Stimpson v Commissioner of State Revenue
[2018] QDC 140
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- Unreported Judgment
- Stimpson v Commissioner of State Revenue[2018] QDC 140
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Stimpson v Commissioner of State Revenue[2018] QDC 140
Stimpson v Commissioner of State Revenue[2018] QDC 140
DISTRICT COURT OF QUEENSLAND
CITATION: | Stimpson v Commissioner of State Revenue [2018] QDC 140 |
PARTIES: | DAVID MICHAEL STIMPSON and TERRY JOHN ROSE as liquidators of STATE WIDE TRADES AND LABOUR HIRE PTY LTD (plaintiffs) v COMMISSIONER OF STATE REVENUE (defendant) |
FILE NO/S: | D3989/16 |
DIVISION: | |
PROCEEDING: | Civil Trial |
ORIGINATING COURT: | District Court at Brisbane |
DELIVERED ON: | 31 July 2018 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 26, 27 April 2018 |
JUDGE: | McGill SC DCJ |
ORDER: | Plaintiffs’ claim dismissed. |
CATCHWORDS: | CORPORATIONS LAW – Liquidation – Unfair preferences – defence of receipt in good faith – whether grounds to suspect insolvency – defence made out. Corporations Act 2001 (Cth) s 588FG(2). Bell Group Ltd v Westpac Banking Corporation (No. 9) (2008) 39 WAR 1 – cited. International Cat Manufacturing Pty Ltd v Rodrick [2013] QSC 91 – followed. Sandell v Porter (1966) 115 CLR 666 – cited. Chicago Boot Co Pty Ltd v Davies & McIntosh (2011) 282 ALR 378 – considered. Cook’s Construction Pty Ltd v Brown (2004) 49 ACSR 62 – cited. Cussen v Commissioner of Taxation (2003) 47 ACSR 107 – considered. Cussen v Commissioner of Taxation (2004) 51 ACSR 530 – cited. Cussen v Sultan (2009) 74 ACSR 496 – cited. Dean-Willcocks v Commissioner of Taxation (2004) 51 ACSR 353 – cited. Dean-Willcocks v Commissioner of Taxation (2008) 73 ATR 801 – considered. Hambleton v Commissioner of Taxation [2009] QDC 9 – considered. Hymix Concrete Pty Ltd v Garritty (1977) 2 ACLR 559 – cited. Jonas & Lanpac International Pty Ltd v Automation House Pty Ltd [1998] VSC 9 – cited. Mann v Sangria Pty Ltd (2001) 19 ACLC 696 – cited. Mulherin v Bank of Western Australia Ltd [2006] QCA 175 – cited. Muller v Academic Systems Pty Ltd [2007] QCA 218 – cited. Re Newark Pty Ltd [1993] 1 Qd R 409 – cited. Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 – applied. Smith v Deputy Commissioner of Taxation (1997) 75 FCR 339 – cited. Williams v Peters [2010] 1 Qd R 475 – applied. |
COUNSEL: | GW Dietz for the plaintiffs F Chen for the defendant |
SOLICITORS: | Rostron Carlyle Lawyers for the plaintiffs Crown Solicitor of the defendant |
- [1]This is an action under the Corporations Act 2001 (Cth) s 588FF by the plaintiffs as liquidators of State Wide Trades and Labour Hire Pty Ltd (“the company”) to recover as preferences or insolvent transactions four payments of payroll tax made by the company to the defendant. It is common ground that on four dates between July and September 2013 the company made to the defendant payments which totalled $173,627.52 on the basis of monthly payroll tax returns lodged by the company.[1]The payments were made during the relation-back period brought about by the fact that on 3 October 2013 the company went into liquidation by a resolution of members, with the plaintiffs being appointed joint and several liquidators.[2]The payments were made at a time when the defendant was an unsecured creditor of the company.[3]
- [2]It was admitted that the company was insolvent at the time when those payments were made,[4]and that as a result of receiving the payments the defendant received from the company more than the defendant would receive by way of dividends in the liquidation if the defendant were to prove as an unsecured creditor in the liquidation for those amounts. In short, the various elements of the plaintiffs’ claim are not in dispute, and the only issue is whether the defendant can establish a statutory defence.
- [3]The defendant asserts a defence under s 588FG(2) of the Act, which provides:
“The court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:
- (a)the person became a party to the transaction in good faith; and
- (b)at the time when the person became such a party:
- (i)the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
- (ii)a reasonable person in the person’s circumstances would have had no such grounds for so suspecting; and
- (c)the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.”
