Deputy Commissioner of Taxation v Impress Enterprises Pty Ltd
[2013] FCA 1126
•25 October 2013
FEDERAL COURT OF AUSTRALIA
Deputy Commissioner of Taxation v Impress Enterprises Pty Ltd [2013] FCA 1126
Citation: Deputy Commissioner of Taxation v Impress Enterprises Pty Ltd [2013] FCA 1126 Parties: DEPUTY COMMISSIONER OF TAXATION v IMPRESS ENTERPRISES PTY LTD File number: QUD 582 of 2013 Judge: LOGAN J Date of judgment: 25 October 2013 Catchwords: CORPORATIONS – winding up – application for winding up in insolvency – failure to comply with the terms of a statutory demand – winding up not opposed – choice of liquidator – controversy as to whether voluntary administrators should be appointed as liquidators of the company or whether another official liquidator should be appointed – where administrators had done substantial work – whether independence of administrators compromised by past associations Legislation: Corporations Act 2001 (Cth) ss 9, 439A, 459P, 466, 532(2)(c)(i) Cases cited: Deputy Commissioner of Taxation v R & J Percy Pty Ltd [2011] FCA 1266 considered
Glenwood Village Pty Ltd v Glen Alpine Constructions Pty Ltd [2009] NSWSC 516 cited
Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380 cited
Date of hearing: 25 October 2013 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 22 Solicitors for the Applicant: JHK Legal Solicitors for the Respondent: Gadens
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 582 of 2013
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
ApplicantAND: IMPRESS ENTERPRISES PTY LTD
Respondent
JUDGE:
LOGAN J
DATE OF ORDER:
25 OCTOBER 2013
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.Impress Enterprises Pty Ltd (Administrators Appointed) ACN 090 130 019 be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).
2.STEPHEN WESLEY HATHWAY AND TERRENCE JOHN ROSE be granted leave pursuant to section 532(2) of the Corporations Act 2001 (Cth) to consent to be appointed and to act jointly and severally as the liquidator of Impress Enterprises Pty Ltd (Administrators Appointed) ACN 090 130 019.
3.The plaintiff’s costs be fixed in the sum of $4,390.00 and reimbursed in accordance with section 466(2) of the Corporations Act 2001 (Cth).
4.The costs of today’s application, insofar as these costs are not already part of the plaintiff’s costs which are fixed, be costs in the liquidation.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 582 of 2013
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
ApplicantAND: IMPRESS ENTERPRISES PTY LTD
Respondent
JUDGE:
LOGAN J
DATE:
25 OCTOBER 2013
PLACE:
BRISBANE
REASONS FOR JUDGMENT
This is a reference from the Registrar’s Corporations List. A Deputy Commissioner of Taxation has applied for the winding up of Impress Enterprises Pty Ltd (Impress Enterprises) pursuant to s 459P of the Corporations Act 2001 (Cth) (Corporations Act). The basis upon which the Deputy Commissioner seeks the winding up of Impress Enterprises is the familiar one of a failure on the part of a company to comply with the terms of a statutory demand. That statutory demand is based on an indebtedness to the Commonwealth, payable to the Commissioner, in respect of debts arising under Federal revenue law.
Apart from the deemed inability by statute of Impress Enterprises to pay its debts as they fall due, it is common ground today that the company is insolvent. I shall refer to the basis for that being common ground shortly. First, it is desirable to set out a brief chronology of events which have led up to today’s proceeding.
The Deputy Commissioner filed this application for winding up on 2 September 2013. That application was adjourned by consent on 11 October 2013 until today. On 19 September 2013, Impress Enterprises resolved to appoint Messrs Terrence John Rose and Stephen Wesley Hathway as joint and several administrators. A first meeting of creditors was held on 30 September 2013. At that meeting the appointment of Messrs Rose and Hathway as administrators was ratified. Those gentlemen, who are each official liquidators, furnished their report to creditors pursuant to s 439A of the Corporations Act on 17 October 2013.
The report discloses that there are two substantial creditors of Impress Enterprises - the Commissioner, on behalf of the Commonwealth, in respect of whom a debt of $268,151 is set out in the report, and a Mr Andrew Eggleston, in respect of whom a debt of $270,000 is set out in the report. Mr Eggleston is the sole director of the company and the latter debt is apparently a director’s loan-based debt. Other indebtedness of particular note in the report is an indebtedness to Accent Press of $33,052, and to G & W Aston Proprietary Limited of $22,890. In all, according to the administrators’ report, there is an unsecured creditor balance of a total sum of $601,133.
