Deputy Commissioner of Taxation v Apollo Kitchens (NSW) Pty Limited, in the matter of Apollo Kitchens (NSW) Pty Limited
[2024] FCA 282
•7 March 2024
FEDERAL COURT OF AUSTRALIA
Deputy Commissioner of Taxation v Apollo Kitchens (NSW) Pty Limited, in the matter of Apollo Kitchens (NSW) Pty Limited [2024] FCA 282
File number: NSD 975 of 2023 Judgment of: LEE J Date of judgment: 7 March 2024 Date of publication of reasons: 22 March 2024 Catchwords: CORPORATIONS – urgent interlocutory application to stay winding up of defendant company – where defendant company seeks interim orders pending review of a decision of the registrar to wind up the company – where director not a party to proceeding before registrar – relief misconceived – s 482 of the Corporations Act 2001 (Cth) – evidence as to solvency – application dismissed Legislation: Corporations Act 2001 (Cth), ss 198G(3)(b), 459A, 459P, 459R(1), 459R(2)
Federal Court of Australia Act 1976 (Cth), ss 35A(5), 35A(6)
Federal Court Rules 2011 (Cth), r 41.03
Cases cited: Complete Constructions (Aust) Pty Limited v Jeff Manny Pty Limited (In Liquidation), In the matter of Jeff Manny Pty Limited (In Liquidation) [2014] FCA 293
Deputy Commissioner of Taxation v Jackson Bell Pty Ltd, in the matter of Jackson Bell Pty Ltd [2023] FCA 916
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 26 Date of hearing: 7 March 2024 Counsel for the plaintiff: Mr G McDonald Solicitor for the plaintiff: McInnes Wilson Lawyers Counsel for the defendant: Mr G A Caligaris Solicitor for the defendant: Samaras Lawyers
ORDERS
NSD 975 of 2023 IN THE MATTER OF APOLLO KITCHENS (NSW) PTY LIMITED ACN 155 528 108
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND: APOLLO KITCHENS (NSW) PTY LIMITED ACN 155 528 108
Defendant
ORDER MADE BY:
LEE J
DATE OF ORDER:
7 MARCH 2024
THE COURT ORDERS THAT:
1.The interlocutory application dated 7 March 2024 be dismissed.
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 the transcript)LEE J:
A INTRODUCTION
This is an urgent interlocutory application which has come before me in my capacity as Commercial and Corporations Duty Judge.
This morning, at approximately 10:30am, Registrar Colbran made orders (Orders) winding up the defendant company, Apollo Kitchens (NSW) Pty Limited (Apollo) in insolvency and ordered that Katherine Sozou and Anthony Norman Connelly be appointed as joint and several liquidators of Apollo. The Registrar made a further order staying the operation of the Orders until midday today.
Apollo, by its interlocutory application (application) seeks, in summary, interim orders that:
(1)Mr Peter Bader, the director of Apollo, be granted leave to make the application, pursuant to s 198G(3)(b) of the Corporations Act;
(2)the application be returnable instanter;
(3)Mr Bader be joined to the proceeding;
(4)the Orders for the winding up of Apollo be stayed, pursuant to r 41.03 of the Federal Court Rules 2011 (Cth) (FCR); and
(5)Mr Bader give the usual undertaking as to damages.
The interim orders are sought pending an application for review of the Registrar’s decision pursuant to ss 35A(5) and (6) of the Federal Court of Australia Act 1976 (Cth) (FCA Act).
When the matter came before me (at 11:59am), I indicated to counsel appearing on behalf of Apollo, Mr McDonald, that first, in circumstances where the plaintiff, the Deputy Commissioner of Taxation (DCT), plainly has an interest in the matter as the only major creditor of Apollo and the moving party before the Registrar, it is appropriate that the DCT be notified of this hearing and be given the opportunity to put on any submissions he wishes to make on the application. Accordingly, I made orders, among other things, that the operation of the Orders be temporarily stayed until 2pm today upon Mr Bader giving the usual undertaking as to damages. Following the making of those orders, Mr Caligaris appeared on behalf of the DCT.
