Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd
[2004] VSC 157
•17 May 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 8250 of 2001
| DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA | Plaintiff |
| v | |
| CASUALIFE FURNITURE INTERNATIONAL PTY LTD | Defendant |
No. 8251 of 2001
| DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA | Plaintiff |
| v | |
| KENCORD MANUFACTURING PTY LTD | Defendant |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19-21, 25-28 November, 2-5, 9-12, 16 & 17 December 2002 and 24 March 2003 | |
DATE OF JUDGMENT: | 17 May 2004 | |
CASE MAY BE CITED AS: | Deputy Commissioner of Taxation of the Commonwealth of Australia v Casualife Furniture International Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 157 | |
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CORPORATIONS – Winding up – Just and equitable ground – Whether justifiable lack of confidence – Conduct of business – Likely future payment of tax liabilities – Corporations Act 2001 s 461(1)(k)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms A Richards QC and Ms C Mavroudis | ATO Legal Practice |
| For the Defendant | Mr L M F Watts | Joseph Guss |
TABLE [L1]OF CONTENTS
Definitions........................................................................................................................................... 1
Introduction......................................................................................................................................... 7
Witnesses........................................................................................................................................... 13
The past entities conducting the furniture business................................................................. 24
(a) Bendix Consolidated Industries Ltd.................................................................................. 24
(b) Tropitone Furniture Co Pty Ltd.......................................................................................... 29
(c) Buckland Products Pty Ltd................................................................................................. 45
(d) Casualife Furniture International Ltd (HK)...................................................................... 51
The retail companies........................................................................................................................ 59
The defendant companies.............................................................................................................. 69
(a) Casualife Furniture International Pty Ltd......................................................................... 69
Payments and amounts owing by CFI..................................................................................... 92
Employees................................................................................................................................. 96
(b) Kencord Manufacturing Pty Ltd....................................................................................... 102
Payments and amounts owing by Kencord Manufacturing.................................................. 106
Other submissions undermining confidence in the Guss controlled furniture business 108
(a) Prosecutions......................................................................................................................... 108
(b) Adverse findings in another case..................................................................................... 110
(c) Facts and findings in Bendix winding up....................................................................... 110
(d) Obfuscation and delay....................................................................................................... 115
Lofthouse – Joseph Guss trustee in bankruptcy...................................................................... 115
Mansell – receiver and manager of Buckland Products Pty Ltd............................................ 118
Turner – liquidator of Buckland Products Pty Ltd................................................................ 122
Scott – liquidator of Burwood Retail Pty Ltd and Scandi (Qld) Pty Ltd............................... 124
Abuse of process – constant baseless appeals.......................................................................... 124
Issues................................................................................................................................................ 125
The Deputy Commissioner’s standing to bring the proceedings......................................... 126
(a) The Deputy Commissioner’s submissions..................................................................... 126
(b) The defendants’ submissions............................................................................................ 128
(c) Conclusion........................................................................................................................... 130
Just and equitable winding up – the ground............................................................................ 133
(a) The Deputy Commissioner’s submissions..................................................................... 133
(b) The defendants’ submissions............................................................................................ 139
Conclusion....................................................................................................................................... 146
Schedule. 1....................................................................................................................................... 154
HIS HONOUR:
Definitions
In this judgment the following expressions bear the following meaning and relate to the following facts and matters:
Abbotts Incorporation Services means Abbotts Incorporation Services Pty Ltd.
Antonelli means Antonio Antonelli, formerly employed by the ATO.
ASIC means the Australian Securities and Investments Commission.
ATO means the Australian Tax Office.
Automotive General Industries means Automotive General Industries Ltd, otherwise known as Autogen and majority shareholder in Bendix.
BAS means Business Activity Statements.
Bendix means Bendix Consolidated Industries Ltd, an alleged predecessor which carried on the furniture business prior to the defendant companies and which was ordered to be wound up by Gobbo J on 21 April 1983 with David Alexander Christopher Crawford appointed as liquidator.
BFE means Bendix (Far East) Pte Ltd, a subsidiary of Bendix.
Bongania means Bongania Pty Ltd, a company allegedly carrying on the retail arm of the furniture business conducted by the defendant companies.
Buckland Products means Buckland Products Pty Ltd, formerly known as Casualife Furniture Pty Ltd, a company alleged to have previously carried on the furniture business and which was ordered to be wound up by Warren J on 25 October 2001 with Turner appointed as liquidator.
Burwood Retail means Burwood Retail Pty Ltd, formerly known as Outdoor Megastore Holdings Pty Ltd, the alleged predecessor in business to Bongania, and which was ordered to be wound up by Hansen J on 13 September 2002 with Scott appointed as liquidator.
Casual Classics means Casual Classics Pty Ltd.
Casualife Furniture means Casualife Furniture Pty Ltd, previously known as Tropitone International and subsequently as Buckland Products, which is alleged to have carried on the furniture business after Tropitone International.
CFI means Casualife Furniture International Pty Ltd, the defendant to proceeding 8250 of 2001.
CFI Ltd (HK) means Casualife Furniture International Ltd, a Hong Kong registered company formerly known as Tropitone HK, and chargee over the assets of CFI.
Claremont Kencord means Claremont Kencord Australia Pty Ltd, the holder of all the issued shares in Kencord Manufacturing.
Dalymeans Christopher Thomas Daly, liquidator of Tropitone Furniture.
Denlea Investments means Denlea Investments Pty Ltd, which operates Searchwide at 4th Floor, 488 – 490 Bourke Street, Melbourne.
Deputy Commissioner means the Deputy Commissioner of Taxation.
Entre Nous means Entre Nous Real Holdings Ltd, a director and shareholder of Sine Nomine and Semper Fidelis, registered in Hong Kong.
First Mainland International means First Mainland International Ltd, a company registered in the British Virgin Islands and the sole shareholder of CFI.
Form 304 means the form required to be lodged with ASIC notifying the change of officeholders.
furniture business means the manufacture and sale of outdoor furniture carried on currently by the defendant companies and alleged to be previously carried on by the predecessors to the defendant companies.
Gerandu means Gerandu Pty Ltd, a company allegedly carrying on the retail arm of the furniture business conducted by the defendant companies.
Gilbert means Henry Alexander Gilbert, chartered accountant of Rundles.
GMI means General Mutual Insurance Co Ltd, a company associated with Bendix and of which Joseph Guss was director.
Gusto Corporation means Gusto Corporation Pty Ltd, the sole shareholder of Bongania, Gerandu and Moolach.
Islam means Nazrul Islam, a director of CFI.
JNF means J.N.F. Pty Ltd, the majority shareholder in Automotive General Industries Ltd which, in turn, was the majority shareholder in Bendix.
Kencord Manufacturing means Kencord Manufacturing Pty Ltd, the defendant to proceeding 8251 of 2001.
Kencord Trading means Kencord Trading Pty Ltd, subsequently known as Tropitone International.
Kotsimbos means Tom Kotsimbos, the director of Abbotts Incorporation Services.
Kwanmeans Au Wai Kwan, a director of CFI Ltd (HK) and First Mainland International.
Lofthouse means David James Lofthouse, appointed as trustee in bankruptcy of Joseph Guss on 2 February 1999.
Mansell means Richard Gell Mansell, appointed as the receiver and manager of Buckland Products by CFI Ltd (HK) on 19 October 2001.
Mihalopoulos means Anthony Mihalopoulos, a solicitor employed by the ATO.
MMI means Motorists Mutual Insurance Company Ltd, a company associated with Bendix and of which Joseph Guss was a director.
Moolach means Moolach Pty Ltd, a company allegedly carrying on the retail arm of the furniture business conducted by the defendant companies.
NMGP means N.M.G.P. Nominees Pty Ltd, a non-beneficial shareholder in Casualife Furniture, Gusto Corporation, Scandi International, Scandi Qld and Scandi.
OEM means Office Equipment Manufacturers (S) Pte Ltd, a company registered in Singapore and a subsidiary of Bendix.
Outdoor Megastore means Outdoor Megastore Holdings Pty Ltd.
Page means Denise Leanne Page, the director of Denlea Investments.
PAYG means pay as you go.
Scandi means Scandi Pty Ltd.
Scandi International means Scandi International Pty Ltd, registered on 30 April 1998 with Antony Guss the director from 1 May 1998 until the appointment of Marilla Guss as the director from 5 November 1998.
Scandi Qld means Scandi (Qld) Pty Ltd, the alleged predecessor in business to Moolach, and which was ordered to be wound up by Hansen J on 13 September 2002 with Scott appointed as liquidator.
Scott means David Henry Scott, the liquidator of Burwood Retail and Scandi Qld.
Semper Fidelis means Semper Fidelis Nominees Ltd, a shareholder of CFI Ltd (HK) and a director and shareholder of Sine Nomine.
Sine Nomine means Sine Nomine Nominees Ltd, a director and shareholder of CFI Ltd (HK) and Semper Fidelis.
SMETmeans S.M.E.T. Nominees Pty Ltd, a non-beneficial shareholder in Casualife Furniture, Gusto Corporation, Scandi International, Scandi Qld and Scandi.
Tropitone Furniture means Tropitone Furniture Co Pty Ltd, previously – on registration – known as Pawnee Pty Ltd, which is alleged to have carried on the furniture business after Bendix and which was ordered to be wound up by Senior Master Mahony on 23 August 1991 with Daly appointed as liquidator.
Tropitone HK means Tropitone Furniture Co International (HK) Ltd, a Hong Kong company, subsequently known as CFI Ltd (HK) and chargee over Tropitone International’s assets.
Tropitone International means Tropitone Furniture Co International Pty Ltd, formerly known as Kencord Trading, which is alleged to have carried on the furniture business after Tropitone Furniture.
Tropitone USA means Tropitone Furniture Co Inc, a United States company, who licensed Bendix to produce outdoor furniture under the “Tropitone” mark.
Turner means Dennis Anthony Turner, the liquidator of Buckland Products.
Varendran means Rajadurai Nicholas Varendran, former director and secretary of CFI.
Xia means Yu Xia, a director of CFI.
Zafiriou means Aris Zafiriou, an employee of the ATO.
I have set out in a schedule to this judgment a diagrammatic representation of the various companies said to be involved with the conduct of the furniture business which attempts to illustrate as simply as possible the movement of the furniture business between the companies and the numerous name changes of the companies.
