Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd; Deputy Commissioner of Taxation v Kencord Manufacturing Pty Ltd

[2004] VSC 186

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:	18 May 2004
DATE OF RULING:	18 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 186

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Application for stay of coming into effect of order – Considerations for grant or refusal

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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

HIS HONOUR:

1. The only question that now requires resolution is that concerning the application made by each company that the winding up order be stayed for a period of time.  Mr Watts has sought a period of one or two weeks on the coming into effect of the order, that period is sought as a time within which to prepare a notice of appeal and obtain a hearing before the Court of Appeal on an application for a further stay pending the hearing and determination of the appeal and, depending on whether a stay is granted as sought, under s.471A(1A) of the Corporations Act for approval for the director of the companies to be able to prosecute the appeal.  Of course, it is always open to a liquidator to give such approval.

1. It is recognised that once a trial judge has given judgment and made orders in accordance with the judgment, it is a matter for the Court of Appeal to determine the question of a stay on a proceeding pending appeal.

1. If I were to grant a stay it would only be for a most limited time within the scope of that which Mr Watts has sought.  The stay is sought on the basis that if the winding up orders take effect, the companies will be irrevocably affected, or at least affected in a way that if the appeals were successful and the winding up orders were set aside, it would not be possible to restore the companies to their present position.  Hence, it is said, the appeal would be rendered nugatory.

1. The present position of the companies is, it would seem, to be gauged from the matters that were advanced before me at trial and which are referred to in the judgment as to the operations of the two companies.  In addition to that, Mr Islam, as a director of Casualife Furniture International Pty Ltd, has sworn an affidavit filed in that proceeding in which he has, in support of an application for a stay, referred to some matters concerning Casualife, in particular as to present orders and hopes for future orders.  He says little about Kencord and that is perhaps understandable because as he states in the affidavit, Kencord is a mere provider of labour although it has 14 employees and Casualife only six.  They are matters, that is to say the matter of organisation of the business involving Casualife and Kencord that I have dealt with the in the judgment and it is not necessary to repeat any such matter.  I note that no affidavit has been filed on behalf of Kencord but Islam states that Kencord’s director, Antony Guss, is overseas.  It is not clear to me that that explains the absence of an affidavit from Kencord as to its position.

1. It has been pointed out by Ms Richards that the affidavit of Islam does not condescend to detail at all as to the present solvency position of the companies, it does not identify the debtors and creditors as they now are, it does not identify how the business has travelled since it was last the subject of evidence before me some time ago.  This is not an idle point, as the following disclosure made all too apparent.  The disclosure came from the Bar table, initially from Mr Watts having first been advised of these matters by counsel for the Deputy Commissioner.

1. Islam did not disclose what has been conceded before me this morning, namely that the companies are in default in compliance with their taxation obligations in the very respects that were the subject of much agitation and enquiry at the trial and upon which I made findings in the judgment.

1. Astonishingly, if I may say so, because of the emphasis that was placed on compliance with the requirement to lodge business activity statements and pay tax due, I am now told that Casualife last lodged a business activity statement for the quarter ended 31 March 2003 and, while there is some doubt as to whether Kencord's last business activity statement was lodged as Ms Richards said for the quarter ended 31 December 2002, it is accepted by her, for present purposes at least, and I act on that basis, that its last business activity statement was lodged in respect of the quarter ended 31 March 2003.  That is to say, in the case of each company a year has gone by since a business activity statement was lodged and tax was paid. 

1. It is true, as Ms Richards said, that at trial she submitted that if left free to do so, that is to say not being wound up, the defendants would continue in their past history of non compliance with their taxation obligations.  I have made findings as to that myself in my judgment, that the past history was likely to repeat itself.  And here we are now the day after judgment has been delivered and with the blow torch of the test of time being applied, the truth of the submission at trial is established by actual conduct.  It is astonishing, indeed contemptuous behaviour by these taxpayers to conduct themselves in this way.  Let us remind ourselves of the chronology.  The evidence was completed in December 2002 with much attention giving to compliance with the obligation to lodge business activity statements and pay tax, both for the defendants and three related companies.  It seemed they had brought themselves to compliance.  I heard final addresses on 24 March 2003.  There has been nil compliance by the defendants since the quarter ended 31 March 2003, even while judgment is pending. 

1. The failure to meet the obligation to pay tax can be an indication of financial difficulty, which takes one back to the insufficiency of Islam’s affidavit.

1. The case itself was difficult for the reason that it involved many facts and the use of similar names for corporate entities, and the judgment has sought to trace the network of movement in and between the business and the relevant entities; but the complexity which led to substantial time in preparation of the judgment, cannot lead one to overlook the strength of the case that led to the ultimate conclusion.

1. If I were to grant a stay, I would do so for only one week.  The question is one of balance, of weighing the competing considerations.  I bear in mind the statements in Cellante v G. Kallis Industries Pty Ltd[1], and I notice that in the case a few years ago of Warren J, as her Honour then was, in ASIC v. ABC Fund Managers Ltd[2], her Honour referred to those principles and granted a very short stay in a case in which Her Honour had ordered winding-up of a number of companies. 

   [1][1991] 2 VR 653.

   [2][2001] VSC 396

1. I come to the conclusion in this particular case that a stay should not be granted.  The circumstances are unusual, indeed extreme.  The two defendants have failed after stoutly resisting the case.  They were in effect forced by the existence of the trial to bring themselves, and three other companies, into compliance with their tax obligations.  There is a track record of non-compliance.  Then, while judgment was pending, they again fell into non-compliance in observing their taxation obligations, thus manifesting a continuing disdain for compliance with the law.  I have no doubt that if a liquidator is not in place the non-compliance will continue, notwithstanding the existence of an appeal.  It is not a satisfactory or sufficient answer to say that the Deputy Commissioner can pursue her remedies; that was the argument at trial and the sincerity and reliability of it can be measured by the defendants’ conduct post trial and pending judgment.  I also have regard to the failure of the Islam affidavit to disclose these matters and to tell me about solvency.  Quite simply, the affidavit was not frank and, as such, I regard it as unreliable.  I am mindful of the submissions of Mr Watts as to the appeal possibly being rendered nugatory if a stay were not granted, but I do not accept that that has been demonstrated or is of such likelihood as to outweigh the other considerations, and the public interest, which weigh in favour of a liquidator taking immediate control of these companies. 

1. I propose therefore, to make the following orders:

(1)In each case there will be an order for winding up on the just and equitable ground.

(2)       There will be an order for the appointment of David Henry Scott as liquidator.

(3)There will be an order for costs in the terms of paragraph 6 of the minutes of orders provided by Ms Richards.

(4)There will be a further order that the defendant's application for a stay on the operation of these orders be refused.