly unattended. The reason is that Mr Diakou chose to work elsewhere and only visited the office of Diakou Faigen Lawyers occasionally, not for the purpose of conducting the business of Diakou Faigen Lawyers, but to retrieve stored documents.
Registrar Luxton was unpersuaded by these arguments and made the winding up order but was persuaded to grant a stay of the operation of his orders for seven days.
On the review application heard by Moshinsky J, a more sophisticated version of the notice of service argument was put and an affidavit of Mr Diakou, made on 24 October 2024, that Registrar Luxton did not receive was read.
Before his Honour, the defendant accepted the demand was served at the registered office on 20 May 2024. It was argued however, that it did not receive fair notice of the effective service and for that reason, the winding up order should not be made. The fair notice argument hinged on the evidence in Mr Diakou’s affidavit and that of Dung Dinh, an officer in the employ of the Commissioner, who made several affidavits and who was cross-examined. At PJ [6] his Honour set out the essential facts which were not in dispute:
(a)as at 20 May 2024, the registered office of the Company (as set out in the records maintained by the Australian Securities and Investments Commission (ASIC) with respect to the Company) was:
DIAKOU FAIGEN SUITE 1215 1 QUEENS ROAD MELBOURNE VIC 3004
(b)Mr Dinh placed the statutory demand, together with the accompanying affidavit into an envelope and sealed the envelope. He addressed the envelope to the Company at the registered address.
(c)On 20 May 2024, Mr Dinh attended outside the front door of Suite 1215, 1 Queens Road, Melbourne. He attempted to gain entry to the Suite, but the door was locked with no person in attendance. The door was a glass door through which he could see a reception area with a chair/couch. The lights were off. At 2.19 pm, he slid the envelope containing the statutory demand and affidavit under the front door of the Suite, thereby placing it inside the premises of the Suite.
(d) At the time, there was a sign on the front door stating:
IF THIS OFFICE IS UNATTENDED PLEASE CALL 9863 9868
(e)Mr Dinh did not call the telephone number on the sign as he did not believe this was required to leave documents at the Company’s registered office.
(f) The office was permanently unattended and had been since about mid-2018.
(g)The Company did not receive the statutory demand in the 21 day period after 20 May 2024.
His Honour also accepted aspects of the evidence of Mr Diakou at PJ [15] – [18]:
Mr Diakou is the sole director and secretary of the Company, having been appointed in that role on 20 May 2022.
Mr Diakou is also a director of a company called Kerrili Pty Ltd, which trades as Diakou Faigen, Lawyers.
Mr Diakou states in his affidavit (and I accept) that the official address of Diakou Faigen, Lawyers is Suite 1215, 1 Queens Road, Melbourne. He also states (and I accept) that: the Suite is permanently unattended and it has been unattended since about mid-2018; he is a sole practitioner with only one part-time employee, who works remotely; Mr Diakou only attends Suite 1215 when he needs to access an old file, or when he wants to check the premises for maintenance purposes; he otherwise works remotely or from a client’s premises.
In relation to the sign that was on the front door on 20 May 2024 (see above), the telephone number is that of Diakou Faigen Lawyers, Diakou Faigen, Lawyers. Had anyone rung that number, it would have been directed to the phone on Mr Diakou’s desk (at his client’s premises). If he did not answer the call, it would have been directed to a voicemail system.
His Honour also made the following findings of fact based on the affidavit evidence of Mr Dinh and his cross-examination at PJ [20] – [32]:
20. In his affidavit dated 2 December 2024, Mr Dinh states that:
(a)when he delivered the statutory demand to the registered office, he was not aware of any information that informed him, and he had no reason to suspect, that the statutory demand would not come to the attention of the Company;
(b)from what he observed at the time he left the statutory demand, the registered office looked temporarily unattended;
(c)his understanding of s 109X(1)(a) of the Corporations Act was that, once he had delivered the statutory demand, by sliding it under the door of the registered office of the Company and inside its premises, he had served the Company;
(d) he did not speculate as to what would happen afterwards; and
(e)he did not send the statutory demand by email to Mr Diakou’s email address (which he had) for two reasons: first, he did not consider email to be a safe, secure and/or reliable method; and, secondly, he did not believe that he was required to do so, given he had served the statutory demand by hand at the registered office of the Company.
21.During cross-examination, Mr Dinh was not challenged on the above account of what happened on 20 May 2024. He accepted that: he did not see anybody at the premises on that occasion; he observed that the lights were off; and he was aware that the office was unattended. In re-examination, he clarified that by this he understood the office to be temporarily unattended.