Introduction
There are two proceedings before the Court, each seeking the winding up of the defendant company on the just and equitable ground.[1] Each proceeding is brought by the Deputy Commissioner of Taxation as a creditor. In proceeding 8250 of 2001 the defendant is CFI. In proceeding 8251 of 2001 the defendant is Kencord Manufacturing. The Deputy Commissioner, being concerned with the protection of the revenue, seeks the winding up on the basis that she lacks confidence in the conduct and management of the furniture business conducted by CFI and Kencord Manufacturing and likely future payment by each defendant of its tax-related liabilities. She contends that it is fair and in accordance with the public interest and commercial morality that the companies be wound up.
[1]Corporations Act 2001, s 461(1)(k).
In her submissions, the Deputy Commissioner has set out what is said to be a pattern of conduct over the past twenty years with respect to companies operating the same furniture business under the control of Joseph and Antony Guss, and/or members of their immediate family, which has resulted in significant indebtedness to the Commissioner of Taxation.
This pattern has been described as a series of cyclical events whereby a Guss-controlled furniture enterprise becomes indebted to the Commissioner of Taxation; proceedings are commenced by the Deputy Commissioner to wind up that company; however before this occurs, stock in trade, plant and equipment, employees and other assets are transferred to another Guss-controlled company; the former company is wound-up with an unpaid tax debt to the Commissioner of Taxation; and the new company carries on the same furniture business, usually from the same premises and in the same manner as in the past. Afterwards, this pattern repeats itself from the beginning.
The Deputy Commissioner contends that the furniture business now operated by CFI and Kencord Manufacturing has been carried on by a succession of companies under the management and control of the Guss family. The Deputy Commissioner referred to a Casualife brochure in use in 2002.[2] On the cover it is stated “Casualife … first in outdoor furniture”, on page one it states “A new name with a big history. For almost 20 years, supplying both domestic and commercial customers throughout Australasia, the Pacific, the Middle East and Far East and elsewhere internationally…”. A little further down page one it states “Still under the same family, with a pride that only a family company can have in their product, we have been recognised internationally … Casualife continues to represent all that we stood for under our former name, but with a broader approach and expanded product range…”. Under the address and contact details of Casualife it is stated that all international and contract enquiries should be directed to Head Office, Melbourne. That is followed by “International Agents: Fiji, Hong Kong, Lebanon, Malaysia, New Zealand, Phillipines, Singapore, Thailand and UAE.” There is also reference to showrooms in Sydney, Melbourne and Brisbane and to agents in Perth and Darwin. A download of a website ( conceded by Antony Guss as being one of “our” websites, states that “Casualife is one of the world’s leading manufacturers of Outdoor Furniture. Casualife has been manufacturing since 1979…”.[3]
[2]Exhibit O.
[3]Exhibit P.
The defendants maintain that the furniture business conducted by CFI and Kencord Manufacturing is different to those previously conducted by Bendix, Tropitone Furniture and Buckland Products. The defendants argue that Casualife Furniture was involved in two businesses, one as licensee of the “Tropitone” brand of outdoor furniture and one as licensee of the “Casualife” brand of outdoor furniture. Antony Guss testified that CFI now competes with Tropitone USA in the sale of outdoor furniture.
The defendants raise issues as to whether the Deputy Commissioner was a creditor within the meaning of s 462(2) of the Corporations Act 2001 (“the Act”) when the proceedings were commenced, whether there is any presently unpaid liability, and whether the Deputy Commissioner's lack of confidence is justified or soundly based in the facts, and, if it is, whether it entitles her to the order to wind up. The defendants submit that the relief sought, namely the winding up of the companies, is an inappropriate mechanism for ensuring the ongoing compliance with taxation obligations.
An interlocutory process for the appointment of a provisional liquidator was filed in each proceeding at the same time as the originating process, on 9 November 2001. The interlocutory applications were returnable before the Senior Master that day at 2.15 pm. Several affidavits were filed in support of the originating and the interlocutory process. The originating process itself was returnable before the Senior Master on 12 November 2001 at 10.30 am.
Each company opposed the appointment of a provisional liquidator. There were many hearings and adjournments, in the course of which numerous affidavits were filed. The Senior Master refused the application on 18 December 2001. At the same time the Senior Master referred the trial of the proceeding to myself as Judge in charge of the Corporations List. He did so on the basis, stated in the Other Matters section of the order, that it was a novel question, appropriate for determination by a judge, whether a creditor, as claimed by the Deputy Commissioner, is able to seek an order that the defendant be wound up on the just and equitable ground on the basis that she lacks confidence in the administration of the defendant to ensure that it meets its tax-related liabilities. It is further stated in the Other Matters section that, there being no case which determines that a Deputy Commissioner has that power, the Court "cannot conclude that a winding up order would be made, the usual pre-requisite to appointment of a provisional liquidator, because to purport to determine the question on this application would or could involve an inappropriate prediction as to how the question will be determined at trial". Hence each application to appoint a provisional liquidator was dismissed, the costs of the application to be costs in the proceeding, and, as mentioned, each proceeding was referred to me for trial.
The proceeding first came before me for directions on 8 February 2002. At subsequent directions hearings I made orders requiring the parties to file outlines of their contentions with a view to clarifying the issues. On 31 May 2002, I fixed the proceedings for trial on 19 November 2002, and made orders for the trial including that the proceedings be heard together, and that the evidence in one proceeding be evidence in the other. I also ordered that the winding up application be advertised not less than seven days before the hearing. The applications were duly advertised on 5 November 2002. No person gave notice of intention to appear, or appeared, at the trial.[4]
[4]At an earlier hearing before me, on 19 April 2002, a solicitor had appeared for Victorian WorkCover Authority ("VWA"), an apparent creditor, on whose behalf an affidavit had been affirmed by Victor Frederick Scarcebrook on 13 December 2001. There was no subsequent appearance before me by VWA. I was informed that VWA had withdrawn as a supporting creditor, and the affidavit was not relied on. For this reason the affidavit was excluded from the Court Book.
The trial was conducted on affidavit, although some witnesses (who had not sworn an affidavit) gave their evidence in chief viva voce. There were also subpoenas which resulted in the production of documents, and the Court Registry produced many old files for inspection by the parties.
In the course of the litigation many affidavits were sworn. In part this resulted from the fact that the Deputy Commissioner's case involved seeking to ascertain the present position of the companies including relatively recent transactions, and the establishment of matters going back to the late 1970's concerning the lineage of the furniture business conducted by the defendants and the corporate entities under or by which it had been conducted, and the relationship of these entities to Joseph Guss and his family and his or their interests. In the result, by the end of the trial, on my count of the affidavits listed in the Court Book index, approximately 75 affidavits had been filed Some were brief and merely cross-referenced to an affidavit filed in the other proceeding. But some affidavits were extensive and some had many exhibits. Some of the deponents swore two or more affidavits. Zafiriou, an employee in the ATO, and Antony Guss each swore 15 or more affidavits.
In an endeavour to provide an overview of the evidence, in particular of what the Deputy Commissioner contended was and is the subject furniture business, and the entities which now and in the past have controlled it, counsel for the Deputy Commissioner produced two charts akin to a family tree. The charts contain much factual material all of which is found in the evidence at one point or another. The charts were not tendered but provided in a final form with the Deputy Commissioner’s written submissions in final address.[5] I used them as an aid in gaining an overview and a summary of events. The charts are too large and complex to include as a schedule to this judgment. I shall endeavour to explain relevant matters as simply as possible.
[5]The written submissions of the parties remain with the Court file.
Of central importance in the case, and to the Deputy Commissioner's lack of confidence, is the present and past involvement of Joseph Guss and members of his immediate family or their interests in the control and management of the furniture business, and the entity or entities which now or in the past have owned or controlled it. There have been several such entities over the years, and they are seen to engage in name changing which adds a complexity to the case. This is exaggerated by the use of similar names. Consequently, I have set out below at some length the historical context and series of companies which precede the defendant companies.
The Guss family, to which I make reference in this judgment, is made up of Joseph Guss and his wife Sandra, their son and daughter Antony and Marilla Guss, and Antony’s wife Jo-anne Guss.
Joseph Guss is a solicitor. He conducts practice on his own account under his name at Level 40, 140 William Street, Melbourne. He has acted as solicitor for the defendants throughout the litigation. He was also a witness, having sworn affidavits. His evidence, and indeed his involvement in relevant matters, is far beyond that of a detached independent legal adviser. He has been a principal player over the years in the various entities, and he was a witness as to facts for the defendants. Furthermore, Joseph Guss has been a director and/or a shareholder in a number of companies, discussed below, which the Deputy Commissioner alleges carried on the same furniture business as the current defendants.
Joseph Guss is also an undischarged bankrupt, a sequestration order having been made against his estate by the Federal Court of Australia on 21 December 1998. At a meeting of creditors held on 2 February 1999 Lofthouse was appointed as the trustee of Guss’ bankrupt estate in lieu of the Insolvency Trustee Service Australia. Guss appealed from the sequestration order and the taking of steps under the order was stayed. The order itself was not stayed in the sense of being suspended from operation. The stay expired on 8 November 2000. In 2001 Guss relinquished the right as a solicitor to hold trust moneys in connection with his practice. As an undischarged bankrupt he is disqualified from taking part in the management of a company without the leave of the court. No such leave has been given. At the time of the trial Guss had not filed his statement of affairs which means that the automatic discharge period of three years had not commenced to run.[6]
[6]Bankruptcy Act 1966 (Cth) s 149(4).
Antony Guss is the sole director and secretary of Kencord Manufacturing and is the general manager of both CFI and Kencord Manufacturing. Similarly to Joseph Guss, Antony has also been a director and/or a shareholder in a number of companies, discussed below, which the Deputy Commissioner alleges carried on the same furniture business as the current defendants.
Witnesses
I now turn to the witnesses, briefly indicate their role and involvement and make some observations concerning them.
For the Deputy Commissioner evidence was given by the following:
(a)Anthony Mihalopoulos, a solicitor in the employ of the Legal Practice of the ATO. As the solicitor with the conduct of the cases he swore several affidavits for the purpose of producing material such as ASIC historical extracts and other copy documents lodged with ASIC, the report as to affairs of Buckland Products obtained from its liquidator Turner, a transcript of the reasons for decision of Mr H Hallenstein M given on 15 August 2001 in the matter of a police prosecution against Scandi International and CFI for failing to lodge sales tax returns, and as to conversations with and matters concerning Page and her involvement with CFI and Kencord Manufacturing. Without overlooking his very brief cross-examination, that is a sufficient reference to his evidence.