- [4]There is no dispute that paragraph (c) is satisfied by the fact that the payment was in discharge of a liability to pay payroll tax: subsections (3), (4).
Background
- [5]The company was one of a group of twelve companies, evidently related, which were grouped for payroll tax purposes. One of the consequences of this was that, under the Payroll Tax Act s 51A, each member of the group became liable to discharge the payroll tax obligations of any member of the group. It is evident however that ordinarily the payroll tax obligations of each member of the group were processed separately by the Office of State Revenue (“OSR”), and the significance of a group member being part of a group really only came to the fore in circumstances where the obligations of a particular member of the group were not being met. Further, OSR used a computer system called a revenue management system for its internal operations[5]which, at least in some cases, did not enable all of the people responsible for supervising the regular payment of payroll tax to ascertain who were the other members of a particular group.[6]
- [6]One of the other companies in the group, Statewide Traffic Control Pty Ltd (“STC”), went into voluntary administration on 22 February 2013.[7]On that day the administrators wrote to creditors, including the defendant, advising of their appointment,[8]and on 26 February 2013 they issued a circular to creditors, a copy of which was sent to the defendant.[9]In the circular was advice that that company had entered into a contract for the sale of its business prior to their appointment and the purchaser already had possession of the business. For some time prior to the appointment of the administrators STC had not been making payroll tax payments. At the time of their appointment STC had an outstanding debt to the defendant in respect of payroll tax, interest and penalty tax, of over $100,000.00.[10]
- [7]It is usual, when a taxpayer goes into administration with an outstanding payroll tax debt, for a collections officer to ascertain whether it is a member of a group, and may then refer debt recovery claims against other members of the group to Crown Law.[11]That was done in the present case, and on 22 April 2013 a collections officer instructed Crown Law to seek recovery, as result of which a demand was sent to the company.[12]On 13 June 2013 a claim and statement of claim were filed in the District Court seeking to recover the amount of the debt from four defendants, including the company.[13]By that time, the debt with interest amounted to $251,038.07. The same day, the creditors of STC placed it in liquidation.[14]Unsurprisingly in the circumstances[15]no notice of intention to defend was filed by any defendant and default judgment was given by a registrar on 4 September 2013.[16]
- [8]The collections officer concerned gave evidence that after he was told that STC had been placed into administration he checked the other members of the group to see if they had any outstanding tax liabilities, and found that they did not.[17]Up until late February 2013 the company had generally paid its payroll tax either on time or early. The company provided a monthly return by which it declared the amount of wages paid during previous month, and a self-assessed amount for payroll tax in respect of those wages was then payable.[18]Once a year, an annual return was put in which in effect superseded the previous 11 monthly returns. The record of the company’s payroll tax payments goes back to July 2009, but prior to March 2013 the only occasions when late payment interest had been charged seemed to have been when it was charged by mistake, subsequently reversed, or was waived.[19]
- [9]There was a self-assessment form for February 2013 lodged on or about 7 March 2013, but payment was not made at that time. On 17 March 2013, as a result of the failure to make the February payment, a standard reminder letter was sent to the company automatically by the OSR computer system.[20]The usual practice is that about two weeks after the reminder letter is sent a second letter demanding payment is sent out automatically if payment has not been made.[21]On 28 March 2013, a collections officer received a telephone call from someone on behalf of the company advising that part payment would be made on the account, and the rest would be paid on 12 April 2013.[22]A substantial payment, the bulk of the amount outstanding in respect to the February return, was made on 28 March 2013, and further payments were made on 3 and 5 April 2013, so that all of the debt came to be paid.[23]A second letter, in respect of the balance of $7,972.19, had been sent to the company on 31 March 2013, apparently automatically.[24]
- [10]On 8 April 2013 a periodic self-assessment for March was lodged by the company, in respect of which over $45,000.00 was payable.[25]That amount was not paid at that time, but after a reminder letter was sent out automatically it was paid on 17 April 2013, and late payment interest was paid on 24 April 2013.[26]On 2 May 2013 a self-assessment form for April was lodged, and the amount concerned was paid fairly promptly on 10 May 2013.
