Guss v Deputy Commissioner of Taxation
[2014] FCCA 1789
•25 July 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| GUSS v DEPUTY COMMISSIONER OF TAXATION | [2014] FCCA 1789 |
| Catchwords: BANKRUPTCY – Director penalty notices – review of summary judgment – no matter of principle – application dismissed. |
| Legislation: Acts Interpretation Act 1901 (Cth), s.29 |
| Australasian Asiatic Trading & Engineering Co Pty Ltd v Forsyth-Grant [1954] VLR 752; [1955] ALR 212 City Mutual Life Assurance Society Ltd v Giannarelli [1977] VicRp 53; [1977] VR 463 Croker v Commissioner of Taxation [2003] FCAFC 23; (2003) 52 ATR 226 Dennis v Tubb [2012] FMCA 26; (2012) 256 FLR 475 Guss v Deputy Commissioner ofTaxation [2005] FCA 1499 Guss v The Deputy Commissioner ofTaxation [2006] FCAFC 88 Guss v Deputy Commissioner of Taxation of the Commonwealth of Australia [2006] HCATrans 628 Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 (11 August 1983) Lewis v Lamb [2012] FMCA 392 Re Zagoridis; Ex parte Q’Plas Group Pty Ltd [1990] FCA 459; (1990) 27 FCR 108; (1990) 98 ALR 718 |
| Applicant: | ANTONY DAVID GUSS |
| Respondent: | DEPUTY COMMISSIONER OF TAXATION |
| File Number: | MLG 1877 of 2013 |
| Judgment of: | Judge Riethmuller |
| Hearing dates: | 16, 18 and 25 July 2014 |
| Date of Last Submission: | 25 July 2014 |
| Delivered at: | Melbourne |
| Delivered on: | 25 July 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr J. Guss |
| Solicitors for the Applicant: | Joseph Guss |
| Counsel for the Respondent: | Mr Connard |
| Solicitors for the Respondent: | Bronwyn Simmonds, Australian Taxation Office, Dispute Resolution |
ORDERS
The Application for Review filed by Mr Antony David Guss on 11 March 2014 be dismissed.
The Deputy Commissioner of Taxation’s costs of the application for review, including reserved costs, be paid from the estate of the bankrupt with the same priority as if they were costs of the creditor’s petition.
Pursuant to s.52(3) of the Bankruptcy Act 1966, all proceedings under the sequestration order, except for the requirement of the bankrupt to file his statement of affairs, be stayed for a period of 21 days.
The Applicant within 14 days:
(a)Make and file with the Official Receiver a statement of his affairs; and
(b)Furnish a copy of the statement to the trustees in bankruptcy.
| FEDERAL CIRCUIT COURT AT MELBOURNE |
MLG 1877 of 2013
| ANTHONY DAVID GUSS |
Applicant
And
| DEPUTY COMMISSIONER OF TAXATION |
Respondent
REASONS FOR JUDGMENT
(As Revised from Transcript)
This is an application for review that was filed on 11 March 2014 seeking to review a decision of a Registrar made on 4 March 2014 to sequestrate the debtor.
As this is a review application from a decision of a Registrar, it proceeded as a hearing de novo on the creditors’ petition that had been filed on 7 November 2013.
The creditor alleges a debt of over $59,000 in the creditors petition, being over $35,000 based on a judgment in the Magistrates’ Court of Victoria, entered on 11 December 2006, for a little over $21,000, and interest that has since accrued, and a running balance account deficit which is a little over $19,000 and said to be owing to the Tax Office.
The debtor opposes the sequestration order on a number of bases. The debtor says that:
a)The judgment in the State Magistrates’ Court should be set aside as of right;
b)That the warrant that was issued and based upon the judgment is invalid;
c)That the warrant was not returned unsatisfied within the meaning of the Bankruptcy Act, and so, therefore, no act of bankruptcy actually occurred; and
d)In the event that those technical hurdles are all overcome by the Tax Office, that there is not a debt that is due and owing and, as a result of the judgment in the Magistrates’ Court when one turns to consider the underlying cause of action; and further
e)That there is not presently any amount owing with respect to the running balance account.