(b)Antonio Antonelli, who was employed in the office of the Deputy Commissioner as a tax auditor, until May 2002, since when he has been engaged in his own accounting practice. Antonelli gave evidence as to the defendants’ indebtedness to the ATO and provided a detailed outline of the substance of a meeting he and a colleague had with Antony Guss on 7 November 2001. In cross-examination, he outlined his involvement with the defendant companies.
(c)Aris Zafiriou, an employee of the ATO in the debt management and investigation department and is responsible for the collection of tax. Zafiriou gave evidence as to the indebtedness of the defendant companies to tax, providing his own calculations, and the registration status of the defendants with respect to GST and PAYG. In a detailed affidavit Zafiriou also outlined the chronology of the companies said to have carried on the furniture business with details of the relevant transfers of the business and any court proceedings instituted by the ATO. Zafiriou also gave evidence as to other companies said to be associated with the defendant companies or the Guss family, any indebtedness of those companies to the ATO or action taken in response by the ATO, and details concerning the circumstances of incorporation of both those companies and the defendant companies. Zafiriou also introduced into evidence a large number of documents including bank account statements, ASIC extracts and forms, ASIC annual returns, and VicRoads motor vehicle searches.
(d)Tom Kotsimbos, the director of Abbotts Incorporation Services supplied Joseph Guss with several shelf companies, namely Moolach, Gerandu and Bongania. Kotsimbos gave evidence in relation to his dealings with Joseph Guss in relation to these companies.
(e)Dennis Anthony Turner, who was appointed as the liquidator of Buckland Products by Senior Master Mahony on 25 October 2001, having been appointed provisional liquidator on 18 October 2001. Turner gave evidence as to his investigations conducted as liquidator into Buckland Products and his dealings with members of the Guss family.
(f)Denise Leanne Page, the director of Denlea Investments, known as Searchwide, incorporated the defendant companies on the instructions of Joseph Guss. Page gave evidence in relation to her dealings with Joseph Guss and her involvement, as incorporator, with the defendant companies.
(g)Rajadurai Nicholas Varendran gave evidence under subpoena. Varendran was sole director and secretary of CFI from 22 December 2000 until 19 December 2001. Varendran had previously been employed by a number of other companies connected with the Guss family. Varendran gave evidence on a wide range of matters, but particularly as to his role in these companies and as director of CFI.
(h)Richard Gell Mansell gave evidence under subpoena. Mansell is an accountant practising as R G Mansell & Associates. He was appointed as receiver and manager of Buckland Products pursuant to a deed of charge in favour of CFI Ltd (HK) dated 28 February 2001. Mansell gave evidence in relation to the circumstances surrounding his appointment, his role and involvement as receiver and manager, and his dealings with Joseph Guss.
(i)David Henry Scott, is a chartered accountant and a member of Scott Partners Chartered Accountants. Scott was appointed liquidator of Scandi Qld and Burwood Retail by my order on 13 September 2002. Scott gave evidence as to various retail companies carrying on the furniture business which appear to have succeeded Burwood Retail and Scandi Qld and his difficulties in obtaining further information about those companies. He also introduced into evidence the report as to affairs of Burwood Retail and Scandi Qld and various ASIC company extracts and business name extracts.
(j)David James Lofthouse gave evidence under subpoena in relation to his role as the registered trustee in bankruptcy of Joseph Guss after his appointment as such on 2 February 1999.
The following witnesses were called by the defendants:
(a)Joseph Guss, who gave evidence over five days, including four days of cross-examination. Due to his central involvement in the matters the subject of the proceedings, his evidence ranged over a wide variety of matters covering an extensive period.
(b)Antony David Guss, who also gave evidence over five days, the vast majority of which was cross-examination, due to his central involvement in the furniture business conducted by members of the Guss family and his role in previous companies said to be associated with the Guss family.
(c)Henry Alexander Gilbert, a chartered accountant and member of the firm Rundles, chartered accountants. Gilbert was responsible for preparing the accounts of Tropitone International, one of the companies said to precede the defendant companies in carrying on the furniture business, for the period 1992 to 2001. Gilbert gave evidence in relation to certain financial matters concerning a number of the companies, and of instructions received from Joseph Guss on matters.
(d)Nazrul Islam, an accountant who was employed by CFI before being appointed a director of that company on 19 December 2001. Islam also does the accounting for a number of other companies connected with Joseph and Antony Guss. Islam gave evidence in relation to his role and involvement in CFI, CFI’s relationship with Kencord Manufacturing, and his dealings with Joseph and Antony Guss.
At the outset of their submissions, counsel for the defendants addressed the standard of proof, referring to Briginshaw v Briginshaw[7] and Re ABC Coupler and Engineering Co Ltd (No.2).[8] It was submitted that the approach referred to in those cases should be taken in deciding whether the Deputy Commissioner had established her case and whether to grant the relief sought. While the standard of proof remains the balance of probabilities, and not all issues are of equal seriousness and importance, I remain mindful of the statements in those authorities and approach the ascertainment of the facts and my findings and conclusions accordingly.
[7](1938) 60 CLR 336 at 343-344 per Latham CJ and 361 per Dixon J.
[8][1962] 1 WLR 1236 at 1243 per Buckley J.
No particular observation is required of Mihalopoulos, Antonelli and Zafiriou, whose evidence covered a range of matters considered by the Deputy Commissioner to be necessary to found her case. I refer to their evidence at various points in the judgment, sometimes but not always referring expressly to them as having given evidence in relation to the matters referred to. Each impressed me as an honest and reliable person and witness.
Kotsimbos and Page each conducted a similar business of providing shelf companies and preparing and filing notices and returns with ASIC. Their evidence is referred to at different points in the chronological development of the facts.[9] In the course of those references I mention and deal with differences in the evidence they respectively gave, on the one hand, and that of Joseph Guss, on the other hand. It is not necessary to repeat those references or the findings made and conclusions reached in those parts of the judgment. I found Kotsimbos and Page to be honest and reliable witnesses, and add only this in relation to Page’s evidence. As may be seen I generally accept the evidence of Page. I found her account to be consistent with the way in which Joseph Guss conducts matters which is, in relation to other people, to tell them no more of his business than what he thinks is in his best interests, and that is as little as possible giving himself and his interest the maximum room to swerve and manoeuvre.
[9]As to Kotsimbos see [189] – [201]. As to Page see [271] – [279] and [330] – [335].
Then there are the liquidators, Turner and Scott, the receiver and manager, Mansell, and the trustee in bankruptcy, Lofthouse. Their evidence is dealt with at respective parts of the chronology of facts. Each was evidently an honest and experienced professional person and I accept their evidence as such, and in preference (in the case of difference) to evidence of Joseph and Antony Guss. Each of them desired to perform his respective office to his best ability but was hampered or prevented from doing so by the obfuscatory delaying tactics, at times wrongful, of which Joseph Guss was the architect and implementer with Antony Guss. At one point Turner turned to ASIC for assistance in having Antony Guss provide a report as to affairs, which brought the cooperation which should have existed at the outset. Antony’s conduct in this respect was typical of the non-cooperative conduct of his father and himself which overall is seen to be designed to slow inquiries such as the liquidator’s, to divert inquiry and generally to let people know as little as possible, regardless of the right of the inquirer to be informed or of the interest of creditors. Their evidence paints a sorry picture of how persons in such positions can be thwarted in the performance of their duties by recalcitrants. As to Mansell, his appointment and subsequent treatment was cynical and a misuse of him.
The remaining witness who gave evidence for the Deputy Commissioner was Varendran. I found him to be honest but ignorant in relation to several aspects of the furniture business, which ignorance supported the Deputy Commissioner’s submission that he was a nominee director appointed by Joseph Guss. His evidence conflicted with that of Joseph and Antony Guss on several points, principally his role as the director of CFI and the ongoing nature of the furniture business generally. I accept his evidence. I prefer his evidence to that of Joseph and Antony Guss where their evidence conflicts.
Notwithstanding the insistence of Joseph and Antony Guss that he was an actual director of CFI, Varendran stated that he did not exercise the decisions and control that would be expected by a sole director of CFI, rather it was more a “nominee or a nominal capacity”. When asked whether by “nominal” he meant “existing in name only”, he agreed stating that “I didn’t get about the nominal decision-making as a director, I just worked as an accountant”. On several occasions he confirmed that he was not “an actual director” and confirmed that Joseph Guss was the final decision-maker. I accept this evidence as accurately stating the situation in fact.
I also found his evidence convincing in relation to the continuity of the furniture business carried on by the Guss family. Varendran gave evidence that when CFI took over the furniture business from Buckland Products in March 2001, “there was no change, as such, except that the new company was carrying on the transactions, the business”. Later, when asked to describe the furniture business conducted by the Casualife companies, he agreed that it was a family business conducted by the Guss family. Again, for the sake of completeness, I accept all this evidence.
His lack of knowledge of the sale agreement dated 28 February 2001 and associated documents and the circumstances in which he came to sign those documents and his lack of dealings with CFI Ltd (HK) all indicate and support his evidence that he was a nominee director.
I now turn to the defendants’ witnesses commencing with Joseph Guss.
According to an ASIC historical extract of Buckland Products, Joseph Guss was born in March 1938. It is evident that his legal and commercial experience covers many years. I had the advantage of observing him give evidence over five days, including four days of cross-examination. That was a considerable advantage to me in arriving at my assessment of him. While evidently intelligent he is by nature a cunning, plotting type of person giving to deviousness. He is the architect of the Byzantine corporate web discussed in this judgment. He seemed to me to lack any moral concern over the trail of unpaid tax and other liabilities left by some of these companies. I found him an unsatisfactory witness, on numerous occasions his evidence being vague, inconsistent, contradictory and untrue. Quite simply I find it difficult to rely on his evidence unless it is supported by acceptable objective material or other cogent evidence. I refer to his evidence throughout the judgment, and at many points in the chronology of facts make findings and state conclusions. At many points those findings concern Joseph Guss. They are numerous and I do not set those matters out at this point in the judgment. For present purposes, in addition to my findings above, I mention only the following matters concerning Joseph Guss.
First, on several occasions I found that Joseph Guss had misled ASIC and the public at large in relation to entities carrying on the furniture business. There were delays in lodging forms with ASIC notifying ASIC that the company was trading and delays in changing the relevant details from the company’s incorporator to those persons who were in fact conducting the company’s business.