The relevant payments
- [11]On 29 May 2013 the form for May 2013 was lodged, showing payroll tax of over $45,000.00 payable, but that was not paid at that time. On 16 June 2013 a reminder letter was sent out automatically, and on 30 June 2013 a letter of demand was sent out automatically.[27]The usual practice of OSR is that if payment is not received within about fourteen days of the second letter an attempt is made to contact the taxpayer by phone, with a view to chasing up payment, and if necessary exploring the possibility of an agreement with the taxpayer for discharge of the obligation over a period of time.[28]On 16 July 2013 a collections officer telephoned the payroll officer of the company who advised that she would speak to the CFO and call back with an anticipated date for payment.[29]
- [12]Two days later there was an incoming call to the same collections officer seeking details of the figures for May 2013, in the course of which reference was made to the fact that a related entity was going into liquidation.[30]I expect this was a reference to STC. The person from the company was asked about the name of that entity but did not disclose it, and the collections officer pointed out that unpaid tax could be recovered from other group members. That officer was not able to ascertain the names of the other group members from the system herself, but passed on what was disclosed to a more senior officer, who on 19 July recommended that the officer retrieve the hard copy file or refer the issue to the investigations grouping team leader, the part of OSR particularly responsible for such matters.[31]In the meantime, however, on 18 July the amounts owed by the company were all paid, and as a result the collections officer did not pursue the issue any further.[32]
- [13]The annual self-assessment return for 2012-13 was lodged on 4 July 2013, and a reminder letter was sent out before payment was made on 8 August 2013.[33]Because this payment was not particularly late, it did not come to the attention of a collections officer. The return for July 2013 was lodged on 7 August 2013, but again payment was delayed, though not all that long, being made on 16 August 2013, just after the reminder letter was sent out. Then on 9 September 2013 the August payment was due, and payment of the disclosed amount was made only four days later, before even a reminder letter was sent out. That however was the last periodic return lodged, because early the following month the company went into liquidation.
The other company
- [14]Meanwhile the administration of STC had been continuing. On 28 March 2013 the administrators circulated a report to creditors,[34]a copy of which was received by OSR, but was not read by the officer handling the STC debt. The report spoke about the realisation of the assets of STC, and the debts owed by it, including secured debts. One of the secured creditors was the St. George bank (“the bank”), which held security over the property of STC, and also what was described as “a circulating and non-circulating security interest” over the company securing its debt. The debt to that bank was about $2.4 million dollars, about half of which was expected to be discharged by recovery of trade debtors of STC. There was nothing in the report to indicate to what extent the security might be enforced against the company, or about the extent of assets of the company available to satisfy that security.
- [15]It also recorded that STC had an outstanding debt from the company of $169,957.00, and expressed the view that the administrators did not expect recovery of that (or other debts to related companies) at that time. It occurs to me that, if and to the extent that the bank did obtain any payment from the company under its security in respect of the debts of STC, the company would have a right of indemnity against STC which could be set off against its debt to STC. There was nothing to indicate that the bank had appointed or was about to appoint receivers to enforce its security against the company.
- [16]On 4 June there was a further report to creditors received by OPC from the administrators of STC, which again was not read.[35]That made no direct reference to the company, though it did disclose that the bank was expected to suffer a shortfall in realising its security against STC, in an amount yet to be determined. On 13 June 2013, STC went into liquidation, the same day as proceedings were commenced in the District Court against the company and three other related companies in respect of the debt owed by STC. On 16 July 2013 OSR lodged a proof of debt in the winding up, for $251,038-07.[36]
The authorities
- [17]A company is insolvent if it is not solvent, that is, if and only if it is not able to pay all its debts as and when they become due and payable: Corporations Act s 95A. Despite the apparent strictness of that provision, the question of solvency of a company is for the purposes of the Act to be considered by reference to the commercial realities of business, and is not to be assessed by reference only to its cash or current assets at the relevant date.[37]Similarly it has been said that insolvency does not depend on cash resources immediately available, but that it is relevant to take into account what further money can be procured within a relatively short time, relative to the nature and amount of the debts and to the circumstances, including the nature of the business of the debtor.[38]The distinction between insolvency and a temporary lack of liquidity is well established.[39]It has also been said that there is a distinction between a temporary lack of liquidity and an endemic shortage of working capital.[40]For my purposes, if insolvency requires something more than a mere temporary lack of liquidity, it must follow that reasonable grounds to suspect insolvency requires more than reasonable grounds to suspect a temporary lack of liquidity.