The matter first came before me on 25 March 2014 when I stayed the sequestration order made by the Registrar and directed the filing of material and set an early hearing on 17 April, given the stage that the matter was at of a sequestration order already having been made. On 17 April 2014 I set a hearing date, to hear the matter in its entirely on 30 June 2014. It was then adjourned to 18 July 2014, because proceedings were still pending in the State Courts to try and set aside the judgment. On 18 July 2014 I proceeded to hear the matter.
The Judgment in the Magistrates’ Court of Victoria
The judgment in the Magistrates’ Court was entered on 11 December 2006. It transpires that the Magistrates’ Court destroys their files after five years, a fact which seems remarkable given that it is a Court and there are many cases where the judgments are pursued after five years. However, that is the circumstances that the Court confronts. The Magistrates’ Court has only a log, or computerised log/record of the events that took place, although many of the documents were able to be produced by the creditor in this case from their own records.
The basis of the claim was director penalty notices issued under the Income Tax Assessment Act 1936 based upon debts that arose as a result of estimates issued under the Income Tax Assessment Act 1936 following the failure of a company (of which the debtor was the sole director) to lodge appropriate documents with the Tax Office. These provisions are contained in Divisions 8 and 9 of the Income Tax Assessment Act 1936.
The notices themselves were, at the time, the subject of significant formal challenge under the Administrative Decisions (Judicial Review) Act 1977 in the Federal court system. The initial judgment was given in Guss v Deputy Commissioner ofTaxation [2005] FCA 1499 on 26 October 2005. The facts that were placed before the Court as the starting point for that judgment appear at paragraph 12, where it is said:
12. At all relevant times, the applicant was the sole director of Bongania Pty Ltd. On about 24 June 2004 the respondent estimated, pursuant to s 222AGA of the ITAA, the amount of the liability of Bongania under s 16-70 of Schedule 1 to the TAA. The respondent sent written notice of the estimate to Bongania in accordance with s 222AGB of the ITAA. Accordingly Bongania became obliged, pursuant to s 222AHA, to pay the amount of the estimate. The applicant became obliged, pursuant to s 222APB, to cause Bongania to do at least one of the things listed in s 222APB within fourteen days. He did not do so, and accordingly he became liable, pursuant to s 222APC, to pay by way of penalty an amount equal to the unpaid amount of the estimate. On or about 28 June 2004 the respondent sent written notice to the applicant in accordance with s 222APE. A covering letter informed the applicant that action to recover the penalty would be taken without further notice if, after the end of fourteen days from the date the penalty notice is given to him, the penalty had not been remitted. On 20 July 2004 the respondent instituted proceedings in the Magistrates Court of Victoria for recovery of the unpaid amount.
The Federal Court dismissed Mr Guss’ application, and the matter went on appeal, which is reported in Guss v The Deputy Commissioner ofTaxation [2006] FCAFC 88. The appeal was dismissed on 8 June 2006. The matter then progressed to the High Court where special leave was sought. The special leave application was refused, as appears in Guss v Deputy Commissioner of Taxation of the Commonwealth of Australia [2006] HCATrans 628 on 10 November 2006.
It appears clear that the Deputy Commissioner of Taxation, through relevant officers, requested a relisting of the case that was then pending in the Magistrates’ Court of Victoria immediately following the dismissal of the special leave application, so that the Commissioner could seek summary judgment. The Court records show that the notice of listing was issued. The evidence is that it would have been posted to the parties on 28 November 2006. It seems that the notice was re-issued on 6 December, which, from the evidence given by the Registrar of that Court, indicates that one of the parties must have attended at Court to seek another copy of the notice, although it’s not clear which party that was.
I pause here to say that, having seen the Registrar of the Magistrates Court in the witness box and heard his evidence, I have no hesitation in accepting the evidence that he gave in this case.
