EVAN Robert Verge as Liquidator of Aerotech Holdings Pty Ltd (in Liq) v Commissioner of Taxation
[1999] WASC 26
EVAN ROBERT VERGE as Liquidator of AEROTECH HOLDINGS PTY LTD (IN LIQ) -v- COMMISSIONER OF TAXATION [1999] WASC 26
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [1999] WASC 26 | |
| Case No: | COR:177/1998 | 12 APRIL 1999 | |
| Coram: | A/MASTER CHAPMAN | 18/05/99 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Application to add further parties refused | ||
| PDF Version |
| Parties: | EVAN ROBERT VERGE as Liquidator of AEROTECH HOLDINGS PTY LTD (IN LIQ) COMMISSIONER OF TAXATION |
Catchwords: | Practice and procedure Additional parties |
Legislation: | Rules of the Supreme Court O81G, O20(3) and (4) Corporations Law s588FF, s588FGA, s588FGB Bankruptcy Act s58 |
Case References: | Brown v The Commissioner of Taxation (1998) Fed Ct Reports 1 Official Trustee in Bankruptcy v C S & G J Handby Pty Ltd (1998) 21 FCR 191) Lyford & Anor v Carey & Anor (1985) 3 ACLC 515 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
and
AEROTECH HOLDINGS PTY LTD (IN LIQ) (ACN 060 502 356)
BETWEEN : EVAN ROBERT VERGE as Liquidator of AEROTECH HOLDINGS PTY LTD (IN LIQ)
- Applicant
AND
COMMISSIONER OF TAXATION
Respondent
Catchwords:
Practice and procedure - Additional parties
Legislation:
Rules of the Supreme Court O81G, O20(3) and (4)
(Page 2)
Corporations Law s588FF, s588FGA, s588FGB
Bankruptcy Act s58
- Result:
Application to add further parties refused
Representation:
Counsel:
Applicant : Mr M A Atkinson
Respondent : Ms L B Price
Applicant : Healy Pynt
Respondent : Australian Government Solicitor
Brown v The Commissioner of Taxation (1998) Fed Ct Reports 1
Case(s) also cited:
Official Trustee in Bankruptcy v C S & G J Handby Pty Ltd (1998) 21 FCR 191)
Lyford & Anor v Carey & Anor (1985) 3 ACLC 515
(Page 3)
1 ACTING MASTER CHAPMAN: This matter came before me on a chamber summons which was originally filed in the District Court. The chamber summons sought that:
2 (1) Pursuant to s44AA(2) of the Corporations (Western Australian) Act 1990 the proceedings numbered COR 2055 of 1996 filed by the applicant on 21 June 1996 ("the Proceedings") be transferred to the Supreme Court of Western Australia for determination.
3 (2) Leonard Samuel Moss and Rhonda Jane Moss, directors of Aerotech Holdings Pty Ltd (In Liq) (ACN 060 502 356) ("Aerotech") be added as respondents in the proceedings pursuant or O81G r20(3) of the Rules of the Supreme Court1971.
4 (3) The costs of this application be in the cause.
5 The District Court made an order in terms of para 1 of the chamber summons and left the order sought in para 2 to be determined by this Court.
6 Although orders were made programming this issue to a special appointment, neither party complied with the orders. The applicant did file written submissions on 7 April 1999, but the respondent failed to file any written submissions. This made preparation for the special appointment difficult, particularly as the issues which were ultimately argued were quite different from the issues which first came before the District Court.
7 In oral submissions, the respondent argues that it seeks to join Mr and Mrs Moss to the proceedings to enable the respondent to seek indemnification from Mr and Mrs Moss in the event the Court ordered the respondent to repay any payment made to the respondent by the applicant. In this regard, the respondent seeks to rely upon O81G r20(3) and (4) of the Rules of the Supreme Court which read as follows:
"20 (3) In any proceeding under the Corporations Law the Court may order that any person who claims to be a creditor, contributory or officer of the corporation, or is otherwise interested in the proceedings, be added as a respondent and give directions as to the further conduct of the proceeding.