- [18]In order to make out this defence, the defendant has to prove that she became a party to the transaction in good faith, she had subjectively no reasonable grounds for suspecting the company was insolvent at that time or would become insolvent by making the payment, and that considered objectively no reasonable person in the defendant’s position would have suspected insolvency.[41]The test is a demanding one, as the defendant is required to prove a negative. The matters to be established are to be determined by viewing the facts and circumstances as they unfolded, without the benefit of hindsight, and in the commercial context of the transaction as a whole.[42]Whether a person suspects insolvency requires more than a mere idle wondering whether it exists or not, but rather a positive apprehension or mistrust of the payer’s ability to pay its debts as they become due.[43]What must be suspected is actual insolvency, not impending or potential insolvency.[44]
- [19]The difference between subparagraph (i) and subparagraph (ii) of paragraph (b) of the subsection was explained by the Full Court of South Australia in Chicago Boot Co Pty Ltd v Davies & McIntosh (2011) 282 ALR 378 at [21]:
“Subparagraph (b)(i) requires consideration of whether the particular creditor, with its perspicacity, the information available to it, and with such analysis (if any) of that information as it had made, had reasonable grounds to suspect the debtor’s insolvency. Subparagraph (b)(ii) on the other hand, requires consideration of whether a reasonable person in the creditor’s circumstances, using the information reasonably available in those circumstances and making the analysis of that information which a reasonable person would make, would have had reasonable grounds to suspect the debtor’s insolvency. This is because a reasonable person in the circumstances of the creditor (subpar (b)(ii)) may have grounds for suspicion whereas the particular creditor, acting reasonably in its perception and analysis (if any) of the circumstances (subpara (b)(i)) may not, and vice versa.”
- [20]It has been suggested that it would be seldom that the two tests would produce different results.[45]It is also necessary when applying subpar (b)(ii) to have regard to an average business person when assessing whether the test has been satisfied. The test has to be applied by reference to the particular situation at the time of each payment, and those circumstances have to be assessed by reference to the overall trading relationship between the parties, in this context, the history of the payment relationship of the company.[46]
- [21]In the present case there is no reason to think that there was any special information or analysis available to the defendant which would have given the defendant some particular advantage in detecting insolvency which would not have been possessed by an ordinary reasonable business person, so for practical purposes what matters is whether the second limb of the test has been made out.
- [22]Some authorities speak of the process of identifying the controlling mind of the creditor for the purpose of assessing what was known to that person in order to apply the defence specifically by reference to that person, as a personification of the creditor.[47]It is somewhat artificial to speak of the “controlling mind” of the defendant in the present case in those terms, in circumstances where any engagement with the company or with STC by OSR was at a relatively low administrative level, by officers who were essentially applying standard procedures in a fairly mechanical way. No doubt to some extent this is a product of the way OSR is organised and the standard procedures adopted by it, but I suspect that to some extent it is also a product of the fact that for a taxpayer to be late in paying payroll tax is not all that unusual an event, and to some extent the system accommodates this, no doubt relying on the obligation to pay interest on late payments.
- [23]It may be that my approach, of analysing the defence by reference to a hypothetical OSR officer who was aware of everything that OSR was aware of in relation to the company, is not the correct approach,[48]but any error would be to the advantage of the plaintiffs, and in circumstances where it does not assist them in the outcome I do not consider it necessary for me to embark on a more precise definition of the applicable test in the particular circumstances of this case.
- [24]For the purposes of my analysis I have proceeded on the basis that the information contained in the reports from the administrators was information available for the defendant, even though on the evidence those reports were not read. It is in the circumstances quite understandable that such reports would not be read; they would virtually never contain any information relevant to the administration of the collection of payroll tax. There was some argument before me as to whether I should proceed on the basis that the defence had to be tested on the assumption that the defendant was aware of what was disclosed in those reports. Since I consider that the defence is made out even on that assumption, it is unnecessary for me to decide this point.
- [25]It was submitted that the defendant had not put in all available evidence about the involvement of the company with OSR. It was submitted that the supervisor of the collections officer who was dealing with the company (to the extent that anyone was) was not called, but there was no evidence that his attention was drawn specifically to the company at any relevant time; his involvement appeared to have been that he was a person who “signed” the standard form reminder letter and letter of demand sent to defaulting taxpayers; in fact his signature was applied to these letters by computer.[49]There was no reason to think he could have given any relevant evidence. Ms Masters referred to another person at her level who was copied into an email, suggesting that that person had not been immediately available at that time.[50]The email merely gave some practical advice about how to ascertain the identity of the relevant group members, and there was no reason to think that that person as a result of receiving that email would have turned her mind to the question of the solvency of the company.