The notice of listing issued as a result of a letter unilaterally sent to the Court by the officers of the Deputy Commissioner. It seems to me nothing turns on that for the purposes of this case, as it is clear from the Court records that a notice of listing was issued, and in the ordinary course of business which I accept on the balance of probabilities was sent to the parties by ordinary post to their addresses for service.
There was no appearance on the listing date and summary judgment was granted by the State Magistrates’ Court. The judgment must have been known to the debtor, at least by 2010, if not 2009, as there was a bankruptcy notice at this time and an application to set aside that bankruptcy notice which relied upon the judgment in this case. Despite this, the debtor appears to have done nothing about the judgment that had been entered against him in the State Magistrates’ Court back in 2006 until the creditors’ petition was brought in this Court to seek a sequestration order.
The adjournments of this application where to allow sufficient time for the applicant to return to the State Magistrates’ Court to seek to have the judgment set aside. That application was refused by Magistrate Holzer when the matter came before him in the Magistrate’s Court. The refusal is now the subject of a judicial review application that has been lodged in the Supreme Court of Victoria. However, there is not, in fact, a right of appeal from such a decision, as it is an interlocutory order, (as appears from s. 109 of the Magistrates’ Court Act1989).
The judicial review proceedings were commenced by an originating motion issued under s.56 of the Supreme Court (General Civil Procedure) Rules 2005. Under the Rules of the Supreme Court in this regard, no date is set nor any further steps required until such time as the applicant issues a summons for directions. To date no summons for directions has, in fact, been issued.
The debtor’s case, as run before me, was on the basis that the application to set aside the judgment in the State Magistrates Court was run only on the basis that the judgment was irregularly entered and, therefore, it was argued that the judgment should be set aside ex debito justitiae. This is the standard form of argument in cases involving default judgments which are entered by the parties in accordance with the Court Rules at the registry. An application to set aside the judgment on the merits (that is, that the debtor has an arguable defence) was not made to the State Magistrates’ Court.
The basis of the application was simply that the debtor had not received notice of the listing and, therefore, should have an absolute right to have the judgment set aside. The argument, whilst it sounds simple on its face, is more difficult in this case. I accept the Registrar’s evidence about the business processes and the usual practices of the State Magistrates Court. In these circumstances I am persuaded, on the balance of probabilities that the notice of listing would have been sent out by post. The only evidence to overcome the provisions with respect to posted material being received or delivered, is evidence from a solicitor by way of affidavit some seven years later, simply saying that he does not recall ever having received it. The debtor also says that he did not get the notice. It seems to me that this is merely evidence of non-receipt and not evidence of non-delivery: see Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 (11 August 1983). I am not persuaded that there is sufficient evidence to overcome the presumptions in s.49 of the Interpretation of Legislation Act 1984 (Vic) and s.160 of the Evidence Act 2008 (Vic).
Nothing was done about this between 2010 and when the proceedings commenced, which, in the circumstances, also leads me to place little weight upon the claims about non-notice, or non-receipt of notice, many years after the relevant events.
It is not surprising that the State Magistrate did not accept the arguments about lack of notice. I am not persuaded that there was an irregularity in the entering of the judgment with respect to the issue of notice.
In any event, even if there were some irregularity in this regard this was not a default judgment, but a summary judgment that was sought and obtained. There is a difference between the two, as was identified in Australasian Asiatic Trading & Engineering Co Pty Ltd v Forsyth-Grant [1954] VLR 752; [1955] ALR 212. The distinction is significant, as is identified by Cairns in Australian Civil Procedure, (5th Edition), at page 389, where the learned author sets out that the rules with respect to setting aside judgments in circumstances where there was a summary judgment application – as opposed to a default judgment – are different in that one must rely upon rules that allow for the setting aside of a judgment in the absence of the parties, or the appeal processes, in order to attack such a judgment.