22. I accept Mr Dinh’s evidence as set out in the two paragraphs set out above.
23.After Mr Dinh left the registered address on 20 May 2024, he did not take any further steps to satisfy himself that the documents he left would come to the attention of the Company.
24.The former name of the Company is Maxcon Developments Pty Ltd. A former director of the Company is Anthony Elzain. He ceased to be a director of the Company in 2022. In his role at the ATO, Mr Dinh has been involved in a proceeding in this Court to which Mr Elzain and other members of his family are parties. Mr Dinh was involved in that proceeding in December 2023, including obtaining freezing orders. The Company was not a party to that proceeding.
25.In the context of the other proceeding, Mr Dinh received an email from Mr Diakou (who was representing the Elzain family members) and responded to that email. This occurred in December 2023.
26.Mr Dinh accepted during cross-examination that in May 2024 he had Mr Diakou’s email address and could have contacted him by email and could have sent the statutory demand to him by email. In re-examination, Mr Dinh was taken to one of the emails he had received from Mr Diakou in December 2023 (the email is annexed to Mr Dinh’s 2 December 2024 affidavit). Mr Diakou’s email contains address details for Diakou Faigen Lawyers, Diakou Faigen, Lawyers. The address is stated as: Suite 1215, 1 Queens Road, Melbourne, 3004.
27.One of the documents in evidence is a one-page document that is an extract from the ATO’s Integrated Core Processing System (Ex D1). The Integrated Core Processing System contains details for a taxpayer such as the tax liability, the authorised contact, the relevant type of tax, details of tax returns, etc. The extract in evidence relates to Kerrili Pty Ltd and is arranged in columns headed “Address type”, “Contact details”, “Start date”, “End date” and “Reliability”. In the first line of the extract, the Postal Address for Kerrili Pty Ltd (SE 1215 1 Queens Road, Melbourne 3004) is stated to be “unreliable”. Further, in the eighth row, the Business Address for Kerrili Pty Ltd (SE 1215 1 Queens Road, Melbourne 3004) is stated to be “unreliable”. The end date for each of those lines includes the year as “9999” indicating that it is current. The date range for those two lines included 20 May 2024.
28.Mr Dinh said during cross-examination (and I accept) that he has had access to the Integrated Core Processing System since 2010. In his affidavit dated 2 December 2024, Mr Dinh states (and I accept) that he has no recollection of having accessed information concerning Kerrili Pty Ltd using the Integrated Core Processing System.
29.During cross-examination, Mr Dinh said that his understanding of the word “unreliable” in relation to the postal address was that, if the system was going to issue correspondence (eg, a warning letter or statement of account), the system would say that the address is unreliable in the sense that correspondence would not be received at that address. Mr Dinh also said that his understanding is that the business address is where the business operates. He said he did not know why a business address would be described as unreliable.
30.During cross-examination, Mr Dinh was taken to a NAB Bank Account extract for Kerrili Pty Ltd trading as Diakou Faigen, Lawyers (Ex D2). It seems that the extract was annexed to an affidavit of Mr Dinh filed in the other proceeding referred to above, and therefore that he was aware (contrary to one aspect of his affidavit evidence and one aspect of his oral evidence) as at December 2023 that Kerrili Pty Ltd was the company that traded as Diakou Faigen, Lawyers.
31.During cross-examination, Mr Dinh was taken to the ATO’s Work Arrangement Activity Notes for the Company. This document records (on page 28) that on 19 July 2022 a call was received from Mr Diakou requesting a change in the postal address for the Company.
32.There is no suggestion that Mr Dinh was aware (at any time between service of the statutory demand on 20 May 2024 and the commencement of the proceeding) that the registered office of the Company was permanently unattended, or that the Company had not received the statutory demand.