Secondly, despite maintaining that a fair value was offered for Tropitone Furniture under the settlement agreement with Tropitone International, Joseph Guss gave no evidence as to an assessment of the value of the stock, plant and equipment actually conducted.
Thirdly, Joseph Guss gave evidence that Tropitone HK was party to the settlement agreement with Tropitone USA. It was not.
Fourthly, his evidence as to the role of CFI Ltd (HK) as chargee over Casualife Furniture, and subsequently CFI, seemed at variance with his conduct of these proceedings. Despite referring to certain persons, namely Lee and Kwan among others, the defendants (for whom he acted as their solicitor) did not produce any evidence on behalf of CFI Ltd (HK). Accordingly, I inferred that any evidence those persons might have given, would not have assisted the defendants.
Fifthly, on the matter of the transfer of shares in Casualife Furniture to NMGP and SMET and the beneficial ownership of these shares, I found the evidence of Joseph and Antony Guss to be unconvincing and contradictory, and that their stated ignorance was disingenuous, false and designed to mislead me.
Sixthly, despite being CFI Ltd (HK)’s solicitor, on several occasions Joseph Guss failed to provide Mansell with information requested by him as the receiver and manager appointed by CFI Ltd (HK) over Casualife Furniture, with no justifiable reason advanced for not doing so.
Seventhly, Joseph Guss’ role as CFI Ltd (HK)’s solicitor seemed at variance to the role one would expect of a solicitor acting independently of other parties in a commercial transaction. He prepared the sale agreement, deed of consent and licence agreement for all parties, without, as he said, having “turned his mind” for whom he was acting while maintaining that there was no conflict, as all parties were “ad idem”. There was little evidence to suggest that there was discussion of the terms of these documents by the parties or their representatives, and I find that there was none, Joseph Guss simply bringing them into existence.
Eighthly, I find that the licence agreement dated 1 March 2001 was produced by Joseph Guss for the purpose of the litigation, backdated to give a veneer of genuineness. Had this licence agreement existed at March 2001, Joseph Guss would clearly have mentioned it in proceedings before the Senior Master in October 2001. Given Joseph Guss’ commercial and litigious experience over the past 30 years, I do not accept his submission that it was not mentioned because it was either overlooked or thought unnecessary.
The matters outlined above are by no means comprehensive of the areas in which I found the evidence of Joseph Guss unsatisfactory or unconvincing or refused to accept it. Rather, they are some principal points and reflect how I found his evidence in general. It becomes apparent from the detailed facts below that delay and obfuscation are principal tactics employed by Joseph Guss in the course of defending any investigations being conducting into the furniture business in order to buy time and finalise his next moves.
I turn now to Antony Guss. Being able to observe him give evidence for a long time was a considerable advantage. Similarly to Joseph Guss, I found his evidence to be unconvincing, inconsistent, contradictory and untrue. The following points below will suffice for now to outline why I hold no faith in the credit or reliability of Antony Guss.
First, he gave contradictory evidence in relation to the beneficial shareholders of Casualife Furniture, claiming not to have had any dealings with SMET and NMGP when this was not the case. Had counsel for the Deputy Commissioner not shown him the declarations of trust which provide that SMET and NMGP hold shares on trust for him in relation to Scandi, he would not have acknowledged this. As mentioned in relation to Joseph Guss, I found his evidence to be false and designed to mislead me.
Secondly, a number of entities of which he is director have delayed in lodging tax returns or statements. While he claimed that this was due to computer problems, the frequency with which this occurred and the number of years over which this occurred, lessened the reliability of the submission greatly.
Thirdly, he misled ASIC, and the general public, in relation to entities carrying on the furniture business. I repeat my previous comments as set above in relation to the credit of Joseph Guss.
Fourthly, despite being the general manager of Casualife Furniture Antony Guss claimed to have had no dealings with CFI Ltd (HK) notwithstanding that Casualife Furniture is said to have paid 10 per cent of its export sales to CFI Ltd (HK) in return for export marketing assistance and use of the name “Casualife”.
Fifthly, despite the deed of consent clearly having been backdated, Antony Guss continued to maintain that it was executed on 1 March 2001.
Sixthly, Antony Guss gave evidence that he did not conduct a valuation of the stock of Casualife Furniture due to computer problems, yet nevertheless proceeded with executing the sale agreement with CFI, dated 28 February 2001, and later gave evidence that it became evident after a while that the liability under the sale agreement with respect to the purchase price was likely to be assumed under the liability taken over by CFI with respect to CFI Ltd (HK). In other words, these transactions occurred without a valuation being conducted.
Seventhly, Antony Guss gave inconsistent evidence in relation to the transfer of employees from Casualife Furniture to Kencord Manufacturing. According to Antony Guss, Kencord Manufacturing took over from Casualife Furniture on 17 October 2001 despite only meeting with Casualife Furniture’s employees on 23 and 31 October 2001 when he offered them new employment with Kencord Manufacturing on the same terms and conditions.
Eighthly, despite his position as general manager of Casualife Furniture and having executed the sale agreement and the deed of consent, Antony Guss was unable to detail any discussion during the negotiation of these agreements or outline any changes made to them in any such negotiation. This was while trying to maintain that the documents represented arm’s length transactions between independent parties.
The points raised above are by no means comprehensive of the discrepancies, inconsistencies, contradictions or falsity contained within Antony Guss’ evidence. They are sufficient to indicate why, alongside contradictory evidence from another witness, I often preferred the evidence of the other witness. I find that he and Joseph Guss adopted similar tactics of delay and obfuscation in order to hinder any investigations into the affairs of the companies operating the furniture business.
Turning to Islam, I found him also to be an honest witness, although his evidence was somewhat confusing in some areas, in my view largely due to some language difficulties on occasion. Despite the insistence of Joseph and Antony Guss that Islam exercised actual authority over the affairs of CFI, I find that his evidence suggests, and that the truth is to, the contrary, namely that he, like Varendran, was a nominee director. I prefer the evidence of Islam to Joseph and Antony Guss.
Islam, in his evidence, rejected the Deputy Commissioner’s suggestion that he was in control as director of CFI, stating that “these days everything is coming corporatively [which I have interpreted as cooperatively]”. Members of this “cooperative” included himself, Joseph, Antony, Sandra, Marilla and Jo-anne Guss. Similarly to Varendran, he had little knowledge of the sale agreement dated 28 February 2001 and associated documents. I find that Islam, despite his appointment as director, has continued to fill his role as the internal accountant of CFI. Apart from a performance based salary rise of $2000, he has received no greater remuneration or benefits since becoming director of CFI and his area of responsibility, as conceded by him, remains with the day to day accounts of three or four of the Casualife companies. Similarly to Varendran, he is not familiar with CFI Ltd (HK). Hence, when pressed to detail the commercial relationships between CFI, Kencord Manufacturing and the retail companies, his evidence became confusing, due at least in part, to his lack of knowledge or understanding. All this confirms that, like Varendran, Islam was a nominee director of CFI.
The remaining witness is Gilbert. I found him to be an honest witness. Among other things, he exposed the role of NMGP and SMET as nominee companies, and said sufficient, in the circumstances, for me to be satisfied on the balance of probabilities that it was on Joseph Guss’ instructions that the shares in Casualife Furniture were transferred to those nominee companies, notwithstanding Joseph Guss’ pretended ignorance in this area.
The past entities conducting the furniture business
I now refer to the entities which the Deputy Commissioner has outlined in her submissions as the succession of companies under the control of Joseph Guss and/or members of his immediate family, which have carried on the furniture business now carried on by CFI and, in part, by Kencord Manufacturing. I refer in particular to the affidavit of Zafiriou sworn on 8 March 2002 which sets out a detailed history of this succession of companies. What I refer to here provides an outline or tree to which other facts and matters will have to be added. I state the facts as I find them to be.
These companies are, in chronological order, Bendix (1978 – 1982), Tropitone Furniture (1982 – 1991), and Tropitone International (1991 – 2001). It should be noted that on 1 November 1996, Tropitone International changed its name to Casualife Furniture and on 18 June 2001 to Buckland Products. In addition, Tropitone International was previously known as Kencord Trading.
Each of these companies has been the subject of a winding up order on the petition or application of a Deputy Commissioner of Taxation on the ground that it was unable to pay its debts and, at the date of the winding up order, owed a substantial sum to the Commonwealth in relation to its tax-related liabilities. Specifically, Bendix owed $1,212,858 as at 21 April 1983 (the date of winding up), Tropitone Furniture owed $1,421,083.96 as at 23 August 1991 (the date of winding up) and Tropitone International owed $148,659 as at 25 October 2001 (the date of winding up when it was then known as Buckland Products).
I now refer to these entities in turn.
(a) Bendix Consolidated Industries Ltd
Bendix was incorporated on 14 August 1935. It was a publicly listed company until the early 1970s when it became a public unlisted company. At the end of 1973, 51 per cent of the share capital of Bendix was owned by Automotive General Industries, the shares of which were owned by JNF. Through the ownership by him and his wife of shares in JNF, Joseph Guss controlled Automotive General Industries, Bendix and their subsidiary companies.
Joseph Guss was a director of Bendix from 1966 to 1983 and from 1978 to 1983 was chief executive officer. As at December 1973, Joseph Guss was the chairman of directors of Bendix and Autogen. Sandra Guss was appointed a director of Bendix on 23 October 1978. By the end of 1979, the directors of Bendix were Joseph, Sandra and Morris Guss. Morris Guss retired, and Antony Guss was appointed, as a director on 30 June 1981.
By virtue of his position as director, chief executive officer and shareholder, the Deputy Commissioner contends that Joseph Guss had a controlling interest in Bendix.
I agree with the Deputy Commissioner’s submission and find that by virtue of the Guss majority shareholding and by their positions on the board of directors, the Guss family controlled Bendix and its subsidiaries. The reality and substance is that this control was exercised by or through Joseph Guss.
Bendix was a large scale manufacturer of steel office and domestic furniture, storage, hospital and kitchen furniture with factories in Australia, and through OEM, a fully owned subsidiary, in Singapore. OEM, a Singapore company, manufactured office furniture and storage equipment. Bendix and OEM produced outdoor furniture under the “Tropitone” mark from 1978 to 1982 pursuant to a licence agreement dated 24 November 1978 with a United States company, Tropitone USA. This licence agreement was signed by Joseph Guss on behalf of Bendix and OEM. It licensed Bendix and OEM to manufacture products designated by Tropitone USA as existing products and new products in defined geographic areas. The area for Bendix was Australia and its territories, New Zealand, Papua New Guinea, Fiji, New Hebrides, Tahiti and other islands and territories that may be agreed. The area for OEM was Africa, Middle East, South East Asia, Papua New Guinea, Hong Kong, Pacific Islands and other countries and territories that may be agreed. There was provision for Tropitone USA to provide tooling, drawings, advertising materials etc, for payment of a royalty, and a term of 10 years with options.
