Palmer v Deputy Commissioner of Taxation

[2006] NSWSC 656

Reported Decision: 63 ATR 332

New South Wales

Supreme Court

CITATION:	Palmer v Deputy Commissioner of Taxation [2006] NSWSC 656
HEARING DATE(S):	16/06/06
JUDGMENT DATE :	30 June 2006
JUDGMENT OF:	Gzell J
DECISION:	Commissioner ordered to refund payments within interest and costs. Respondent director ordered to pay Commissioner those payments to the Commissioner related to non-remitted PAYG payments with interest and 60% of costs payable by the Commissioner, 60% of his defence costs and the costs of his interlocutory process
CATCHWORDS:	CORPORATIONS - Winding up - Voidable Transactions - Payments made by insolvent company to defendant commissioner within six months prior to the relation-back day - Liquidator's application for their recovery - Whether unfair preferences - Whether Commissioner entitled to indemnity from respondent director for so much as related to non-remitted PAYG payments - Whether respondent should be ordered to pay a proportionate part of the costs the Commissioner is ordered to pay the liquidator and his costs of defending the liquidator's claim
LEGISLATION CITED:	Corporations Act 2001 (Cth) Taxation Administration Act 1953 (Cth)
CASES CITED:	John Raymond Gibbons & Anor v Deputy Commissioner of Taxation (2004) 22 ACLC 81
PARTIES:	Christopher John Palmer - Plaintiff Deputy Commissioner of Taxation - Defendant Mr Tony Moll - Respondent
FILE NUMBER(S):	SC 3186/05
COUNSEL:	Mr M Cohen - Plaintiff Mr P Rodionoff - Defendant Ms K Welshman - Respondent
SOLICITORS:	Shaw McDonald Solicitors - Plaintiff ATO Legal Services Branch - Defendant Carlos Toda & Co - Respondent

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

FRIDAY 30 JUNE 2006

3186/05 CHRISTOPHER JOHN PALMER v DEPUTY COMMISSIONER OF TAXATION

JUDGMENT

1 Domest Building & Design Pty Ltd became liable to pay moneys to the Deputy Commissioner of Taxation. From 15 May 2003 to 22 September 2003, Domest made payments to the Commissioner totalling $35,146.00.

2 On 13 November 2003, an application to wind up Domest was filed, and an order to wind up the company was made on 12 December 2003. Christopher John Palmer, the plaintiff, was appointed official liquidator.

3 Mr Palmer claims recovery of the payments from the Commissioner. Tony Moll, the respondent, was the sole director of Domest. The Commissioner seeks an indemnity from him.

The insolvent transaction provisions

4 Mr Palmer relies upon the Corporations Act 2001 (Cth), s 588FF(1)(a). It provides that where the Court is satisfied that a transaction of a company is voidable, the Court may make an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction.

5 For this purpose, certain insolvent transactions are voidable. The Corporations Act 2001 (Cth), s 588FE(2) provides, relevantly for present purposes, that a transaction is voidable if it is an insolvent transaction of the company and it was entered into during the six months ending on the relation-back day.

6 The relation-back day is defined in two ways in the Corporations Act 2001 (Cth), s 9. The relevant definition for present purposes provides that if, because of Div 1A of Pt 5.6, the winding up is taken to have begun on the day when an order that the company be wound up was made, the relation-back day is the day on which the application for the order was filed.

7 Under the Corporations Act 2001 (Cth), s 513A(e) the winding up of Domest is taken to have begun on the day when the order was made as there was no winding up already in progress, the company was not under administration, and no provisional liquidator was acting.

8 Thus, the winding up of Domest is taken to have begun on 12 December 2003 when the order to wind it up was made and the relation-back day was 13 November 2003 when the application for the order was filed. It is also the case that the payments made by Domest to the Commissioner occurred during the six months ending on the relation-back day.

9 An insolvent transaction is defined in the Corporations Act 2001 (Cth), s 588FC, relevantly for present purposes, as an unfair preference given by the company at a time when the company was insolvent.

10 A transaction is an unfair preference given by a company to a creditor in terms of the Corporations Act 2001 (Cth), s 588FA(1) only if the company and the creditor are parties to the transaction and the transaction results in the creditor receiving from the company in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding of the company.

11 The payments made by Domest to the Commissioner were transactions to which the company and the Commissioner were parties. The first question is whether the Commissioner was an unsecured creditor of Domest at the time.

12 The Taxation Administration Act 1953 (Cth), Sch 1, subdiv 16-B, provides for the payment to the Commissioner of amounts withheld from employees under the pay as you go system established in Div 12. Domest had failed to remit some withheld PAYG amounts. The evidence reveals that Domest was also indebted to the Commissioner in other amounts. He was, therefore, an unsecured creditor of Domest.

13 The second question is whether the Commissioner received more than he would have done had he proved in the winding up of Domest.

