Deputy Commissioner of Taxation v Midwest Constructions Pty Ltd (in Liquidation); in the matter of Midwest Constructions Pty Ltd (in Liquidation)

[2008] FCA 415

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Midwest Constructions Pty Ltd (in Liquidation); in the matter of Midwest Constructions Pty Ltd (in Liquidation) [2008] FCA 415

CORPORATIONS – application for termination of winding up order – applicant director of defendant company demonstrates balance-sheet solvency – Court willing to terminate the winding upon execution of deed of waiver of inter-company indebtedness

Corporations Act2001 (Cth) s 482

DEPUTY COMMISSIONER OF TAXATION AND JAMES ANTHONY KHALIL v MIDWEST CONSTRUCTIONS PTY LTD (ACN 055 434 387) (IN LIQUIDATION); IN THE MATTER OF MIDWEST CONSTRUCTIONS PTY LTD (ACN 055 434 387) (IN LIQUIDATION)
NSD 1265 OF 2007

JACOBSON J
31 MARCH 2008
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1265 OF 2007

IN THE MATTER OF MIDWEST CONSTRUCTIONS PTY LTD (ACN 055 434 387) (IN LIQUIDATION)

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION
First Plaintiff

JAMES ANTHONY KHALIL
Applicant on the Interlocutory Process

AND:

MIDWEST CONSTRUCTIONS PTY LTD (ACN 055 434 387) (IN LIQUIDATION)
Defendant

JUDGE:	JACOBSON J
DATE OF ORDER:	31 MARCH 2008
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The matter be stood over to Thursday, 3 April 2008 at 9.30 am.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1265 OF 2007

IN THE MATTER OF MIDWEST CONSTRUCTIONS PTY LTD (ACN 055 434 387) (IN LIQUIDATION)

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION
First Plaintiff

JAMES ANTHONY KHALIL
Applicant on the Interlocutory Process

AND:

MIDWEST CONSTRUCTIONS PTY LTD (ACN 055 434 387) (IN LIQUIDATION)
Defendant

JUDGE:	JACOBSON J
DATE:	31 MARCH 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This is an application under s 482 of the Corporations Act2001 (Cth) seeking that the winding-up of the defendant company, Midwest Constructions Pty Limited, be terminated. The winding-up order was made on the application of the Deputy Commissioner of Taxation.

2. I have evidence before me which satisfies me that the debt due to the Deputy Commissioner has been paid and that the Deputy Commissioner of Taxation is no longer a creditor of the company. 

3. There is evidence before me in an affidavit of the liquidator, Mr Richard Campbell Brien, sworn 25 February 2008, that the company has a very substantial surplus of assets over liabilities, based upon the information available to the liquidator as to the realizable value of the company’s assets.  The liquidator estimates the value of the assets to be in the order of $2.6 million.  He lists details of various liabilities, the main liability being directors’ loan accounts totalling approximately $1.275 million.  Even if the directors’ loan accounts are taken into consideration, there would still be a surplus of assets over liabilities in the order of $900,000. 

4. Mr Brien, in his affidavit of 25 February 2008, raised a number of issues going to the possible solvency of the company.  Each one of those issues has been dealt with in an affidavit of Mr Khalil, sworn 27 March 2008. 

5. Mr Khalil is the applicant for the order under s 482. He is a director and shareholder of the company in liquidation.

6. A number of the items raised by Mr Brien deal with the question of outstanding tax returns of a partnership of which the company was a partner.  I have evidence that the tax returns have now been lodged. 

7. There was also an issue as to certain unpaid partnership tax and to outstanding business activity statements.  Mr Khalil’s evidence satisfies me that the various outstanding matters to which Mr Brien referred, have now been dealt with.  Significantly, I also have, as  already mentioned, evidence before me from the Deputy Commissioner of Taxation stating that the Deputy Commissioner is no longer a creditor.  This reinforces my view that all outstanding matters have been satisfactorily dealt with. 

8. There was evidence that a debt was due to Suncorp Metway Limited but Mr Khalil’s affidavit satisfies me that this debt has now been paid.  I am also satisfied that various other creditors of the company have been paid in full by a partnership of Stead Properties Pty Limited and J & R & J Investments (“JRJ”).  There is an issue arising out of these payments and I will refer to that below. 

9. However, before turning to this, I should mention that one of the company’s creditors is the National Australia Bank.  It has extended overdraft accommodation to the company of approximately $82,000 but the facility has a total limit of $180,000.  Accordingly, there is approximately $100,000 of unused credit on that facility, if it is restored.  I have evidence before me from the National Australia Bank that the company was in default under the terms and conditions of the overdraft facility by reason of the appointment of a liquidator to the company. The NAB therefore became entitled to commence enforcement action against the company. 

10. However, the NAB has indicated it is prepared to stay enforcement action and to allow the company to continue operating the overdraft facility, in accordance with the terms and conditions contained in its letter of offer.  The effect of this is that subject to the Court making an order terminating the winding-up and subject also to the NAB receiving notification of the Court’s orders by 4 April 2008 and no fresh event of default occurring in the meantime, the overdraft facility will be reinstated, in accordance with the terms on which it was granted.

11. The only other issue which arises is the question of the possibility of subrogation of the debts arising from payments made by Stead Properties and JRJ to which I referred above.  I do not need to set out any further details of this.  It is sufficient to say that I have evidence before me from Stead Properties confirming that it has no claim against Midwest in regard to payment of the trade creditors and sub-contractors relating to the relevant projects in respect of which the payments where made. 

12. The last issue then is the question of the inter-company indebtedness. I have evidence from Mr Khalil in his capacity as a director of JRJ confirming that JRJ intends to forgive the indebtedness, provided of course that the order for termination of the winding-up is made under s 482. I also have evidence from the other director of JRJ, Ms Janette Khalil, who is Mr Khalil’s mother, stating that she also agrees to JRJ waiving the inter-company indebtedness.

13. Mr Golledge who appeared for the company on the instructions of the liquidator, raised with me the status of the evidence on this question because it does not rise above a statement of intention to forgive or waive the debts.  He points out that although on the evidence before me, the company is not insolvent on a balance sheet basis; nevertheless, if the loans were called up, the company may not be able to pay the debt as and when they fall due because the company would need to sell assets to meet the inter-company liability.

14. Mr Russell, who appears for MR Khalil, has told me that JRJ will enter into a deed of waiver and that this can be attended to within the next day or so.  It seems to me in the circumstances that the appropriate course is to indicate that subject to my being satisfied about the execution of the deed of waiver and also about payment of the outstanding fees and expenses of the liquidator I will be prepared to make an order terminating the winding-up of the company. 

15. I propose to stand the matter over to Thursday, 3 April 2008 at 9.30 am.  If in the meantime, consent orders signed on behalf of the liquidator and Mr Khalil are forwarded to my chambers, I will be prepared to make the order terminating the winding-up in chambers. The date from which the winding-up is to be terminated should be the date on which the deed of waiver is signed.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:
Dated:        14 April 2008

Solicitor for the Second Plaintiff:	T Russell of ERA Legal
Counsel for the Defendant:	S Golledge
Solicitor for the Defendant:	F Amirbeaggi of Yates Beaggi Lawyers Pty Ltd
Date of Hearing:	31 March 2008
Date of Judgment:	31 March 2008