The licence agreement was amended on 25 August 1981 to replace OEM with BFE, another subsidiary of Bendix of which Joseph Guss was one of two directors; the other director was a Singaporean national Poh Geok Tuan. Joseph Guss was the initial director of OEM in 1977; in October 1981 Sandra Guss and Tuan were appointed directors.
On 19 November 1981 the Deputy Commissioner commenced an application in this Court to wind up Bendix. At this stage, Bendix owed the Commonwealth $544,410.64 in tax-related liabilities.
On 23 April 1982, the Bendix licence agreement with Tropitone USA was varied, whereby, according to Joseph Guss, all the rights under the licence agreement were transferred to Tropitone Furniture (at that stage called Pawnee Pty Ltd (“Pawnee”), its name on registration). Joseph Guss signed on behalf of Bendix and BFE and Antony Guss signed on behalf of Tropitone Furniture. The consideration payable by Tropitone Furniture was $1. On the same day, Tropitone Furniture, with the consent of Tropitone USA, entered into a sub-licence agreement with Bendix, sub-licensing Bendix in respect of the rights under the licence agreement. Another sub-licence was granted on 26 April 1982; Guss could not recall its terms. These sub-licences were terminated in December 1982.
On 19 May 1982 the State Bank of Victoria appointed Ernest Harding Niemann and Tim Arthur Jonas as receivers and managers of the property of Bendix pursuant to a debenture given by Bendix on 20 August 1981 as security for monies advanced when it borrowed approximately $1 M from the State Bank of Victoria to finance a new flat panel wood furniture plant.
The receivers and managers disputed the validity and enforceability of the variation to the licence agreement dated 23 April 1982, and the sub-licence agreements dated 23 and 26 April 1982. The dispute was settled by an agreement between Tropitone Furniture, Bendix, and the receivers and managers on 7 December 1982. Joseph Guss signed on behalf of Tropitone Furniture as director and on behalf of Bendix as secretary. Antony Guss signed on behalf of both Bendix and Tropitone Furniture as director. The receivers and managers signed both personally and as receivers and managers of Bendix. Pursuant to this settlement agreement, Bendix sold the assets that comprised the furniture business and licence agreements then known as "Tropitone" to Tropitone Furniture for $200,000.
The defendants submitted that the settlement agreement was an arm’s length transaction entered into in circumstances in which the receivers would have sought the maximum return possible for the bank. The defendants further refute the Deputy Commissioner’s submission that “before the date of the winding up of the company, the company was systematically stripped of its assets and the furniture business would find its way into some other (newly incorporated) company which company was under the management and control of the Guss interests…”.
I accept that the receivers and managers, having been appointed by a third party, the State Bank of Victoria, sought to achieve the best return possible for Bendix. However, in the absence of detailed financial statements, it is not possible to form a firm view some twenty years later, as to whether the settlement amount represented fair value for that which was transferred. I find that it was only due to the active role played by the receivers and managers that such an amount was realised over and above the nominal consideration stipulated in the variation to the licence agreement. Had a transfer taken place on the terms in the licence variation, I would have concluded that the transaction fell within the above description of the Deputy Commissioner.
Throughout the latter stages of 1982 Bendix held meetings with its members and its unsecured creditors to propose a scheme of arrangement.
On 24 March 1983 the Deputy Commissioner again commenced proceedings in this Court to wind up Bendix. As at that date Bendix owed the Commonwealth $1,212,857.86 in tax-related liabilities. On 21 April 1983, Gobbo J ordered that Bendix be wound up and appointed David Alexander Christopher Crawford as liquidator.
Later, in his Account of Receipts and Payments and Statement of Position in Winding Up dated 29 October 1990 and lodged with the National Companies and Securities Commission, the liquidator of Bendix reported that all known assets of Bendix had been realised by the receivers and managers and that there was a nil amount available for unsecured creditors. It was also stated that the amount currently due to preferential creditors entitled to priority over the holders of debentures was $1,122,775, that the total amount owing under and secured by any debenture was $1,202,623, and that the Statement of Affairs had advised preferred and unpreferred creditors’ claims of $4,245,744.
The defendants submitted that Bendix was a very different business to that conducted by CFI. In his affidavit sworn on 2 September 2002, Joseph Guss deposed to the reasons for Bendix’s failure, namely delays in commissioning the plant, a business recession, an increase in the value of the Singapore dollar which affected export returns and the Singapore government’s artificial increase in labour costs. The defendants further contend that the liquidation of Bendix was so many years ago that, for the purpose of this case, it should be regarded as stale.
At this stage I do not propose to deal with the defendants’ submission that Bendix and the defendant companies operate different businesses. Rather, I propose to follow in chronological order the various companies said to have carried on the furniture business and identify the stages at which the business was transferred. I find that the furniture business conducted by Bendix was subsequently carried on by Tropitone Furniture. I find that the licence agreement with Tropitone USA to produce outdoor furniture under the “Tropitone” mark was a significant and substantial aspect of the furniture business of Bendix. It was the rights under this licence agreement, as well as the assets, which were sold to Tropitone Furniture who then continued to exercise those rights. Further, having regard to statements contained in the advertising brochure of the defendants, current for 2002, and statements contained on their website,[10] it is reasonably clear that the Guss family has represented to the public that “Casualife” has operated one continuous business since 1979.
(b) Tropitone Furniture Co Pty Ltd
[10]Exhibits O and P.
This company was incorporated on 7 January 1982 as Pawnee. On 2 June 1982 Pawnee changed its name to Tropitone Furniture. Joseph Guss was managing director of Tropitone Furniture from 1982-1990 and owned 75 per cent of the company. Antony Guss owned 25 per cent and subsequently became the company’s general manager. Morris and Antony Guss were both appointed directors on 23 April 1982 with Joseph and Sandra Guss later being appointed on 23 July 1982, whereupon Morris Guss resigned.
By virtue of Joseph Guss being managing director of Tropitone Furniture and with both Antony and Joseph Guss being the shareholders, the Deputy Commissioner contends that the Guss family had a controlling interest. I find this to be the case.
After the settlement agreement with Bendix and the receiver and manager, Tropitone Furniture continued to carry on the “Tropitone” business both in Australia and overseas. The business was based at 50 Buckland Street, Clayton. Tropitone Furniture was largely financed by third party borrowings supported by mortgages of real estate provided by Joseph and Sandra Guss, namely their property at 3722 Nepean Highway, Portsea, to the Geelong Building Society (“GBS”). On 25 September 1991 and 11 November 1991 GBS commenced proceedings against Joseph and Sandra Guss as guarantors of the GBS debt since Tropitone Furniture had defaulted in payment, claiming the sum of $827,716.29 (which, by an amended statement of claim in October 1994 had increased to $1,248,591.27), and seeking possession of the mortgaged premises. GBS obtained judgment under the mortgage and on 5 February 1995 exercised its power of sale over the Portsea property and sold the property at auction for $1,650,000. The sale was settled on 5 April 1995. Notwithstanding this sale, there remained a deficiency in the amount owed to GBS. Consequently, on 21 December 1998 Joseph Guss was made a bankrupt at the suit of GBS (as substitute creditor) in respect of the balance of the GBS debt. As mentioned at [18], the operation of the order was stayed until 8 November 2000 due to an appeal. As also mentioned, the three years at the end of which his bankruptcy will be automatically discharged has not yet commenced to run as Guss has not filed his statement of affairs.
In 1995 the National Australia Bank Ltd (“the NAB”) sued Joseph and Sandra Guss as guarantors of Tropitone Furniture, claiming $1,357,000.
It is worth noting the chronology of events in relation to dealings between Tropitone Furniture and the ATO, as provided by Ann Felgate, Director Debt Management, Revenue Collection of the ATO from 1984, when it was brought to the ATO’s notice that Tropitone Furniture had a number of outstanding sales tax and group tax returns, to 1991. During these seven years there was a stream of demands for payments by the ATO in relation to Tropitone Furniture, followed by promises to pay by Antony and Joseph Guss, the proposal of schemes of arrangement, the commencement of winding up proceedings, interlocutory proceedings, requests for extensions and last minute payments.[11]
[11]See at Court Book 1407 – 1414.
The defendants argue that this chronology highlights that the companies were not simply “dumped” upon the winding up petitions being presented, but continued to make payments. In response to all the statutory demands, the defendants submit that these actions of the ATO do not go to the merits of the present applications but, rather, evidence the proper working of the conventional enforcement procedures.
I accept that the chronology provided by Felgate represents accurately, over the period from January 1984 until June 1991, the dealings between the ATO and the Guss family and Tropitone Furniture. Indeed, in their submissions, the defendants have not sought to dispute the contents of this chronology, rather how the chronology should be interpreted. The chronology indicates that the ATO sent numerous notices under s 364(2) of the Companies (Victoria) Code in relation to outstanding group, sales and payroll tax owed to the ATO by Tropitone Furniture. This would often be followed by a delay of some months during which the parties negotiated various repayment proposals until ultimately winding up proceedings were instituted by the ATO, at which point a full or part payment of the amount owing would be made. It is reasonable to infer from the matters in the chronology that such payments were made to avoid the institution of legal proceedings and generally after having exhausted avenues for delay. While it is nevertheless true that Tropitone Furniture made certain payments to the ATO, given the delay usually between the receipt of the s 364(2) notice and the payment, and the proximity of the payment to the lodgment by the ATO of winding up applications, I find that these payments were made reluctantly and only to avoid the winding up of Tropitone Furniture.
On 26 June 1985 on a debt of $149,958.44 the Deputy Commissioner commenced an application to wind up Tropitone Furniture. On 22 August 1985 Tropitone Furniture paid the Commissioner of Taxation $142,222.52.
The following year, on 14 August 1986, the Deputy Commissioner again commenced proceedings in the Supreme Court of Victoria to wind up Tropitone Furniture. As at this date, Tropitone Furniture owed the Commonwealth $9,816.47 in income tax-related liabilities and other accrued amounts. A further winding up application was commenced on 7 November 1986 by the Deputy Commissioner on a debt of $256,897.96.