In these circumstances, if there is provision in the rules of the State Magistrates Court, (as there is in the Federal Circuit Court and the Federal Court), allowing a party who was absent at the time that judgment was entered to apply to set that judgment aside without having to take the course of appeal, the debtor would need to show as one of the relevant of the discretionary factors some arguable defence. No arguable defence was set out before the State Magistrates Court. In these circumstances, it does not appear to me that there is an arguable error on the part of the State Magistrate.
I have also reflected upon the fact that, in any event, there remains a discretion, not to set aside an irregularly entered default judgment, as was discussed in The City Mutual Life Assurance Society Ltd v Giannarelli [1977] VicRp 53; [1977] VR 463 and that in circumstances where there has been such a lengthy delay in the face of clear knowledge of the judgment, it would not be surprising that the discretion were exercised not to set aside the judgment unless there was at least some evidence to show an arguable defence.
Therefore, the argument that this is not a valid judgment of the Magistrate’s Court appears to me to fail. Even if I would be wrong in this regard, (and it is a judgment of that Court that was irregularly entered) it remains a valid judgment of the court under the court rules that are applicable in the Magistrates’ Court of Victoria. Importantly, r.2.01 sets out that non-compliance with the rules is a mere irregularity.
The substance of this rule is the same as r. 5 of the District Court Rules in Queensland at the time of the decision of Re Zagoridis; Ex parte Q’Plas Group Pty Ltd [1990] FCA 459; (1990) 27 FCR 108; (1990) 98 ALR 718. The judgment that was entered was clearly within the jurisdiction of the State Magistrates’ Court at the time and therefore valid for the purpose of showing a judgment debt had been entered for the purposes of the Bankruptcy Act. It is not a case where the judgment is obviously outside of that Court’s jurisdiction as was contemplated in Croker v Commissioner of Taxation [2003] FCAFC 23; 52 ATR 226 or Dennis v Tubb [2012] FMCA 26. It was not, in my view, a nullity such that a warrant could not therefore issue on it under the Magistrates’ Court Rules.
I turn, then, to consider the question of the issue of the warrant of execution. It was argued that the warrant was not valid as it was issued more than six years after the date of judgment. Rule 27.02 of the Magistrates’ Court Civil Procedure Rules 2009 (SR NO 49 of 2009) has no six year time limit in it with respect to the issuing of warrants of execution. I note that the limitation period under the Limitations of Actions Act 1958 would certainly apply although this is a 15 year period; see s.5(4). The Supreme Court (General Civil Procedure) Rules 2005 contains (in r.68.02), a provision requiring leave to issue a warrant after six years.
It was argued that r.1.12 of the Magistrates’ Court Civil Procedure Rules 2009 (SR NO 49 of 2009) provided for reference to be made to the Supreme Court Rules, then r.68.02 applied in the Magistrate’s Court. That Rule provided:
REG 1.12
Procedure wanting or in doubt
Where the manner or form of the procedure –
(a) for commencing, or for taking any step, in a proceeding; or
(b) by which the jurisdiction, power or authority of the Court is exercisable –
is not prescribed by these Rules or by or under any Act the general principles of practice and the Rules and forms observed and used in the Supreme Court may, at the discretion of the Court, be adopted and applied to any proceeding with such modification as may be necessary.
I do not accept such an argument. Rule 1.12 is only engaged where there is a gap or lacuna in the State Magistrates Court Rules. It does not appear to me that the State Magistrates’ Court Rules have a gap or lacuna. The Rules make adequate provision within themselves with respect to execution on judgments issued in that court. They simply do not impose a requirement for leave after 6 years. The rules make provision for execution to issue. There is no need to refer to the Supreme Court Rules and no necessity to have a rule relating to the need for leave after six years.
Indeed, it does not surprise me that a court of much lower jurisdiction would have more flexible rules that do not impose a further burden of seeking leave upon parties in these types of circumstances.