The second matter I raised is that the relief sought by Apollo seemed to me to misconceived, for this reason: ss 35A(5) and (6) of the FCA Act presuppose an application made by a party to the proceeding in which the Registrar has exercised the relevant power. The difficulty with the relief as framed is that Mr Bader is not a party to the proceeding before the Registrar and, accordingly, the proper procedural mechanism, it seemed to me, would be to seek an order under s 482 of the Corporations Act to stay the winding up.
I will return to this issue shortly, but first, it is necessary to canvass briefly some further background to the proceeding.
B BACKGROUND
On 11 July 2023, a creditor statutory demand was served on Apollo on behalf of the DCT (demand).
The demand sought payment of a debt in the amount of $7,802,543.48, being income tax liabilities, superannuation guarantee charge assessment debts and penalties, which related to liabilities of Apollo going back to the end of the financial year in 2015: affidavit of Jannatul Ferdush affirmed 6 September 2023 (Ferdush Affidavit) (at JF1, Annexure A).
The demand advised that the DCT may rely upon a failure to comply with the demand as grounds for an application pursuant to ss 459A and 459P of the Corporations Act 2001 (Cth) (Corporations Act). Apollo failed to comply with the demand within 21 days after it was served: Ferdush Affidavit (at JF1).
On 7 September 2023, the DCT filed an originating process seeking relief under ss 459A and 459P for failing to comply with the demand. As would be apparent from that date, the period in which the winding up application must be determined expires today: s 459R(1) (subject, of course, to any application being made to extend the period pursuant to s 459R(2)).
C THE APPLICATION
As noted above, the difficulty with the relief sought by Mr Bader under ss 35A(5) and (6) of the FCA Act is that he is not a party to the proceeding before the Registrar. As Foster J explained in Complete Constructions (Aust) Pty Limited v Jeff Manny Pty Limited (In Liquidation), In the matter of Jeff Manny Pty Limited (In Liquidation) [2014] FCA 293 (at [27]):
[27]… Both r 3.11 FCR and s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) refer to “a party”. It is only a person or entity who was “a party” in the proceeding before the Registrar who is entitled to seek review of a Registrar’s decision. In particular, s 35A(5) provides:
A party to proceedings in which a Registrar has exercised any of the powers of the Court under subsection (1) may, within the time prescribed by the Rules of Court, or within any further time allowed in accordance with the Rules of Court, apply to the Court to review that exercise of power.
Justice Foster went on to note (at [27]–[31]) that given the applicant in that case was not a party to the proceeding before the Registrar, the appropriate mechanism for the grant of relief sought by the applicant was an order under s 482(1) of the Corporations Act to stay the winding up. That section relevantly provides:
Power to stay or terminate winding up
(1)At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
…
After raising this matter with counsel for Apollo this afternoon, Mr McDonald indicated that he does seek a stay pursuant to s 482 of the Corporations Act which, for the reasons outlined by Foster J, is the proper procedural mechanism. Even if there was some sort of implied or other power to grant a stay in these circumstances, it is difficult for me to understand why that power would not be exercised in conformity with the principles that have been applied in the context of the power to order a stay under s 482(1).
The relevant principles were outlined by Halley J in Deputy Commissioner of Taxation v Jackson Bell Pty Ltd, in the matter of Jackson Bell Pty Ltd [2023] FCA 916 (at [39]):
[39]In considering the exercise of the discretionary power in s 482(1), the following eight factors set out by Master Lee QC of the Supreme Court of Queensland in Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533 provide useful guidance:
1The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary and Edmonton Land Co Ltd (in liq) (1975) 1 WLR 355 at 358–359 per Megarry J. See also sec 243 of the Act [ie, Companies Act 1961].
2There must be service of notice of the application for a stay on all creditors and contributories, and proof of this: Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113.
3The nature and extent of the creditors must be shown, and whether or not all debts have been discharged: Krextile Holdings Pty Ltd v Widdows supra [[1974] VR 689]; Re Data Homes Pty Ltd supra [1971] 1 NSWLR 338].