14 Mr Palmer’s affidavit explained his examination of the books and financial records of Domest and the inquiries he made into its affairs. He calculated a deficiency of assets over liabilities of $454,535.00. I am satisfied that if the transactions in question were set aside, and the Commissioner proved in the winding up, he would receive less than he did by the payments. Neither the Commissioner nor Mr Moll questioned this conclusion.

15 The question remains whether Domest was insolvent when the payments were made to the Commissioner. The Corporations Act 2001 (Cth), s 95A defines an insolvent person as one who is not solvent. It also provides that a person is solvent only if the person is able to pay all the person’s debts as and when they become due and payable.

16 Mr Palmer’s analysis of Domest led him to the view that Domest has been insolvent since at least late May 2002 when the Commissioner issued a penalty notice in respect to the taxation liabilities incurred in March 2001 and the quarter to June 2001 and which were not paid within the 14-day period specified in the notice. Domest incurred a trading loss for the year ended 30 June 2002 when total liabilities were in excess of total assets and the ratio of current assets to current liabilities was less than 1.0. Domest had a chronic deficiency of working capital.

17 The opinion of Mr Palmer was not challenged by the Commissioner or by Mr Moll. I am satisfied that when the payments were made to the Commissioner, Domest was insolvent.

18 It follows that the payments were voidable transactions and the Court is entitled to make an order that the Commissioner repay the moneys under the Corporations Act 2001 (Cth), s 588FF(1)(a). Such an order is not opposed by the Commissioner or by Mr Moll.

19 In my judgment, Mr Palmer is entitled to an order that the Commissioner pay Domest $35,146.00.

20 Initially, Mr Palmer only demanded $32,692.00. The additional amount was first sought in Mr Palmer’s statement of liquidated claim filed on 27 May 2005. It was submitted on behalf of the Commissioner that interest should be calculated on the difference of $2,454.00 only from that date. That proposition is not challenged by Mr Palmer.

21 Interest on $32,692.00 from 8 June 2004, the date of the initial demand, to today is agreed in the amount of $6,069.96. Mr Palmer has agreed to waive interest on $2,454.00 from 27 May 2006.

The indemnity claim

22 The Corporations Act 2001 (Cth), s 588FGA applies if the Court makes an order under s 588FF against the Commissioner because of the payment of an amount in respect of a liability under, relevantly for present purposes, the Taxation Administration Act 1953 (Cth), Sch 1, subdiv 16-B.

23 It was not in issue that the amounts within that subdivision included in Domest’s payments to the Commissioner of $35,146.00, totalled $19,818.00. Section 588FGA(2) of the Corporations Act 2001 (Cth) provides that 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.

24 The Commissioner seeks a declaration that Mr Moll is liable to indemnify him pursuant to that provision in respect of any loss or damage sustained by him as a result of any order made in these proceedings that the Commissioner pay an amount to Mr Palmer pursuant to the Corporations Act 2001 (Cth), s 588FF. He seeks an order that Mr Moll pay him $19,818.00. He seeks an order that Mr Moll pay him any interest on the sum of $19,818.00 awarded to Mr Palmer against the Commissioner. Interest on $19,818.00 from 8 June 2003 to today is agreed in the amount of $3,682.17.

25 In John Raymond Gibbons & Anor v Deputy Commissioner of Taxation (2004) 22 ACLC 81, the indemnity sought against the director was approximately two thirds of the amount claimed by the liquidator. Nicholas J thought it was appropriate, in calculating the indemnity in relation to the costs of the plaintiff’s proceedings against the defendant, to take a broad brush approach and award the Commissioner two thirds of the plaintiff’s costs as well as two thirds of the defendant’s costs in defending the proceedings.

26 A similar approach is sought by the Commissioner in these proceedings. He seeks an order that Mr Moll pay him 60% of any costs the Commissioner is ordered to pay Mr Palmer and an order that Mr Moll pay him 60% of his costs in relation to Mr Palmer’s claim. The Commissioner also seeks his costs of the interlocutory process on the ordinary basis.

27 Ms Welshman, who appeared for Mr Moll, consented to the making of these orders. In my view, they are justified.

Orders

28 I do not think it is necessary to make the declaration that the Commissioner seeks. It is sufficient if orders are made for the payment of the $19,818.00, interest and costs.

29 I make the following orders:

(a) that the defendant pay to Domest Building & Design Pty Limited (in liquidation) $35,146.00 together with interest in the amount of $6,069.96.

(b) that the defendant pay the plaintiff’s costs assessed on the ordinary basis.

(c) that the respondent pay to the defendant applicant $19,818.00 together with interest in the amount of $3,682.17.

(d) that the respondent pay to the defendant applicant 60% of the costs payable by the defendant to the plaintiff.

(e) that the respondent pay to the defendant applicant 60% of the costs incurred by the defendant in relation to the plaintiff’s claim assessed on the ordinary basis.

(f) that the respondent pay the defendant applicant’s costs of his interlocutory process assessed on the ordinary basis.

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