- [26]It was submitted that there was another officer who had also been dealing with STC and its liability, and who might have read the administrator’s reports. Given my view that the administrator’s reports were essentially uninformative about the financial position of the company, I do not consider that he could have given any relevant evidence.[51]I do not consider that it is necessary for a defendant in a situation such as this to call people simply to say that they had in fact no involvement with the company and no reason to turn their mind to the financial position of the company at any relevant time.[52]I reject this submission, and the related submission that there were relevant documents not put in evidence, on the same basis.
Analysis
- [27]In the context of an attempt by liquidators to recover tax payments as preferences, it has been said that the paragraph (a) requirement that the transaction be in good faith was satisfied by the fact that the payments were made in the due, proper and regular exercise of the statutory functions of the relevant commissioner.[53]In the present context, it seems to me that receipt in good faith requires receipt without any actual belief in, or a suspicion of, the insolvency of the payer, which whould indicate that the payments may well have the effect of providing the payee with a preference over other unsecured creditors.[54]In the present case, the collection and processing of payments is largely carried out automatically, or at a basic mechanical level, and there is no reason to think that anyone in the Office of State Revenue actually believed the company was insolvent,[55]or that the payments were received other than in the due, proper and regular exercise of the defendant’s statutory functions. No particular argument to the contrary was advanced on behalf of the plaintiffs. The defendant has proved that the payments were received in good faith.
- [28]The defence was resisted on the basis that reasonable grounds for suspecting insolvency were available to the defendant. In the present case, the plaintiffs relied on matters arising directly from the payment history of the company, and by the light thrown on the company’s financial position and prospects by the information made available as a result of the administration and subsequently liquidation of the other company in the group. Because there are four payments involved, so it is necessary to look at the situation at four different times, it is more convenient to look at the factual matters as they arose, so that the position can be assessed at the time of each impugned payment.
- [29]The history of the relationship at least since 2009 shows that prior to March 2013 all payments had been made in a timely way, except for one in December 2011, which was a few days late, and where the late payment interest was subsequently waived. The next thing that happened was that administrators were appointed to STC, which owed money for payroll tax and interest since November 2012, indicating it was not up-to-date with its payments, though concern about that money being paid may have been allayed later as a result of the circular advising that that company’s business had been sold. When a check was made, presumably before 7 March 2013, on the other members of the group it was found that none of them owed money to the defendant,[56]but that situation changed in respect of the company when it failed to pay the amount payable with the return for February 2013 when it was lodged on 7 March 2013.
- [30]A standard reminder letter was sent on 17 March 2013, but then on 28 March 2013 there was advice that a part payment would be made, with the rest paid about two weeks later; in fact the part payment was made that day and was the bulk of the money owing. The balance was cleared by two further payments, made a week earlier than had been promised. Also on 28 March, a report by the administrators of STC indicated that there was expected to be a significant shortfall in that company, and that a bank held securities over the assets of the company, though it did not provide any information as to the capacity of the company to discharge that debt from its assets. It also contained no information about the trading position of the company, or otherwise relevant to its liquidity.
- [31]In early April there was a return lodged for March 2013, with payment not made at the same time, but it was paid in full on 17 April 2013, nine days late, with the late payment interest being paid a week later. On 22 April instructions were given to Crown Law to seek to recover the STC debt from others in the group, as a result of which a letter of demand was sent to the company and ten others on 3 May 2013.[57]On 2 May 2013 a return for April was lodged, and was paid only eight days later. On 29 May the return for May was lodged, without payment.
- [32]On 4 June there was a further report to creditors by the administrators of STC indicating that it was expected that the bank would suffer a shortfall in realising its debt from STC, but no amount was specified. In the light of the information already provided, it would be reasonable to deduce from this that the bank would look at other securities, including that held against the company, to satisfy this shortfall, but there was no information provided as to the capacity of the company to do this. On 13 June 2013 STC went into liquidation,[58]and a claim and statement of claim were filed seeking to recover its debt from the company and three other defendants. They were served on the company on 28 June.
- [33]The annual self-assessment return was lodged on 4 July 2013. On 16 July 2013 a phone call was made, and two days later the company called and obtained details of the amounts owing for May, which were then paid in full the same day, an encouraging sign. Reference was made in this call to the fact that the related company was going into liquidation, but no information was provided as to the financial position of the company.
- [34]Payment in full for the annual return was made on 8 August 2013. On 7 August 2013 the return for July 2013 was lodged, and payment was again delayed, although this time only for nine days. Default judgment against the company and three other grouped companies was signed on 4 September 2013, and a copy of the judgment, with a demand for payment, were served on the company on 10 September 2013. On 9 September 2013 the August return was lodged, with payment made on 13 September, only four days later.