(4) Leave may be granted to a person under paragraph (1), and an order may be made adding a person under paragraph (3)
(Page 4)
- on application by the person or by any party or of the Courts own motion."
8 The respondent's application is on the basis that it is a party to the proceedings. In the proceedings, the applicant is seeking an order against the respondent pursuant to s588FF of the Corporations Law on the basis that the respondent has been given an unfair preference under an agreement entered into in November 1994. Section 588FGA of the Corporations Law reads as follows:
"SECTION 588FGA DIRECTORS TO INDEMNIFY COMMISSIONER OF TAXATION IF CERTAIN PAYMENTS SET ASIDE
588FGA(l) [Order against Commissioner under sec 588FF] This section applies if the Court makes an order under section 588FF against the Commissioner of Taxation because of the payment of an amount in respect of a liability under any of the following provisions of the Income Tax Assessment Act 1936:
(a) section 221F (except subsection 221F(12)), section 221G (except subsection 221G(4A)) or section 221P;
(b) subsection 22 1YHDC(2);
(c) subsection 221YHZD(1) or (lA);
(d) subsection 22 lYN(1);
(e) section 222AHA.
588FGA(2)[Directors to indemnify Commissioner] Each person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order.
588FGA(3) [Directors' indemnity is a debt] An amount payable to the Commissioner under subsection (2):
(a) is a debt due to the Commonwealth and payable to the Commissioner; and
(b) may be recovered in a court of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.
(Page 5)
- 588FGA(4) [Powers of Court] The Courtmay, in the proceedings in which it made the order against the Commissioner, order a person to pay to the Commissioner an amount payable by the person under subsection (2)."
9 It is accepted that the payments, the subject of these proceedings, were due to the respondent pursuant to s221F of the Income Tax Assessment Act 1936 and thus it is argued that Mr and Mrs Moss, as directors, are liable to indemnify the respondent.
10 The proceedings are at a stage where the matter is almost ready to be entered for trial. The explanation proffered as to the delay in bringing this application is adequate and I would not decline to make an order on the basis of delay alone. Having said that, the impact which the lateness of the application will have upon the proceedings is, in my view, a relevant factor to be taken into account as is the modest amount of the sum in question.
11 During the course of the hearing, counsel for the applicant advised the Court that the applicant's present position was that it neither consented to nor opposed the adding of Mrs Moss as a party to the proceedings, but that it objected to adding Mr Moss by virtue of the fact that he is an undischarged bankrupt. The applicant argues that the liability contemplated by s588FGA constitutes a provable liability in the bankruptcy of Mr Moss and it is therefore not competent for the respondent to commence proceedings against Mr Moss by virtue of s58(3) of the Bankruptcy Act 1966. The respondent, on the other hand, contends that this is not a provable debt as a liability has not yet arisen.
12 The fact that the debt has not yet arisen, in my view, must be so. By virtue of s588FGA(2), the debt does not arise until the Commissioner has incurred any loss or damage resulting from the order. I respectfully adopt the view of the Court in Brown v The Commissioner of Taxation (1998) Fed Ct Reports 1 where at pp 8 and 9 the Court said:
"Timing of the indemnity payment
That leaves the question of when the directors become liable to indemnify the Commissioner pursuant to s 588FGA(2). The amount payable to the Commissioner is a debt due to the Commonwealth and payable to the Commissioner and may be recovered in a court of competent jurisdiction by the Commissioner (s 588FGA(3)).
(Page 6)
- Section 588FGA(5) is relevant. It provides:
'A person who pays an amount under subsection (2) has the same rights:
(a) whether by way of indemnity, subrogation, contribution or otherwise; and
(b) against the company or anyone else;
as if the payment had been made under a guarantee:
(c) of the liability referred to in subsection (1); and
(d) under which the person and every other person who was a director of the company as mentioned in subsection (2) were jointly and severally liable as guarantors.'