From PJ [33] his Honour summarised the relevant principles as set out in FP Leonard Advertising Pty Ltd v KD Travel Service Pty Ltd (1993) 12 ACSR 136 (FP Leonard) at 139 per Santow J and Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559 (Re Future Life) at 564-565 per McLelland CJ in Eq. At PJ [36] his Honour also referenced the summary by Palmer J in Woodgate v Garard Pty Ltd [2010] NSWSC 508 at [44]:
Inconsistency and uncertainty in an area of the law which is of everyday application merely multiply occasions for dispute. It may, therefore, be useful to summarise the principles which are supported by the preponderance of authority, as follows:
…
iii. where a creditor serves a Statutory Demand in a prescribed mode and:
– knows, at the time of service or before the s 459G(3) period expires, that the Demand has not actually come to the attention of the company;
– knows that the company would dispute the Demand if made aware of it;
– refrains from bringing the Demand to the actual notice of a responsible officer of the company within the s 459G(3) period; and
– relies on good service of the Demand and the presumption of insolvency arising under s 459C(2)(a),
the Court may, in its discretion and in the interests of justice, set aside the Statutory Demand under s 459J(1)(b), not for want of good service but for want of fair notice: FP Leonard Advertising Pty Ltd v K Travel Service Pty Ltd (1993) 12 ACSR 136, at 139 per Santow J; Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559, at 564F-565C per McLelland CJ in Eq; Faji (Australia) Constructions Pty Ltd v AC Professional Accounting Pty Ltd [2009] NSWSC 180, at [31] per Barrett J; Re Pacific Mobile Phones Pty Ltd [2008] QSC 210, at [21]-[24]; Joe Mangraviti Pty Ltd v Lumley Finance Ltd [2010] NSWSC 61, at [11]-[16] …
The defendant submitted that in the circumstances it did not receive fair notice of the serving of the statutory demand, and on that basis the winding up order should be set aside.
It is not suggested that the primary judge misunderstood the principles.
The primary judge stated three reasons for concluding that there was not any want of fair notice at PJ [40] – [43]:
First, the wording of the sign on the front door of the registered office is significant. The sign said “if” the office is unattended, please call the telephone number. The word “if” suggested that the office may be unattended from time to time. In other words, it suggested that the office was temporarily unattended. It did not convey that the office was permanently unattended.
Secondly, insofar as the Company seeks to attribute to the DCT knowledge of all information within the ATO, I do not accept that submission. The DCT acts through officers and employees. The relevant officer or employee for the purposes of service of the statutory demand was Mr Dinh. It is therefore his knowledge and state of mind that is relevant for present purposes.
Thirdly, the information recorded in the Integrated Core Processing System (to the effect that postal address and the business address for Kerrili Pty Ltd were “unreliable”) does not assist the Company’s contentions. The information related to Kerrili Pty Ltd, not the Company (albeit that Kerrili Pty Ltd traded as Diakou Faigen, Lawyers and Diakou Faigen was named in the registered office of the Company). Mr Dinh was not aware of this information (about the address details for Kerrili Pty Ltd) at any relevant time. In the circumstances, I do not consider that it was incumbent on Mr Dinh (acting reasonably) to check the address details for Kerrili Pty Ltd on the Integrated Core Processing System.
For these reasons, I do not accept the Company’s submission that the DCT knew that it was unlikely or doubtful that the statutory demand would come to the attention of the Company.
The effect in law of dismissing the review application was to leave the orders made by Registrar Luxton in place as a final order that the defendant be wound up: Bechara v Bates (2021) 286 FCR 166 at [149]-[150], Allsop CJ, Markovic and Colvin JJ. Accordingly, any appeal must be one to the Full Court. For the stay application to succeed, the defendant must address the usual considerations applicable to the grant of a stay pending an appeal pursuant to r 36.08 of the Federal Court Rules 2011 (Cth) and the particular matters that inform the exercise of the discretion to stay a winding up pending an appeal: HVAC Construction (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 42 ACSR 169 at [46]-[50], French J. Although that case concerned the discretion to grant a stay of a winding up order made by a registrar pending a review application, the considerations that guide the discretion where an appeal is foreshadowed from a primary judge to the Full Court in the circumstances of this case are not different in my view. At [48] – [49], French J stated:
The grant of a stay under s 35A(6) or s 23 is a matter for the discretion of the Court in the light of all the circumstances of the case. There is no rule confining the exercise of that discretion which requires special reasons to be shown for its exercise. In the statutory context of Part 5.4 of the Corporations Act however, the power is to be exercised with caution so as not unduly to delay the liquidator or hinder his or her capacity to carry out the duties imposed by the statute. There is therefore a clear onus on the applicant to make out a positive case - Re Warbler Pty Ltd (1982) 1 ACLC 323 at 328.
In addition to the general considerations which enjoin caution in the making of such orders, there are specific considerations relevant to the present class of case including:
(a) any detriment or risk of detriment to creditors or contributories flowing from a stay;
(b) the merits of the proposed review;
(c) the current trading position and solvency of the company;
(d) the prejudice to the company if a stay is not granted;
(e) the legislative policy against delay to the liquidation process.