4The attitude of creditors, contributories and the liquidator is a relevant consideration: sec 243(1), Re Calgary and Edmonton Land Co Ltd supra.
5The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: Re a Private Company [1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VR 593 at 598.
6If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd, supra [[1903] 2 Ch 174].
7The general background and circumstances which led to the winding-up order should be explained: Krextile Holdings Pty Ltd v Widdows, supra.
8The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to “commercial morality” or the “public interest”: Krextile Holdings Pty Ltd v Widdows, supra; Re Data Homes Pty Ltd, supra …
When it comes to the question of insolvency, I have been taken by Mr McDonald to four affidavits of Mr Bader, affirmed on 8 December 2023, 6 February, 7 February and 7 March 2024. In his first affidavit, Mr Bader deposed to the fact that as a result of funds becoming available to him from the sale of a property owned by Apollo, on 8 December 2023, Mr Bader transferred $3 million to the DCT in partial discharge of the debt owed by Apollo to the DCT. Mr Bader also gave evidence that since November 2023, he has continued to attend upon Apollo’s accountant to assist with the preparation of tax returns which, I am told, were lodged in December of that year.
On the evidence before me, it appears that the only debt of substance that remains in arrears is the debt owed to the DCT.
In his affidavit affirmed on 6 February 2024, Mr Bader gave evidence that he had taken steps to obtain finance to pay the debt owed to the DCT, including “working with four financiers and will proceed with the fastest” and that he had been “provided with verbal assurances, that written approval for at least one of the financiers will be provided … shortly and funding for the payment of the whole of [Apollo’s] debts”. Indeed, Mr Bader went further, noting (at [12]–[13]):
12.I respectfully seek an adjournment of the proceedings for a period of four (4) weeks in order for the loan to be finalised and debt owed to the Plaintiff, in full.
13.I further state that should the Court be minded to grant an adjournment of the proceedings for four (4) weeks, I undertake not to oppose the application made by the Plaintiff on the next occasion.
(Emphasis added)
When the matter came before the Registrar today, Mr Bader sought a withdrawal of that undertaking and the provision of different undertakings, by which he sought to provide security for the outstanding debt owed to the DCT. The DCT did not accede to that proposal and opposed the application, hence the Orders.
D CONSIDERATION
It seems to be tolerably plain on the evidence that Apollo is insolvent, and unless sufficient funds are realised by Mr Bader to satisfy the company’s liability through refinancing or the sale of assets, it will continue to be insolvent.
In the light of the above, one might think the obvious resolution would be to allow the winding up to proceed, and to leave it to Mr Bader, if and when he has raised sufficient funds, to seek an order terminating the winding up in accordance with s 482(1) of the Corporations Act.
The point made by Mr McDonald, however, with some force, is that Apollo’s business is a kitchen design and supply company. Should the winding up proceed, the prejudice that may be occasioned to a vast number of third parties, including employees of the company, will be significant, and likely to cause a devastating effect on Apollo’s ability to continue to procure sales and imperil the ability of Mr Bader to obtain refinancing.
The fact is that Mr Bader has had a long period to get his house in order and has failed to do so, including by providing an undertaking to the Court last month. He is, regrettably, the author of his own misfortune in this regard. Everything that could be said on his behalf has been said and I am grateful for the comprehensive and helpful assistance that Mr McDonald provided today, but it would not be in conformity with my obligations under s 482 of the Corporations Act to make an order (unless, perhaps, I was satisfied that it was by the consent of the DCT, who appears to be the only major creditor).
E CONCLUSION AND ORDERS
As noted earlier, I made an order that the stay be extended to 2pm today. Mr Caligaris appeared on behalf of the DCT in the course of delivering these reasons and indicated that he required further time to obtain instructions as to whether or not the DCT would accede to the making of an order under s 482(1) of the Corporations Act to stay the winding up.
Ultimately, the DCT did not consent to a stay. It follows that the avenue by which Mr Bader may seek a termination of the winding up is by way of an application under s 482.
Accordingly, the application must be dismissed.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.
Associate:
Dated: 22 March 2024
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