- [35]The system operated by OST was one where the initial responses to non-payment of a payroll tax return were simply conducted automatically, and ordinarily a failure to pay would not come to the attention of a collections officer until about 14 days after the second letter was sent out. That suggests that it was not unusual for payments to occur late but within that period, and that is consistent with some of the comments made by the collection officers in evidence before me. Ms Pauonto said that what she was told on 28 March 2013 did not give her any concern about the company’s ability to pay, as the delay was only three weeks at the date of the phone call. She also said that she did not regard the delays in payment by the company in 2013 as of significance, because some late payments were not uncommon for many “viable” companies: para 38. By viable I take it that this means companies that do not subsequently go into liquidation. In 2013 she had six years’ experience as a collections officer.
- [36]The company was not the only other member of the same group as STC; a letter from the Crown Solicitor dated 3 May 2013 identified 10 other companies.[59]OSR does not normally obtain information about the financial position of payroll tax payers, unless a payer owing money for payroll tax seeks to enter into a payment arrangement, for that debt to be paid off over a period of time. It appears that no such request was made at any time by the company, and no information was held by the defendant about the financial position of the company.[60]At that time, it was said that the other members of the group, including the company, did not have any outstanding payroll tax debt to the defendant. As at 3 May 2013 that was correct for the company; the February tax and late payment interest were cleared by 5 April 2013, the March tax and interest were cleared on 24 April 2013 and the April payment did not become due until a self-assessment form was lodged on 2 May 2013. After the uninformative report of 4 June, no further information about the financial position of STC or the effect on the company of its liquidation was forthcoming prior to the time when the last of the four relevant payments was made.
Other cases
- [37]In other cases to which I was referred where a defence under this provision was not made out the facts were in my view somewhat stronger and provided clearer objective grounds for suspecting insolvency. In Williams v Peters (supra) the defendant had paid $165,000 to a car dealer to purchase a car, but subsequently arranged a finance lease as a result of which a finance company made a payment to the car dealer in the same amount, and the defendant was given a cheque by the dealer for the amount he had paid. That cheque was not met on presentation, he was told that there was some delay in the bank clearing funds, and he was given another cheque post-dated six days, which however was also dishonoured. The company then provided a letter acknowledging the debt and expressing its intention to clear the debt the following day, but otherwise pay it by weekly instalments of no less than $50,000. Subsequently only an amount of $10,000 was paid, though the defendant was given two other vehicles as security for the payment of the balance.
- [38]Muir J with whom the other members of the court agreed said that a reasonable person would have wondered why there would be difficulty in returning the money if the company was not experiencing liquidity problems [64] and that giving a post-dated cheque indicated that the company was dependent on new money to pay old debts [65]. The written document then provided made plain the lack of certainty that the money could be repaid promptly, and the fact that only $10,000 was paid in cash with the rest being provided in the form of two motor vehicles would have made a conclusion that that was the best the company was able to do in the circumstances inescapable: [67]. In these circumstances, the defence was not made out.
- [39]In Chicago Boot Co (supra) a payment was received after a statutory demand was made on the company for a larger amount, in circumstances where the company’s debt was outstanding for some months.[61]The company had been dealing with this supplier for a long time, and was commonly slow in paying its debts, but the amount owing on the account had risen to the highest level it had ever reached. It was held that a reasonable person in the position of the supplier would have suspected that the company was insolvent; at least the supplier had not proved to the contrary: [87], [88].
- [40]Significantly however a finding that the defence had been made out in respect of three earlier payments was not overturned on appeal. This was despite the fact that the first payment was made in circumstances where it was just on two months overdue, and was made in response to an email alleging what was said to be a “firm belief that you have no capacity to pay”: [35], [66]. Nevertheless, when considered in the light of the history of the relationship, which had been marked by long delay in payment and money being forthcoming only after pressure of this nature, this statement was characterised as a harsh statement designed to embarrass the creditor into payment, or a complaint that money which should have been used to pay creditors was being used to fund expansion: [69].
- [41]There were then two further payments in early January 2001, both received well after they fell due, and received at a time when there was concern about a much larger amount which had become due on 30 November, although payment of that amount had not yet reached the average period by which the company was delaying payments: [74]. Further the overall liability had increased significantly, the company concerned was a prominent one which had received a good deal of favourable publicity in the press, and in the circumstances the trial judge’s conclusion in relation to those two relatively small payments was not interfered with.