On 17 February 1987 the Deputy Commissioner served a notice under s 364(2) demanding payment of $227,883.06 concerning unpaid sales and group tax. On 26 February 1987 Tropitone Furniture paid the Commissioner of Taxation $102,633.66.
On 22 March 1988, Tropitone Furniture renewed the licence agreement dated 24 November 1978 for a further term of five years from 24 November 1998. A dispute later arose between Tropitone Furniture and Tropitone USA and by letter dated 11 April 1988 Tropitone USA purported to terminate the licence agreement alleging that Tropitone Furniture had not paid monies due and was insolvent. These claims were disputed. Negotiations subsequently occurred between the companies but the matter did not settle and there was litigation, as outlined below.
On 20 May 1988 the Deputy Commissioner served a s 364(2) notice on Tropitone for $77,075.13 for unpaid group tax and penalties. On 16 June 1988 Tropitone Furniture paid $64,897.53, which paid the primary amount owing, but not the penalties.
On 21 August 1990 the Deputy Commissioner served a s 364(2) notice on Tropitone for $1,038,592.03 owing in sales tax and penalties. For most of this month Joseph Guss was in hospital, undergoing operative treatment for a brain tumour. Shortly after leaving hospital Joseph and Sandra Guss were asked to sign a further guarantee in favour of the NAB in the sum of $250,000. They agreed to do so subject to the terms and conditions of a deed dated 12 September 1990 referred to in the next paragraph.
Without paying the amount owing for tax, on 12 September 1990, pursuant to a deed between Joseph and Sandra Guss (as guarantors), Tropitone Furniture and Kencord Trading, provision was made whereby in the event of Tropitone Furniture defaulting in respect to any of its obligations to GBS or the NAB or an application to wind up being lodged or in a number of other circumstances, Tropitone Furniture assigned the rights under the "Tropitone" licence and sold its assets to Kencord Trading, which was incorporated on 7 October 1987. Kencord Trading later changed its name to Tropitone International on 19 September 1990.
At the time of executing this deed, the directors of Tropitone Furniture were Joseph Guss, and Anthony Guss and the directors of Kencord Trading were also Joseph and Antony Guss. Prior to the transfer of shares to SMET and NMGP,[12] the shareholders in Kencord Trading were Antony, Joseph and Jo-anne Guss with one share each. In these circumstances, when the deed was executed, I find that Kencord Trading was owned and controlled by these members of the Guss family. Antony Guss executed the deed on behalf of Kencord Trading and Joseph Guss signed on behalf of Tropitone Furniture, and Joseph and Sandra Guss signed for themselves. As at 12 September 1990 Tropitone Furniture was carrying on the furniture business from 465 Warrigal Road, Moorabbin. Kencord Trading subsequently operated the furniture business from those same premises until 29 June 1992.
[12]This transfer is referred to at [125] – [134]. As to the time of the transfer, I note that in a letter from Minter Ellison, acting for GBS, to the Insolvency Trustee Service Australia dated 14 January 1999, it is stated that according to an affidavit filed in Federal Court proceedings, Antony and Joseph Guss transferred their share each to SMET and NMGP in the 1991/92 financial year following the issue of proceedings against Joseph Guss by GBS.
In recitals to this deed it was stated that Tropitone Furniture had requested Joseph and Sandra Guss to extend their guarantee to the NAB, by a further sum of $250,000, to a total of $1,342,800, and that they had agreed to do so on the terms and conditions in the deed.
Clause 4 of the deed contained the default provisions. They were specified in paras (a) to (o). I mention only a few, breach by Tropitone Furniture of the GBS or NAB borrowing obligations, and the lodgment of an application for winding up of Tropitone Furniture. In any of these circumstances:
(a) all of Tropitone Furniture’s rights under the licence or other agreements with Tropitone USA shall and shall be deemed to be forthwith transferred to Kencord Trading;
(b) Tropitone Furniture sells to Kencord Trading its stock, plant and equipment, jigs and tooling, office furniture and equipment and motor vehicles; and
(c) assigns all rights in uncompleted orders.
The consideration payable by Kencord was specified in cl 5 as follows:
(a) for the assets in (b) above, the lower of cost, realisable or book value, such consideration to be payable at the expiration of five years from the date of assessment of the value of the assets sold;
(b) alternatively, at their discretion Joseph and Sandra Guss may assume such of the indebtedness to the NAB or GBS as equals the consideration payable or to the extent they elect.
Clause 6 provided that any of the guarantors or Kencord Trading shall have the right to an assignment of the lease of the property at 465 Warrigal Road, Moorabbin from Tropitone Furniture, on the occurrence of any of the events described in cls 4 and 5.
Clause 7 provided that on the provisions of cls 4 and 5 coming into operation, the assets referred to in (b) above shall be valued in accordance with cl 5, and that if Tropitone Furniture still carried on any aspect of its business it did so only as trustee for Kencord Trading and shall indemnify Kencord Trading in respect of all matters.
By cl 8 Tropitone Furniture appointed Kencord Trading and the guarantors its attorneys to sign any documents and do any thing in their opinion necessary to better give effect to the intent and provision of the deed.
Finally, cl 10 provided that in the event of the guarantors being called on to pay “any moneys” under their guarantees consequent on default of Tropitone Furniture, “any moneys” owing by the guarantors to Tropitone Furniture shall be deemed waived.
Based on the terms of the deed, no consideration was payable for the transfer of rights under the licence agreement dated 24 November 1978, or for the rights in incomplete orders, or for the cancellation of loans, or for the assignment of lease. At this date, Tropitone Furniture owed $1,342,800 to the NAB, approximately $800,000 to the GBS and approximately $1M to the Commissioner of Taxation. At all times Kencord Trading operated the furniture business from the same premises as Tropitone Furniture, namely 465 Warrigal Road Moorabbin.
The defendants referred to statements of counsel for the Deputy Commissioner that: “in any event at this time (September 1990) the furniture business through the licence agreements and the relationship established with the American company, Tropitone Inc, the goodwill was all tied up in the name Tropitone”. The defendants submitted that this statement goes to a core issue, namely that the subsequent loss of the name “Tropitone” was a cataclysmic event which puts to rest the Deputy Commissioner’s submission that there has been one continuous business. The defendants noted in their submissions that at the date of this agreement there had already been a notice of the termination of the licence agreement by Tropitone USA’s letter dated 11 April 1988.
The effect of the deed was that, upon the occurrence of an event specified in cl 4, the furniture business would move from Tropitone Furniture to Tropitone International. The purpose, I find, was not merely that, but to preserve the business and its assets from the reach of creditors. The provision in cl 10 for the waiving of debts of Joseph and Sandra Guss is to be understood in this context. The effect of that provision was to remove them from the reach of a liquidator of Tropitone Furniture. Further, the waiver in cl 10 did not depend on any relationship in any amount called and any amount waived. I find that the transaction was not a commercial transaction between two arm’s length parties having received independent legal advice. The lack of consideration for certain items has been highlighted by the Deputy Commissioner above. Then, while disputes between Tropitone USA and Tropitone Furniture may have first arisen in April 1988, the disputes were not resolved until court settlements in July 1996, with Tropitone Furniture, and subsequently, Tropitone International, continuing to trade under the “Tropitone” licence agreement. Thus, while the defendants’ submission is correct that Tropitone Furniture had already received a notice of the termination of the licence agreement by Tropitone USA, I find that it was the intention of both Tropitone Furniture and Tropitone International to continue to trade and conduct the furniture business under the Tropitone licence agreement until the disputes were brought to a head and resolved.
On 24 October 1990 Tropitone Furniture owed the Commissioner of Taxation $1,153,619.18 for unpaid sales and group tax and penalties. A payment of $59,000 was made by Tropitone Furniture to the ATO on 11 January 1991 to cover tax arrears. This payment was assisted by the increased borrowing of $250,000 from the NAB.
On 28 February 1991 the Deputy Commissioner served a notice on Tropitone Furniture under s 460(2) of the Corporations Law (“the Law”) demanding payment of $883,087.27. The defendants have noted that this represents a reduction in debt of $155,504.76 from the debt at 21 August 1990.
On 14 June 1991 the Deputy Commissioner commenced an application to wind up the company on a debt of $859,498.00. On 23 August 1991 Senior Master Mahony ordered that the company be wound up and appointed Christopher Thomas Daly liquidator.
The lodging of the application to wind up was an event of default within the meaning of cl 4 of the deed of 12 September 1990. In consequence, if not earlier by reason of some other event of default, cls 4 and 5 and other provisions of the deed were triggered into operation.
Following the making of the winding up order, Joseph Guss advised Daly that Tropitone International claimed ownership of all the assets of Tropitone Furniture pursuant to the deed dated 12 September 1990.
The liquidator disputed Tropitone International’s claim and on 7 November 1991 Tropitone International commenced a proceeding against Tropitone Furniture in this Court for an injunction prohibiting Daly, as liquidator, from selling the assets of Tropitone Furniture allegedly owned by Tropitone International.
On 9 January 1992 Tropitone Furniture entered into a settlement agreement with Tropitone International pursuant to which Tropitone Furniture assigned all its interest in its chattels to Tropitone International for $150,000, of which $80,000 was set aside to pay Seitel Pty Ltd, the lessor of the property who was claiming unpaid rent and storage costs from Tropitone Furniture. The settlement was approved by Acting Master Williams on 22 January 1992. Joseph Guss signed the settlement agreement on behalf of Tropitone International.
The defendants acknowledged that the compromise with Daly did not refer to goodwill in the name “Tropitone”, however they submitted that at this stage Tropitone USA had purported to terminate the right to use the Tropitone name, and that all that remained was a potential dispute with Tropitone USA.
Contrary to the Deputy Commissioner’s submission that this typified a pattern whereby assets were stripped from a company before winding up and transferred to another Guss controlled company, the defendants submitted that the compromise agreement was subject to the presumption of regularity and validity. The defendants noted that the Deputy Commissioner had not explained how this transaction was not at arm’s length and again refuted the Deputy Commissioner’s submission that the business was “transferred” to another company. Furthermore, the defendants contend that Joseph and Sandra Guss were the principal losers out of the Tropitone Furniture failure having had their house sold and Joseph Guss being made bankrupt.