In any event, the relevant rules that the debtor needs to rely upon to even make this argument are the 1999 Rules. The warrant was issued after the 2010 Rules came into force which no longer had the six year time limit. It seems to me that the rules that applied were the rules that were in force at the time that the warrant issued, and that it was not necessary for the registry to go back and apply the rules that were in force at the time that the judgment was entered. In these circumstances, the argument falls away entirely in any event.
Even if I would be wrong in both of these determinations, the matter still comes back to rule 2.01 of the Magistrates’ Court Rules which provides for these matters to be mere irregularities and not steps that are void or, as is sometimes referred to in the cases, nullities. This coupled with the reasoning in Zagoridis leads me to the view that, at the very least, the warrant was valid for the purpose of the Bankruptcy Act and the determination of whether or not an act of bankruptcy occurred on the basis that the warrant was returned unsatisfied.
I turn then to consider the arguments around the endorsement with respect to the warrant being returned unsatisfied. Counsel for the debtor made a carefully constructed argument based upon the distinction between an unsatisfied warrant and an effectively unexecuted warrant. In particular, he referred to Lewis v Lamb [2012] FMCA 392, the relevant passage of which appears at paragraph 58 and 59 where his Honour, Federal Magistrate Smith (as his Honour then was), said:
58. … in effect, the sheriff’s attendance at the nominated premises and his subsequent conversation with Mr Lamb only revealed that the address given by the judgment creditor was not a location at which there was, or could be expected to be, any property of the debtor available for execution. The sheriff’s activities revealed only that Mr Lamb had some undefined connection with a business conducted at the premises by an entity which was not the debtor. They were far from negating the presence of property of Mr Lamb situated within NSW which might be capable of seizure for levy. They revealed that no further attempts were made by the sheriff, including by inquiries of the creditor, to locate and levy property of the debtor within NSW. Far from assisting or allowing a proper attempt at execution of the writ, the creditor instructed the sheriff to return the writ without giving any instructions which would have allowed a proper attempt at execution. It is significant that the return shows that at no time did the sheriff “cause a copy of the writ to be served on the judgment debtor or left in a conspicuous position at the place where the writ was executed” as required by UCPR r.39.18 “on executing the writ”.
59. In my opinion, the effect of the documents constituting the sheriff’s return was to show that he had, in fact, returned the writ ‘unexecuted’ as distinct from ‘unsatisfied’, as a result of instructions from the creditor. I am therefore not satisfied that the act of bankruptcy under s.40(1)(d)(ii) is established for this reason, as well as because of the defect in the writ itself.
In this case, the sheriff attended at the address that was known, was not permitted entry, and although he saw some vehicles, saw no property of the debtor against which he could execute. The sheriff later saw the debtor and spoke to him where after initially being asked to speak to his solicitor, he was told by the debtor that the debtor had no assets and that the debtor did not have a key to the property that had earlier been visited by the sheriff.
It seems to me that this situation is quite different to the facts that were being considered in Lewis v Lamb. It was not simply a circumstance where the sheriff was diverted by being told to send the warrant away or to send it back to the solicitors, but one where the sheriff attempted to find assets to execute against, made reasonable inquiries and was directly advised by the debtor that there were no assets upon which he could execute the warrant. In my view, the facts of this case indicate that the warrant was, in fact, returned unsatisfied and that therefore an act of bankruptcy has occurred within the meaning of the Bankruptcy Act.
At this point it is appropriate to turn to the further defences that may be available. There is no evidence of solvency in this case, so the remaining defence is whether or not in truth there is debt due and owing by the debtor to the Commissioner of Taxation. The Commissioner relies upon two debts in this case. One is a Running Balance Account (RBA) debt which is a liquidated debt under s. 8AAZH of the Taxation Administration Act1953 (Cth), and the other is the debt that underpins the judgment in the State Magistrates’ Court.
Turning first to the RBA debt. The RBA debt was sworn by Mr Zafiriou, an officer of the Australian Tax Office. Mr Zafiriou appears to have been the officer involved in dealing with the debtor and his related entities for many years. He gave evidence not only with respect to the RBA but also with respect to the estimates issued to the company and the director’s penalty notices.