In our opinion once the Commissioner pays an amount to the company or liquidator in accordance with a court order under s 588FF, directors of the company at that time become liable to indemnify the Commissioner in respect of the amount of payment; it is that payment that constitutes 'the loss or damage resulting from the order' of the Court. Once the directors satisfy the indemnity by paying the requisite moneys to the Commissioner then they are treated as if they were guarantors of a principal debt, have discharged their liability as guarantors and now stand in the shoes of the creditor by way of subrogation or, (as subs (5)of s 588FGA provides) 'whether by way of indemnity, subrogation, contribution or otherwise'.
...
We respectfully disagree with the interpretation of s 588FGA adopted by the primary judge. It is true that it is not until the result of the liquidation is known that the ultimate loss or damage suffered by the Commissioner is ascertained. Nonetheless, in our opinion, s 588FGA(2), when it speaks of the 'loss or damage resulting from the order', must be referring to the immediate loss or damage resulting from the Court's order. That is suffered once the payment has been made by the Commissioner to the company or liquidator, and the liability arises then and not later."
(Page 7)
13 If and when liability is called into question, the circumstances of each of the directors may have changed and, in light of the sum involved, this may have an impact upon what, if any, steps to recover the sum are taken.
14 I accept the submission by counsel for the respondent that Mr and Mrs Moss will be relevant witnesses in the substantive proceedings. Some of the issues raised in their evidence may be raised in answer to any claim made by the respondent pursuant to s588FGA of the Corporations Law.
15 In such circumstances, it would usually be desirable to have all of the issues canvassed at the one hearing as it would reduce costs and it is preferable for one judicial person to deal with all of the issues at one time. The question which is raised by this application is whether or not it is necessary to add Mr and Mrs Moss as parties to the proceedings to achieve this result.
16 In respect of the need to join the directors, I was referred to a decision of Brown v The Commissioner of Taxation (supra), where at 5 the court said:
"As mentioned previously, the Deputy Commissioner had cross-claimed against the four directors pursuant to s 588 FGA of the Corporations Law to indemnify the Deputy Commissioner in respect of the loss or damage he might sustain resulting from any order made under s 588FF of the Corporations Law. The cross-claim was required by s 588FGA(1) to be limited to that part of the $235,000 which represented the outstanding tax instalment deductions, that is $180,999.07. His Honour found that the directors were liable to indemnify the Deputy Commissioner under the Corporations Law."
17 While that passage would indicate the directors were parties to the litigation, I consider that pursuant to s588FGA(4), the Court may make an order against a person even though that person may not be a party to the proceedings. Further, once the loss or damage is incurred pursuant to s588FGA(2) the debt becomes due and payable pursuant to s588FGA(3).
18 I am of the view that the question of the indemnification can be canvassed and the decisions made by one judicial person without the need for either Mr or Mrs Moss to be joined as parties to these proceedings. Notwithstanding that fact, in normal circumstances I would be minded to grant leave to join Mr and Mrs Moss, but consider in the particular
(Page 8)
- circumstances of this case that course is not warranted. Having come to that conclusion it is not necessary for me to consider the provision of s58 of the Bankruptcy Act 1966 as it relates to Mr Moss. I have come to the conclusion that it is inappropriate to join Mr and Mrs Moss for the following reasons:
19 (1) This application has been brought at a time when I am told the proceedings are ready to be entered for trial. To accede to the respondent's request is likely to cause the trial of the proceedings to be delayed and the issue in question is between the respondent and the directors and does not impact upon the applicant.
20 (2) The amount in issue is very modest and to formally join the directors will inevitably add to the costs of the proceedings. This is of particular relevance as the liability of the directors, pursuant to s588FGA, might never be called into issue.
21 (3) I accept that the liability of the debt has not yet arisen and may never do so.
22 (4) This matter has proceeded by way of affidavit material. I am of the view that the issues raised by this application can be readily addressed by way of affidavit material and should the Court find itself in a position to consider the question of indemnity by the directors, it has ample power to do so by virtue of the Corporations Law.
23 I would, therefore, not make the orders which have been sought. It may be, however, that some further directions may be required in order for the appropriate affidavit material to be put on, but I will hear the parties on that issue before I formally make any orders.
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