There are a number of other features of the report to which reference needs to be made, having regard to the application for consideration this morning. It is disclosed in the report that, on 17 September 2013, a sale of Impress Enterprises’ business to a related party was finalised. That sale included all assets of the business, as well as intellectual property.
The administrators opine in their report, having scrutinised a business valuation report prepared by a third party firm on 30 June 2013 (Propell Commercial) that the transaction, though not at arm’s length, was nonetheless a sale for commercial value. The amount paid on settlement in respect of that business sale transaction was $64,346. That comprised a sale price of $58,310, together with payment by the purchaser to the company for prepaid rent on its business premises in the amount of $6,036.
The administrators further opine in their report that the director, Mr Eggleston, may have sufficient personal assets to warrant consideration pursuing an insolvent trading action, should one exist. They sound a cautionary note in their report that the Commissioner has a claim against Mr Eggleston personally, arising by virtue of director’s penalty notice debts, and that this:
...will impact on the director’s ability to meet any insolvent trading claim.
They further note that:
… the director appears to have personally provided funding to the company, which indicates a likely defence to any claim.
The foundation for that personal funding may very well be the size of the unsecured debt to Mr Eggleston, which is recorded in the report, and to which I have already referred. As is expected of persons holding such an office, the administrators also disclose in their report particular past associations. The administrators disclose that Mr Hathway had a telephone discussion with Impress Enterprises’ accountant, Mr Gregory Scott of Gregory Scott & Associates, on 3 Jan 2013 regarding the company’s inability to meet its taxation liabilities. They further disclose that Mr Hathway subsequently had a discussion with Mr Eggleston for the purposes of obtaining sufficient information about the company to advise the company and him on the solvency of the company and clarifying and explaining for the company and Mr Eggleston the various options available to the company and the nature and consequences of those.
The administrators further disclose that, on 3 September 2013, Mr Eggleston contacted Mr Hathway to provide an update on the company’s solvency position. They disclose that Mr Hathway again advised Mr Eggleston of the options available and provided a consent on his part and that of Mr Rose to act as administrators. They advise that they received no remuneration for this advice.
The administrators put forward that these particular meetings do not affect their independence for these reasons:
·The courts and the IPA’s Code of Professional Practice have each specifically recognised the need for practitioners to provide advice on the insolvency process and the options available and do not consider that such advice results in a conflict or is an impediment to accepting the appointment.
·The nature of the advice provided to the company is such that it would not be subject to review and challenge during the course of the voluntary administration.
·The pre-appointment advice will not influence their ability to be able fully to comply with the statutory and fiduciary obligations associated with the voluntary administration of the company in an objective and impartial manner.
The administrators recommend in their report that the company be wound up. The second meeting of creditors is to occur this afternoon at 4.00 pm.
The Commissioner presses his application for the winding up of the company. The company, through the administrators, does not oppose the winding up. The controversy lies solely in whether Messrs Hathway and Rose should be appointed as liquidators of the company or whether another official liquidator, a Mr Griffin, should be appointed. The Commissioner seeks the latter.
On behalf of the company, the administrators seek that they be appointed as liquidators upon the winding up of the company. For that purpose, a grant of leave is necessary, see: s 532(2)(c)(i) of the Corporations Act and para (d) of the definition of “officer” of a corporation in s 9 of that Act.
That grant of leave is opposed by the Commissioner. The basis for the Commissioner’s opposition lies in an apprehension on his part that Messrs Hathway and Rose, given the past associations to which I have referred, may not bring that degree of objective detachment to the administration of the company in liquidation as is expected of liquidators under the Corporations Act. The Commissioner particularly points, apart from the declaration of prior interest, to the sale which occurred on 17 September 2013 of the company’s business. The Commissioner submits that there is a particular need for that transaction to be scrutinised, as well as a need, revealed on the face of the report, to scrutinise any insolvent trading transactions and consequential liabilities on the part of a director.
As against that, it is put that Messrs Hathway and Rose have, as is evidenced on the face of their report, already gained a particular understanding of the affairs of Impress Enterprises and gained that understanding at an expense to the company. It is put that there would be an unnecessary duplication of effort were there to be another official liquidator appointed as liquidator of the company on its winding up.