He was cross-examined by counsel for the debtor. He appeared to me to give his evidence in a straightforward fashion. Whilst he showed a little nervousness, one would ordinarily expect this from a person who does not regularly give evidence and has to enter the witness box on an obviously technical and difficult issue that has been running for some time. On the whole, I found his evidence impressive.
I note the attacks that were made upon him that he was pursuing some form of vendetta against the debtor. It does not seem to me that there is any substance in these suggestions and, indeed, on the material that is before the court, frankly, it seems to me that such suggestions to this witness were nothing short of scurrilous. He is a tax officer who, on the evidence here, has been pursuing his obligations as an officer of the ATO to enforce the provisions that impose tax and take reasonable steps to ensure the proper collection of that tax. I accept his evidence generally and without any hesitation.
He gave evidence that the RBA shows a debt of over $19,000. A copy of the RBA was annexed to his affidavit. He was cross-examined at some length on the basis of a defence that the RBA contained debits which arose because of a failure to pay provisional tax but did not contain corresponding credits when it transpired that the provisional tax did not become a tax that was owing on an actual tax assessment. This was taken to some detail with respect to the 2010/11 tax year to explore how the RBA operated in conjunction with a notice of assessment and the income tax account that is also kept by the Tax Office.
In the 2010/2011 year one can see in the RBA two debit entries which relate to provisional tax each for $1,312 with respect to that financial year: a total debit on the RBA of $2,624. The income tax assessment account shows a credit of $2,624 for that year. The notice of assessment for that year – which I pause to note was not actually produced by the debtor but fortunately was annexed to an earlier affidavit by another officer from the tax office – shows that when the tax was properly assessed for that year on the return there was, in fact, a nil tax liability.
The assessment shows that there was a credit for the provisional tax assessment of $2,624 which represented the debit that is existing on the RBA and a refund of $2,624 which is represented by the credit on the income tax assessment account. The evidence of the witness was that the income tax assessment account balance has been taken up against the RBA balance and, in this case, that appears to have occurred on 4 February 2014. Therefore the debit entry that first appeared on the RBA has been completely offset by the credit entry that flows from the income tax assessment account caused by the crediting back of a refund amount representing the debit that was placed on the RBA account for the provisional tax assessment.
The result of it is that when one looks at all three documents together it is clear that the Tax Office have, in fact, properly credited the debtor in circumstances where a debit has appeared on the RBA but not transpired into an actual liability by way of assessment. I am not persuaded at all that this indicates any form of accounting error which results in an incorrect amount being set out in the ultimate balance of the RBA upon which the Tax Office relies.
During addresses, the attack upon the RBA was expanded to include a suggestion that because the copy of the income tax account (in the annexures to the affidavit), only covers a limited period that there were earlier periods where there may be some errors. The earlier statements of the income tax assessment account were not formally sought and did not appear to be an issue in the litigation until final addresses. I am not persuaded that on the material before me I should proceed on any basis other than a finding that the debt shown on the RBA is anything other than a debt presently due and owing to the Commissioner of Taxation, of which the RBA is prima facie evidence under the Act.
Turning then to the director’s penalty notice issues. There is no dispute in this case that the debtor was the sole director of the company involved in this part of the case. There is no dispute that the company failed to lodge documents with the Tax Office and that estimates were issued by the Tax Office and that they were received by the company. There seems to be no dispute that the company failed to pay and that the director’s penalty notices had issued to the debtor. There is certainly no dispute that the debtor has failed to pay. The issues are whether or not the notices and DPN’s were, in fact, received by him and whether or not he has any statutory defence.