It is not possible for me, twelve years after the event, to decide whether $150,000 was a fair valuation of the Tropitone Furniture business. Clause 5 of the deed provided that the purchase price was “the lower of cost, realisable or book value”. It is not known how the figure of $150,000 was arrived at and whether the three valuations above were carried out. There is no contemporaneous evidence of the value of the stock, plant and equipment, office furniture and equipment, and motor vehicles. Indeed there is no evidence of any assessment having been carried out. Nor was a cogent attempt at a valuation attempted before me. These matters support my finding that the deed of 12 September 1990 was not a transaction between two independent parties.
The settlement agreement, as conceded by the defendants, did not include goodwill. The defendants submitted that this was because Tropitone USA had threatened to terminate the licence agreement and all that remained was a potential dispute. However, it should be noted that the first indication of the possible termination of the licence agreement was by way of a letter from Tropitone USA on 11 April 1988. Court proceedings were not instituted by Tropitone USA until November 1993, almost two years after the settlement agreement. Notwithstanding the dispute with Tropitone USA, Tropitone Furniture continued to exercise its rights under the licence agreement, and the fact that Tropitone International continued to do so up until the court proceedings and the resulting settlement agreement in relation to those court proceedings in July 1996, indicates that Tropitone International always intended to exercise those rights under the licence agreement. Thus, while I accept the defendants’ submission, I also take into account that Tropitone International intended to exercise, and did exercise, its rights under the Tropitone licence agreement for a number of years and thus gained a significant benefit.
As to the defendants’ submission that Joseph and Sandra Guss were the principal losers out of the failure of the Tropitone Furniture business, I simply note that upon deregistration, Tropitone Furniture owed the Commissioner of Taxation $1,421,083.96 (see below).
To pay the amount under the settlement agreement, Tropitone International borrowed $150,000 from Tropitone HK, a Hong Kong company (now known as CFI Ltd (HK)). The Deputy Commissioner noted that no evidence was adduced as to this actual payment having been made and submitted that this was a deliberate attempt by Joseph Guss to structure the furniture business so as to avoid and defeat creditors. This was by the introduction of a secured creditor (on 9 January 1992) into the structure of the furniture business, under his control, which by virtue of the charge over the assets of the furniture business could dictate the fate of those assets in the event of another insolvency, and could exercise rights and powers superior to those of a liquidator in that event. The effect of this is highlighted by the appointment of Mansell as receiver and manager in October 2001 of Buckland Products (see below). Gilbert testified that he did not sight, in preparing any financial statements for Casualife Furniture, any source documents evidencing this debt of $150,000.
However, the defendants in their submissions noted that the Deputy Commissioner’s reference to “no evidence” referred to bank records. The defendants pointed to Tropitone International’s general ledger and books of account which indicate a secured loan of $150,000, and submitted that pursuant to s58B of the Evidence Act, an entry in a book of account is prima facie evidence of the matters, transactions and accounts therein recorded. According to the evidence of Gilbert, the opening entry of the loan account was an advance in the sum of $150,000 on 9 January 1992, which he posted in the general ledger on 31 May 1992. Gilbert also deposed from his own knowledge that Tropitone International’s books of account for the period June 1992 to February 2001 record the balance of the loan account as being, respectively, $214,327; $67,168; $188,895.39; $247,341.49; $279,475.83; $413,364.02; $445,627.38; $469,767.68; $496,950.08; and $507,672.78. Balance sheets for the years ended 30 June 1992 to 30 June 1999 appear to confirm these figures.
On 9 January 1992 Tropitone International contemporaneously created a charge/mortgage debenture over its assets in favour of Tropitone HK as security for the loan and all future monies owing. This was lodged with ASIC on 21 February 1992.
I am not convinced either way as to the genuineness of the $150,000 loan. On the one hand, one would have expected to see a source document, perhaps even a loan agreement, evidencing the loan and setting out the repayment terms and conditions. On the other hand, the existence of the books of account and the general ledger and the amounts set out therein leave me with some doubt in my mind. In the end it is for the Deputy Commissioner to prove her case and I find that she has failed to satisfy me that the loan of $150,000 is not as it purports to be.
The defendants noted that Joseph Guss was not a director of either CFI or Kencord Manufacturing and submitted that he is not involved in the management of the defendants. Further, the Deputy Commissioner had not shown how Islam and Xia, as directors of CFI, are not suitable persons for the management and control of the companies.
Furthermore, and/or alternatively, even if the Deputy Commissioner established that Joseph Guss was involved in the management of the defendants, much of the Deputy Commissioner’s case is said to rely on historical and irrelevant facts. The activities of the Guss family who happen to be connected to the defendants, where those activities relate to other previous companies, are irrelevant.
The defendants submitted that irregularities in the conduct of a company’s business do not make it just and equitable to wind up the company unless the conduct is of incurable proportions. Even fraud in the conduct of a company is not necessarily sufficient unless the company is systematically carrying on fraudulent practices. In Menard v Horwood & Company Ltd,[105] the High Court upheld a decision of Street CJ in Eq who had refused to wind up a company on the basis of one transaction or one series of transactions. In his reasons for judgment Street CJ in Eq stated that:[106]
“If I thought that the proper inference to be drawn from the facts was that there was fair ground for anticipating systematic or recurring dishonesty in the future the case might be different, but I do not think that that would be a fair inference.”
[105](1921) 31 CLR 20.
[106]At 24.
Consequently, the defendants submit that any improprieties which are not of an incurable nature should be dealt with by other more appropriate means, namely by the ATO or someone funding Turner, the liquidator, to exercise his powers to investigate transactions or apply to have them set aside.
The defendants also submitted that the authorities relied upon by the Deputy Commissioner largely related to applications by ASIC or another public authority expressly charged with the power to regulate corporate conduct. Referring to comments by Santow J in Roy Morgan Research v Wilson Market Research[107] that “The public interest in bringing insolvent companies to winding up can be pursued by others, in particular the Australian Securities Commission…,” the defendants submitted that the Deputy Commissioner, as a creditor, cannot rely on the public interest in the same way as ASIC. In that case though, the applicant had an untried claim for unliquidated damages. His Honour stated that:[108]
“… insolvent companies, even if generally insolvent, are not to be put to the equivalent of citizens’ arrest; particularly when the ‘citizen’ most likely to do this has yet to satisfy the requirements for standing. Otherwise the threat of winding up can so easily be used as a source of unfair pressure to achieve that end, or other unfair commercial advantage. The Australian Securities Commission and other ‘prescribed agencies’ can adequately represent the citizens’ interest in taking such companies off the register, along with genuine creditors pursuing their own interest.”
[107](1996) 14 ACLC 925 at 932.
[108]At 934.
Another case referred to was ASIC v Chase Capital Management Pty Ltd[109] where Owen J held that “The public interest justifies intervention where, among other things, it is required for investor protection and where there has been regular or repeated breaches of the Law”. His Honour noted that the Court should identify the aspects of the public interest that would be promoted by making the winding up order. Similar comments, which I have previously noted, were made in ASIC v Pegasus Leveraged Options Group Pty Ltd & Anor.
[109](2001) 36 ASCR 778 at 793.
Another case involving an application to wind a company up on the just and equitable ground is ASC v AS Nominees,[110] where Finn J examined whether he should grant the application of the ASC to wind up a solvent company. His Honour noted that the role of the ASC, like all other agencies of government, obliged it to act in the public interest within its sphere of responsibility. Consequently, when bringing an application to wind up a company, the ASC could not be seen in the same light as an ordinary creditor or contributory when so applying. Its powers and purposes are not those of a private citizen and it does not pursue a private self-interest.
[110](1995) 133 ALR 1.
The defendants sought to distinguish this case on the basis that in AS Nominees there had been ongoing breaches of the law and that a winding up order was made to protect the investing public. This is said not to be the case here.
A further case of relevance is ASIC v ABC Fund Managers. Warren J (as her Honour then was) noted that a factor relevant to the making of a winding up order was that by continuing to operate the schemes, the defendants would have continued to breach the Corporations Act. A further factor in the winding up was the nature of the transactions, namely a series of round robin lending and investment transactions, which she ultimately held to be a “sham”. Her Honour cited ASIC v Austral Timber Pty Ltd,[111] in which Byrne J considered an application to wind up the defendants on the just and equitable ground where the defendants were involved in a tax minimisation scheme. Byrne J ultimately concluded that the relevant scheme was part of a sham entered into to defraud the ATO. Warren J stated (and subsequently found) that “… if the circumstances of a particular matter are sufficiently serious such as defrauding the Australian Tax Office as occurred in Austral Timber it is entirely appropriate for the court to conclude that a transaction or arrangement is a ‘sham’”.[112]
[111](1999) 17 ACLC 1679.
[112]At 473.
While conceding that issues of public interest may in some cases be relevant, the defendants submitted that the Deputy Commissioner had relied on authorities relating to ASIC or the Attorney General performing express statutory functions in protecting the investing public. The Deputy Commissioner had not provided any authority indicating how the public interest is relevant to her application where what is sought is the regulation of taxpayers.
Lastly, the defendants submitted that a winding up order should not be made if there is an alternative remedy that ought reasonably to be pursued: Re Dalkeith Investments Pty Ltd;[113] Charles Forte Investments Ltd v Amanda.[114] The Deputy Commissioner possessed a number of other powers to enable her to protect the revenue, for example to conduct audits, issue assessments or statutory demands, or institute recovery proceedings. The Deputy Commissioner submitted that this incorrectly elevated what is simply a matter which is relevant to the exercise of the discretion in an appropriate case to a rule restricting its exercise. In light of the prior history of the Guss interests, any such rule could not apply here.
[113](1985) 3 ACLC 74.
[114][1964] Ch 240.
Conclusion
There is little dispute in the parties’ submissions as to the applicable principles of law. Rather, the question requiring resolution is whether, in the circumstances, it is just and equitable that the defendant companies be wound up. The principal basis on which the Deputy Commissioner supports her claim for a winding up order is that she lacks confidence in the conduct and management of the defendant companies, more particularly the conduct and management of the furniture business conducted by the companies.
The following propositions may be extracted from the cases. First, the liquidation of the defendant companies must be just and equitable at the time of the order. Secondly, the categories of case in which the Court may order winding up on the just and equitable ground are not closed. The words “just and equitable” are to be interpreted broadly. Thirdly, in the case of a solvent company, which on the facts at least CFI is, if not Kencord Manufacturing, a strong case is usually required often requiring systematic or recurring conduct of a type supporting an order for winding up. Fourthly, the Deputy Commissioner’s claim of a lack of confidence must be grounded on the conduct of Joseph and Antony Guss who own and/or control the defendant companies and who have carried on the furniture business for the past thirty years under different entities. Fifthly, and following on, there must be a sufficient nexus between the facts and conduct that makes it just and equitable that the defendant companies be wound up, and the management and administration of the defendant companies’ affairs.