I had occasion in Deputy Commissioner of Taxation v R & J Percy Pty Ltd [2011] FCA 1266 to consider an issue similar to that which arises this morning. In that case at paras 6 to 8, I observed:
6.In Glenwood Village Pty Ltd v Glen Alpine Constructions Pty Ltd [2009] NSWSC 516 at [1] (Glenwood Village v Glen Alpine Constructions), Brereton J observed in respect of the practice of the New South Wales Supreme Court that “all things being equal, it will appoint the plaintiff or the applicant’s nominee as receiver or liquidator where there is a contest as to the identity of the appropriate appointee and there is nothing to be said between the competing nominees as to their respective fitness, qualification or cost.” In so doing his Honour made reference to earlier authority to which it is not necessary today to refer.
7.Much may lie behind his Honour’s qualifying statements “all things being equal,” and “there is nothing to be said between the competing nominees as to their respective fitness, qualification or cost.” His Honour’s reasons for judgment do not disclose whether the observation which he made was made in the context of a corporation which was in voluntary administration at the time when it fell to consider who should be appointed liquidator upon the making of a winding-up order.
8.In contrast, just such a background was present in Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380 (Workers Compensation National Insurer v Perfume Empire). There, Barrett J granted the requisite leave for an administrator to succeed in office as liquidator of the company on its winding up. In so doing, his Honour adverted at [9] to the “substantial work already [performed] investigating a position of the defendant as is evidenced by his report to creditors for the purpose of the administration.” He, too, referred to earlier authority but again it is not necessary today so to do.
These cases are necessarily fact specific as to whether or not a grant of leave is to occur. The same observation may be made as to the opinion voiced in the administrators’ report as to whether past meetings with a director or other officers or advisers of a company do or do not affect the independence of administrators or potential administrators such that they ought not assume office either as administrators or, as the case may be, as liquidators in the event of a winding up.
The nature and extent of a past association and the advice furnished is always a relevant consideration. It should not be thought that there is an inflexible rule that mere advice as to insolvency options always means that there is no obstacle to assumption of office as an administrator or, latterly, as a liquidator. By the same token, it is desirable that persons considering, in their capacity as directors of a corporation, the alternative offered by the Corporations Act of placing a company in administration be advised about that alternative. The Corporations Act invests a considerable degree of public trust in those who have office as official liquidators to provide accurate and dispassionate advice. That investment is made for a public interest in terms of ensuring that officers of corporations have access to advice as to options available.
I can well see, having regard to the contents of the administrators’ report, and particular features of it to which I have drawn attention, why it was that the Commissioner was concerned about the assumption of office of liquidator by Messrs Hathwell and Rose. It is unusual to see, after a winding up application has been made, a sale of business transaction occur; equally though it must be said that that unusual transaction has been scrutinised by the administrators. Further, it is apparent on the face of their report that the value struck for the purposes of the sale was one which was informed by third party advice. The administrators have inferentially made their own forensic accounting value judgment about the worth of that advice in furnishing their report to creditors.
The pool of assets in respect of this company is not large. The administrators opine in their report that the prospective dividend to creditors, at least as they are presently advised, is in the order of 15 cents to 30 cents in the dollar. The circumstances of this case are such that there is an interest on the part of all creditors in minimising, to the extent possible, the costs of the winding up.
That goal will be achieved best, in my opinion, if Messrs Hathway and Rose assume the office of liquidators, jointly and severally. Obviously enough, that involves a value judgment, but that is a value judgment consigned to the Court by s 532 of the Corporations Act. I am not persuaded that their past associations are such as would require the appointment of another person as liquidator with all of the attendant additional costs for the company that one might apprehend that will entail while that officer becomes familiar to the extent that Messrs Hathway and Rose already are with the affairs of Impress Enterprises.
For these reasons, and noting that there is a consent on the part of Messrs Hathway and Rose to act as liquidators on the file, and that there is no particular interest served that I can see by the holding of a second meeting of creditors, the orders of the court are as follows:
1.Impress Enterprises Pty Ltd (administrators appointed) ACN 090 130 019, be wound up in insolvency pursuant to the provisions of the Corporations Act 2001.
2.Stephen Wesley Hathway and Terrence John Rose be granted leave pursuant to section 532(2) of the Corporations Act to consent to be appointed, and to act jointly and severally, as the liquidators of Impress Enterprises Proprietary Limited (administrators appointed) ACN 090 130 019.
As to costs, the further order I make is, first, that the plaintiff’s costs be fixed in the sum of $4,390 and reimbursed in accordance with section 466(2) of the Corporation Act. I further order that the costs of today’s application, insofar as those costs are not already part of the plaintiff’s costs, which I have fixed, be costs in the liquidation. The intent of that is not that the Commissioner gets twice rewarded in costs, but rather that the costs of the administrators in bringing the leave application be included in the costs of the liquidation.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 8 November 2013
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