The evidence of Mr Zafiriou with respect to the posting of the notices was challenged. It was suggested that in the context of this case the failure to produce a photocopy of the envelope or to set out more detail in the affidavit around the actual physical process of enveloping, attaching postage and posting the notices, is such that I should not accept that the notices were duly posted by the Tax Office officer. Reference was made to a decision in another court where this issue gained some considerable weight. In the context of the facts and circumstances of this particular case I am persuaded that the notices were duly posted, as the evidence of Mr Zafiriou stated. Whilst the lack of more detail in some cases, (having regard to the presentation of the witnesses and surrounding circumstances), may be of significance, in this case it does not appear to me to be significant and certainly does not lead me to doubt the evidence that was given in this regard. There is no suggestion that the addresses that they were posted to were not the appropriate addresses.
The notices were, it seems to me, therefore given in accordance with the statutory provisions. I accept the notices were duly posted to the address in the ASIC records. The presumptions under s. 29 of the Acts Interpretation Act 1901 (Cth) and s.160 of the Evidence Act apply. I do not accept there is evidence sufficient to raise doubt about the presumption. Noticeably the evidence only goes to non-receipt not non-delivery (see Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 (11 August 1983)). The arguments then turn to questions of the validity of the notices.
There was an argument that because the notices related to six identical amounts of $4,104 which were not totalled in the notice but set out seriatim, that the notice was not valid. The argument proceeds on the basis that this was either misleading or unclear. It does not appear to me that there is any specific statutory rule or requirement that the amounts in the notice must necessarily be totalled. Perhaps, in some cases, the notices may be of such length and the amounts so varied that some totalling may be required, (for example if the amounts run for pages), to ensure that a person understands the total amount required by the notice. In circumstances where there is only six identical amounts it does not appear to me that it could be considered unclear or misleading and certainly not outside the statutory requirements with respect to the notice.
It was also alleged that the notice was not a proper notice or bona fide exercise of power because it contained a statement that the Commissioner would be reluctant to enter into a payment agreement to pay in circumstances where the debt originally arose from an estimate. In this regard I note, first, that there is no obligation in the statute to require the Commissioner to make an agreement or impose upon the Commissioner any particular method or mode of conduct in approaching the question of an agreement. Rather the Act allows the Commissioner an option to enter into an agreement rather than leaving the Commissioner in the position where he or she is obliged to pursue a notice and payment of the debt rather than entering into a practical or pragmatic agreement with the taxpayer.
Secondly, the statement in the notice does not appear to me to foreclose the issue of whether or not the Commissioner may, in fact, enter into an agreement. It does not indicate, in the context of this case, any improper purpose or failure to genuinely issue a notice in accordance with the Act and the proper interests of the Commissioner.
It seems to me that, even on basic principles, it is obvious that the Commissioner of Taxation would be concerned about circumstances where the debt arose from estimates which only issued because the company (being run by the debtor as the sole director) had not fulfilled its obligations under the Tax Acts. These circumstances would ordinarily put a regulator on notice to have real concerns about the state of affairs, and in the absence of some explanation or at least belated compliance would ordinarily, one would expect, lead to the Commissioner being reluctant to enter into payment agreements. If anything, it seems to me that such a statement in the notice was reasonable notice to the debtor about the circumstances that he objectively faced so as to focus his mind upon what he might need to do to properly attend to the notice. I find that the notice was a proper notice under the Act, valid and effective.
I turn then to the question of defences, first of all, with respect to s.222APB of the Income Tax Assessment Act 1936 and the steps that can be taken when an estimate notice is sent. That section sets out:
222APB Directors to cause company to pay estimate or to go into voluntary administration or liquidation
(1) The persons who are directors of the company from time to time on and after the day when the Commissioner sent to the company notice of the estimate must cause the company to do at least one of the following within 14 days after that day:
(a) pay to the Commissioner the amount of the estimate;
(b) make an agreement with the Commissioner under section 222ALA in relation to the company’s liability to pay the estimate;
(c) appoint an administrator of the company under section 436A of the Corporations Act 2001;
(d) begin to be wound up within the meaning of that Act.