- [42]In Cussen v Commissioner of Taxation (2003) 47 ACSR 107 the company had been granted numerous extensions of time to pay sales tax during 1998-99, having given various excuses, but all of the arrears of sales tax had been paid before the commencement of the relation-back period. There were eight further payments during the relation-back period, five of which were made on time, and in the case of three, requests for extensions were granted, and effectively complied with. It was held at trial that the defence had been made out, that a request for time to pay without more would not be characterised as a manifestation of insolvency rather than a temporarily lack of liquidity, and that in circumstances where the payments were during the relevant period being made in a more timely fashion than they had been in earlier periods, there were not reasonable grounds to suspect that the company was insolvent. An appeal to the NSW Court of Appeal was dismissed: (2004) 51 ACSR 530.
- [43]In Dean-Willcocks v Commissioner of Taxation (2008) (supra) the company had had significant financial problems earlier and had entered into a deed of company arrangement, as a result of which a large amount of earlier debt had been written off by the ATO; but in the post-deed period until April 2004 all tax liabilities had been met punctually. There was default in making payment in April 2004, and subsequently the company requested and was granted a payment arrangement on the basis that it had a short-term cash flow problem, and that trade had been slow. It appears that the payment arrangement was generally complied with; indeed payments under it were made for some weeks before the ATO specifically agreed to it. It was held that the defence had been made out in respect of the payments made during the relation back period. The failure to pay the amount due in April 2004, and the payment arrangements subsequently made, were said to indicate merely temporary liquidity problems, rather than to be matters giving rise to a suspicion of insolvency.
- [44]I was also referred to the matter of Hambleton v Commissioner of Taxation [2009] QDC 9. In that case during the relevant period business activity statements lodged by the company showed that it was generally operating at a substantial loss, and that its turnover, and indeed its wages bill, were declining from month to month. When the company was pressed about making timely payments, its response was that it was going to be involved in a merger with another company, and that payment would be made once the merger was complete. I concluded that that was not an indication of a temporary liquidity problem, but rather a picture of a company which was failing, and which was insolvent.
- [45]In that case the defendant had a good deal of information about the financial position of the company from the returns in relation to GST, whereas all that the defendant in the present case knew about the company from the returns was the wages bill. In the present case the monthly wages bill fluctuated somewhat but remained high between March and July 2013, being actually at its highest in July, before dropping significantly in August 2013. The March wages bill was significantly higher than the February wages bill, and that was in turn significantly higher than the wages bill in August 2012, which in turn was much lower than the wages bill in August 2013.[62]The annual return lodged on 4 July 2013 showed total Queensland taxable wages for the financial year of a little over $7.5 million, an average of $625,000 per month, only a little more than the wages bill for August 2013. In this case therefore I think there was nothing suspicious about fluctuations in the monthly amount paid as wages by the company.
Analysis – Part 2
- [46]At the date of the first relevant payment there had been a history of prompt payments until the beginning of 2013, after which there were a series of late payments, though the payments were becoming progressively less late, with the most recent payment only three days late.[63]The pattern of payments suggests a temporary liquidity problem, from which the company was recovering, rather than insolvency. This payment however was not made when the return was lodged, or in response to either of the reminder letters, but when a phone call was made chasing up payment, there was a return call two days later and the amount owing was paid in full that day. No request for more time for payment was made, and in the circumstances the late payment could have been explicable simply by the matter having been overlooked, or by a temporary lack of liquidity.
- [47]It is true that a proceeding had been commenced against the company, and three others, in respect of an unpaid payroll tax debt of another company in the group, but the proceeding was then at a very early stage and apart from the fact that the debt had not been paid there was no particular indication that the company was unable to pay it. The information provided by the administrators of STC, although suggesting that the company might be required to contribute to the debt owed by STC to the bank, provided no information as to the capacity of it, or others who had provided security, to meet that debt. In all the circumstances I do not consider that an ordinary reasonable business person would on the basis of this information have suspected actual insolvency. Insolvency was a possibility consistent with such events, but I do not consider that the information then available to the defendant would have given rise in the mind of an ordinary reasonable business person the positive apprehension of insolvency required by the test. I consider the defence made out in respect of the first payment.