The defendant relies on the affidavit of Mr Diakou made on 19 December 2024. No application was made to cross-examine him, probably because his evidence is so uninformative. Putting aside the three introductory paragraphs, the affidavit relevantly reads:
As a director of the defendant I intend to file an application for leave to appeal or judicial review of the decision made by Moshinsky J dated 18 December 2024...
I will be making the applications referred to… as soon as practicable.
On the basis of the reasons for judgment as they were read out in court on 18 December 2024, I believe it is arguable that His Honour erred and therefore the grounds of the applications referred to [in this affidavit] will in my view include the following:
(a)in holding that the plaintiff did not know that my address at Suite 1215,1 Queens Road, Melbourne VIC 3004 was an unreliable address for service of documents; and
(b)in holding that fair notice of the statutory demand had been given to the defendant.
If an interlocutory stay is not granted until the hearing and determination of the defendant’s applications referred to [in this affidavit], Mr Anthony Elzain and the wider Maxcon Group which includes Maxcon Constructions Pty Ltd would suffer loss and damage and that loss and damage would be severe, irreparable and catastrophic to themselves, the business and related third parties. I believe there would be no prejudice to be suffered by the plaintiff if the stay was granted.
I intend to file material shortly in support of the application including evidence as to the severe and irreparable and catastrophic loss and damage to be suffered by the persons/parties referred to [in this affidavit] including myself as current director of the defendant.
The foreshadowed further material was not forthcoming before the application was heard by me.
The Commissioner relies on an affidavit made by Mark Wenn on 19 December 2024, who is a partner in the firm of solicitors who act for the Commissioner. Mr Wenn attaches correspondence from the provisional liquidator dated 13 and 18 December 2024. Mr Yeo has conducted a preliminary review of the financial records of the defendant as provided to him by Mr Diakou on or about 10 December 2024. Included are copies of the profit and loss statements for the period 1 July 2011 to 30 June 2024. The letter of 13 December 2024 states that the taxation liabilities of the defendant for the 2015 and 2018 financial years are not recorded. The only asset as at 30 June 2021 was cash at bank of approximately $70,000. The net assets of the company between 2021 and 2024 varied between $195 and -$946. In each of those years the total assets almost matched the total liabilities.
In the letter of 18 December 2024, Mr Yeo highlights a number of transactions of interest in the bank statements of the defendant between 26 March 2019 and 25 May 2021. Those transactions comprise very substantial debits of between $2.2 million and $10.9 million as having been transferred to related corporations in the Maxcon Group.
No attempt has been made to prove that the defendant is solvent. Registrar Luxton acted on the basis of the statutory presumption that it is not. The evidence from Mr Yeo confirms that the defendant is hopelessly insolvent to the extent of more than $23 million once proper account is taken of the indebtedness to the Commissioner. There is a substantial question about whether its assets have been siphoned off to the benefit of related corporations.
No evidence has been adduced about any detriment or risk of detriment to the creditors that may flow if a stay is granted. There is a submission for the Commissioner, which I accept, that there is an issue with the running of limitation periods for recovery claims.
There is in my view no merit in any of the arguments that had been put to me today to the effect that any appeal from the orders made by Moshinsky J has any merit. The contention that the Commissioner knew that the address of Diakou Faigen Lawyers was an unreliable one for the service of documents cannot be reconciled with Mr Diakou consistently stating it as the firm address and his business address in his affidavits, and as the address for service in this proceeding. The arguments amount to no more than an attempt to rerun the same arguments as put to Moshinsky J. No attempt has been made to address the basal function of an appeal ground.
The defendant does advance any meritorious ground that his Honour’s decision is affected by legal, factual or discretionary error. In my view there is no prospect that an appeal from his Honour’s orders will succeed.
I am not satisfied that there is likely to be any prejudice to the defendant if a stay is not granted. What must not be overlooked is that the defendant has not adduced evidence as to why it is not indebted to the Commissioner in the amounts claimed.
There is a clear public interest that favours the winding up of insolvent corporations and a legislative policy against delay in the liquidation process. The arguments of the defendant did not grapple with those broader considerations.
For these reasons, the interim application must be dismissed. There is no reason why costs should not follow the event, but I will now hear submissions as to the appropriate costs order.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine. Associate:
Dated: 20 December 2024
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