(2) This section is complied with when:
(a) the company’s liability to pay the estimate is discharged; or
(b) the company makes an agreement as mentioned in paragraph (1)(b); or
(c) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001;
(d) the company begins to be wound up within the meaning of that Act;
whichever first happens, even if the directors did not cause the event to happen.
(3) If this section is not complied with before the end of the 14 days, the persons who are directors of the company from time to time after the 14 days continue to be under the obligation imposed by subsection (1) until this section is complied with.
In this case there is no question that the Commissioner has not been paid, nor is there any question that no agreement had been entered into. Indeed, there is not even any evidence of any attempt to discuss an agreement with the Commissioner. An administrator was not appointed to the company, and the company was not being wound up.
It was argued that it is difficult to obtain a winding up order within the 14 days required under section 222APB(1)(d) of the Act. There is no formal evidence before me on this issue. As a matter of basic principle it seems to me that it is always open to a litigant to approach a court of competent jurisdiction, (and in this respect it would have been a Supreme Court or the Federal Court) to seek an urgent hearing on a winding up petition if a litigant can establish appropriate urgency.
It does not appear to me to be realistic to conclude that the Supreme Court of Victoria or the Federal Court would fail to make a judicial officer available to hear and determine an urgent case in a timely manner. The fact that the debtor may have been unrepresented and unable to obtain a lawyer does not mean that it was simply impractical or not possible to obtain a winding up order. I accept that it would certainly be difficult given the timeframes and circumstances. However, these are policy decisions made by Government as the elected representatives of the people when enacting the legislation. One can easily see the underlying policy considerations involved in setting such a short timeframe which relate to the importance of very swift conduct if it is realistic to obtain recovery of money from corporations that are insolvent, particularly the recovery of tax.
With respect to potential defences available under section 222API, I note that the section provides:
222API Defences
(1) This section has effect for the purposes of:
(a) proceedings to recover from a person a penalty payable under this Subdivision; or
(b) proceedings under section 222APH against a person of the kind referred to in paragraph 222APH(d).
(2) It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at any time when:
(a) the person was a director; and
(b) the directors were under the obligation to comply with subsection 222APB(1).
(3) It is also a defence if it is proved that:
(a) the person took all reasonable steps to ensure that the directors complied with subsection 222APB(1); or
(b) there were no such steps that the person could have taken.
(4) In subsection (3):
reasonable means reasonable having regard to:
(a) when, and for how long, the person was a director and took part in the management of the company; and
(b) all other relevant circumstances.
In substance, the question is whether the debtor had good reason because of illness or some other good reason not to take part in the management of the company at the time, or that he took all reasonable steps to comply with the requirements of the earlier provisions, or there were no such steps that he could have taken. It is not suggested here that he suffered illness. He gives evidence that the business was being run by a manager in Sydney, that he was in Melbourne, and the premises that he was operating out of (and which was the registered address) had been taken up by an administrator because of difficulties with respect to another company. However, ultimately, it is a circumstance where he was the sole director, and he had an obligation to ensure the proper management of the company. It does not seem to me that it could be said to be good reason to simply state that the day-to-day business of the company was being run by a manager in Sydney even in the circumstances as he sets out in his affidavit in this case. It was his obligation to exercise the responsibilities in this regard.
The material is very thin with respect to the reasonable steps that he says he took. It was argued, in substance, that there were not reasonable steps which leads back to the argument about the availability of the courts to make winding up orders in circumstances where the debtor at that point says he was not legally represented. I am not persuaded that he has provided nearly enough evidence to show that he took all reasonable steps or that there were no steps that he could have taken.
In the circumstances I am not persuaded that he has any defence to the debt that was the subject of the State Magistrates Court proceedings.
On the evidence before me I find that both the RBA debt and the judgment debt are debts owing to the Petitioning Creditor, that the debtor has committed an act of bankruptcy and that a sequestration order is appropriate.
In these circumstances I therefore dismiss the review application.
I certify that the preceding fifty-nine (59) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Associate:
Date: 12 August 2014
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