I accept the submission of the Deputy Commissioner that there is a public interest factor to be taken account of in these circumstances, on the Deputy Commissioner’s submission that is the systematic refusal of Guss controlled entities to pay the ATO moneys owing to it, and the conduct whereby such entities, having accumulated debts to the ATO, have been stripped of their assets for minimal or no consideration leaving an indebtedness to the ATO. However, there is a need to identify the aspects of the public interest that would be promoted by a winding up order, such as in the present circumstances, the due collection of revenue by the ATO in accordance with the laws of the Commonwealth.
I have set out at length, in what has seemed to me to be sufficient detail, the history of the furniture business conducted by the Guss family, in particular Joseph and Antony Guss. This has been necessitated in large part by the way in which the Deputy Commissioner has presented her case and the grounds on which she relies to support her claim for an order to wind up the defendant companies. The Deputy Commissioner’s lack of confidence is grounded in the overall conduct and management of the ongoing furniture business conducted by Joseph and Antony Guss over the past thirty years, not simply their conduct and management of the defendant companies. The Deputy Commissioner considers, given the Guss’ history of avoiding their taxation obligations and indebtedness to the ATO, and the history of the furniture business being transferred from one Guss-controlled entity to another Guss-controlled entity when it is expedient to do so with the result that unsecured creditors are left lamenting, that it is highly likely that such conduct will continue in the future, and relies on that as justifying her lack of confidence in the conduct and management of the defendant companies.
It is of central importance not to overlook that the defendants are actually engaged in business activity and have employees. CFI is solvent and for present purposes at least I proceed on the basis that Kencord Manufacturing is solvent, although it stands in a peculiar and potentially precarious position in view of its lack of assets and reliance on CFI. Further, I am prepared to assume that the furniture business, the long history of which is a portent in this regard, will continue in the future. I am prepared to assume that it will be successful. I have regard, in that respect, to the longevity of the business and the determination of the Guss’ to continue the business which in itself manifests confidence in it. Yet, to be realistic, the strength of that assumption must be tempered by reflection on the unhappy history of failure of the entities through which the business has passed. Although, in the circumstances it is important to distinguish between the corporate entities and the business, in view of the survival of the business notwithstanding failure of the entities.
I bear in mind that the defendants and other Guss family companies have brought themselves into compliance with their taxation obligations, and I have regard to the submission that that, it may be expected, will continue to be the position in the future. And I have regard to the like submission made in respect of obligations under the Corporations Act to file notices with ASIC. I also have regard to the submission that winding up is not to be ordered by way of punishment or discipline on account of past errors or faults of those involved in the conduct and management of the companies that conducted the furniture business, and I do not approach the determination of the cases in that way. I also have regard to the submission that the correct approach to these companies, conducting business as they are, and having brought their affairs into line, is to let them continue in their endeavours. Then, in the event of any future failure to meet a taxation obligation, the Deputy Commissioner can take such enforcement or other action as she may be advised to take in the circumstances.
Overall, I have regard to all of the submissions, including those not expressly referred in the above paragraphs, as to why these ongoing companies should not be wound up.
It is, as has been observed, a strong thing, or requires a strong case, to wind up a company that is conducting an established business, is solvent, and has apparent reasonable future prospects. I approach the determination of the case on that basis. I repeat too that in determining the issues raised in the evidence and submissions of counsel, including matters concerning the credit and reliability of witnesses in particular Joseph and Antony Guss, I have, and had, regard to the seriousness of those matters and of the findings made.
In the end, however, all of these matters are to be weighed in the balance. The facts and circumstances set out in this judgment describe an unhappy approach to corporate, directorial or management responsibility. The facts and circumstances, and the findings, are so many that I do not set them out again. They disclose patterns of conduct, and reflect on the commercial morality, of those who have conducted and managed the entities which have conducted the furniture business over the years. As a matter of substance, those entities have conducted a furniture business of the same kind, namely the manufacture and sale of outdoor furniture. Doubtless over time there have been changes in the conduct and organisation of the business, an obvious example being changes to the product range, and there was the change of name to Casualife. Changes of that nature may be expected as a business is a dynamic and not a static thing. But what has not changed is that the business is that of the manufacture for sale of outdoor furniture and that throughout it has been owned or controlled via corporate entities by the Guss family. I have found that the outdoor furniture business has come down from Bendix, the change from the Tropitone name to the Casualife name not being decisive in this respect in my view.
What is discerned, overall, is that in the hands of the Guss family successive entities have been used for the purpose of conducting an outdoor furniture business, and that as one entity has collapsed, and been wound up with a debt to the Commissioner of Taxation (and others), it has been found that the assets have been shifted to another entity which is found to be conducting the business, and the pattern repeats itself. An extra factor, first added in 1992, is that the entity presently conducting the business has granted a charge over its assets to another entity in the Guss family armoury of entities. In the result, the wound up company has lost the plant and equipment with which to conduct the business, the estate of the company is insolvent, and, if any assets are left behind the liquidator has no funds with which to pursue recovery. I am well satisfied, and I so find, that all of this has been, and remains, a structure deliberately created by Joseph Guss for the purpose of ensuring the ongoing control of the business by the Guss family, come what may.
That is the dominant interest. There is, I find, in the conduct of these companies by Joseph Guss and his family a lack of commercial morality manifested by the repeated preparedness to shift the business around without meeting the obligation to pay tax. Quite simply, in my view, the attitude and conduct of Joseph Guss and the Guss family involved in this respect has been disgraceful. Nothing in their evidence before me, or in the evidence overall, indicated that the attitude of Joseph and Anthony Guss to creditors, and to the first priority to paying creditors, had changed. I find that their attitude has not changed and that they would conduct the defendant companies, and the related companies, in the same way if they thought they could get away with it. In this respect I considered their attitude towards creditors to be uncaring and brazen.
I have concentrated on the position of the Deputy Commissioner as a creditor but the position is that other creditors are seen to exist in the liquidated companies.
Other patterns of conduct are seen. The approach to tax seems almost to be a game played with the ATO. In this game the ATO is required to be vigilant and to apply pressure to achieve payment. Even then the current entity conducting the furniture business will be wound up leaving a tax debt. More recently, the Guss approach in the conduct of companies has been seen to be extended to the tardy provision of Business Activity Statements. I accept the submission of the Deputy Commissioner that, were it not for these proceedings, the defendants and the related companies would not have brought their tax obligations into compliance, or if not in perfect compliance so near thereto that I do not take account of any failure that may exist in that respect. I find that without the pressure of litigation the Guss controlled companies would return to their old ways.
A pattern of conduct is also seen in the tardy compliance with the obligation to file notices with ASIC. I repeat my findings in that respect.
Then, there is a range of other factors. On becoming a bankrupt Joseph Guss resigned as a director of Casualife Furniture. Remember that he is a solicitor of experience. He has not performed his obligations as a bankrupt, as Lofthouse described. Further, in relation to the affairs of the defendants, he is more than a consultant as he stated. I find that he has a central and directing role and control in the company. It may be that to the present he has been content to remain bankrupt, as he has not taken the step that would trigger the commencement of the period on the expiration of which his bankruptcy would cease. But his continuing status as a bankrupt cannot, and does not, mask the truth of his role in these companies. He controls the companies with Anthony.
This leads me to refer to the role of Varendran and Islam as directors. As I have found, they were in the nature of nominal directors, in effect fronts for Joseph and Antony Guss. They reflect the preparedness of the Guss’ to introduce into the scheme of things names other than their own to the directorial stage. The effect of doing this was, and is, intended to be to distance the Guss’ from apparent control of the relevant entities. The same thing has occurred, I find, in relation to the beneficial shareholding in Casualife Furniture, as to which Joseph and Anthony Guss gave false evidence, as I have found, CFI and CFI LTD (HK).
In addition to debts owing to the Commissioner of Taxation and other persons when the companies formally conducting a furniture business were wound up, there is a further factor which bears on what was left behind in the estate of the liquidated company. The point to be mentioned here is the disposition of assets out of the company at an undervalue. I have analysed and made findings as to these matters commencing with the action of the Bendix receivers to obtain a better return for Tropitone Furniture through to the undervalue in the 28 February 2001 sale agreement. Consistently, the purpose and effect is to transfer the business for the least consideration. This is, of course, to be regarded in context with all the other factors.
In arriving at my decision I take all the above matters into account as well as the many findings and conclusions in the course of my judgment. I add specifically, in addition to generally referring to my findings concerning the credit and reliability of Joseph and Antony Guss, that the licence agreement dated 1 March 2001 was brought into existence for the purpose of the litigation.
Taking all matters into account, and all that has been submitted by counsel, I conclude that the Deputy Commissioner’s lack of confidence in the conduct and management of the defendants is justified having regard to the history of the furniture business conducted by the Guss family. The history discloses a disdain for the obligation to pay tax and commercial morality in the conduct of a business. The Deputy Commissioner’s lack of confidence in the defendants’ likely observance of their taxation obligations is well justified in the circumstances. For that reason and also because it would be fair to do so, it is appropriate to order winding up. If the defendant companies were not wound up they would continue operating in the public domain under the same Guss control who would, I find, continue to engage by these entities in the same type of impugned conduct. I am also of the view that it is in the public interest and conducive to commercial morality that the companies be wound up, both to prevent the perpetration of further commercial immorality and for the benefit of having the companies under the control of a liquidator.
In each case there will be an order that the company be wound up. I will hear counsel as to the liquidator to be appointed, the initial interlocutory process for appointment of a provisional liquidator having proposed Turner and Scott in the alternative, and a consent not appearing on the file. I will also hear counsel as to costs.
Schedule. 1
THE FURNITURE BUSINESS
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Bendix Consolidated Industries Ltd
Sydney
Bongania Pty Ltd
subsidiary
Office Equipment Manufacturers (S) Pte Ltd
Bendix (Far East) Pte Ltd
formerly known as
formerly known as previously conducted by previously conducted by subsidiary previously conducted by
Tropitone Furniture Co International (HK) Ltd
Burwood Retail Pty Ltd
Tropitone Furniture Co Pty Ltd
Kencord Trading Pty Ltd
[L1]