- [48]At the time of the second payment in August 2013 there had been no further developments with STC, and full payment on the basis of the return was made, late but not very late, and before any chasing up phone call was required. The only additional circumstances to those prevailing at the time of the earlier payment were that payment was again made late, but that it was not as late as the previous payment had been. The same situation applied in relation to the payment for July 2013, which was only nine days late, and the return for August 2013, which was only four days late. In effect, the pattern which had occurred earlier in the year, a series of payments which were late but with improving punctuality, was repeated. The default judgment had been signed and served just before the last payment, but there had been insufficient time for a failure to respond to that judgment to be suspicious. There was no other relevant information about the consequences to the company of the insolvency of STC. Further developments on that front did not occur until after the relevant payments were made. In my opinion, the position is if anything less suggestive of insolvency as time went on, and applying the same test I consider the defence has been made out in respect of the remaining three payments also. Accordingly, the plaintiffs’ claim is dismissed.
Footnotes
[1] Statement of claim para 7; defence para 1, 13; reply para 9.
[2] Statement of claim para 4, 5; defence para 1.
[3] Statement of claim para 3(c); defence para 1.
[4] Statement of claim para 11; defence para 2.
[5] Pruonto p 22.
[6] Affidavit of Pruonto para 34; Pruonto p 35; Affidavit of Masters para 18; Masters p 45.
[7] Affidavit of Stimpson filed 15 March 2018 para 5. The plaintiffs were appointed administrators.
[8] Affidavit of O'Connor Exhibit KO1.
[9] Affidavit of Stimpson filed 15 March 2018 paras 9, 10; Exhibit DMS7 page 90. (This exhibit did not comply with UCPR r 435(10), (11)(c).) It was received but probably not read: Affidavit of O'Connor paras 4(a), 10, 17; O'Connor p 69; Affidavit of Eagle para 8(b).
[10] Affidavit of Eagle para 16. This consisted of self-assessed amounts for November and December 2012 and January 2013, with late payment interest; later, on 25 March 2013, a default assessment was issued for February 2013, including penalty tax: Affidavit of O'Connor Exhibit KO3.
[11] Affidavit of Eagle para 8(d)-(f).
[12] Ibid paras 16, 17; Affidavit of Stimpson filed 15 March 2018 Exhibit DMS7 p 1 (on 3 May 2013).
[13] Affidavit of Stimpson filed 15 March 2018 Exhibit DMS7 p 13.
[14] Ibid para 6.
[15] It is difficult to see how there could be a defence to the claim.
[16] Affidavit of Stimpson filed 15 March 2018 Exhibit DMS7 p 53.
[17] Affidavit of Eagle para 16. That must have been prior to 7 March, so the grouping must have preceded that date. He said he checked straight away: Eagle p 51.
[18] Returns could be lodged online through a system called OSRconnect: Masters p 42. I assume the relevant returns here were so lodged.
[19] Affidavit of Pruonto para 25(a); Exhibit CP-3. Late payment interest on tax for December 2011 of $23.88 was waived.
[20] Ibid paras 6, 24(b); Pruonto p 24.
[21] Ibid para 8.
[22] Ibid para 27.
[23] Ibid para 29.
[24] Ibid para 24(c).
[25] Ibid para 23(a); Exhibit CP1.
[26] Ibid Exhibit CP1.
[27] Ibid paras 24(e)(f).
[28] Ibid paras 8, 9, 11, 12.
[29] Ibid para 30.
[30] Ibid para 33.
[31] Ibid para 35. This was to suggest ways to ascertain the other group members: Affidavit of Masters para 19. If this was a superficial response, it was because it was July, when she was particularly busy because annual returns were due: Affidavit of Masters para 7; Masters p 46.
[32] Affidavit of Pruonto para 36.
[33] Ibid para 24(g).
[34] Affidavit of Stimpson Exhibit DMS7 page 104.
[35] Ibid p 141.
[36] Affidavit of Stimpson Exhibit DMS7 pp 175-182; Affidavit of O'Connor Exhibit KO3. As a result, in accordance with the usual practice, the debt was written off: Eagle p 61.
[37] Bell Group Ltd v Westpac Banking Corporation (No. 9) (2008) 39 WAR 1 at 145; International Cat Manufacturing Pty Ltd v Rodrick [2013] QSC 91 at [106].
[38] Sandell v Porter (1966) 115 CLR 666 at 670.
[39] International Cat Manufacturing (supra) at [107]; Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [40], [53].
[40] Hymix Concrete Pty Ltd v Garritty (1977) 2 ACLR 559 at 566; Re Newark Pty Ltd [1993] 1 Qd R 409 at 413.
[41] Williams v Peters [2010] 1 Qd R 475 at [55].
[42] Ibid para [57].
[43] Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303, cited in Williams v Peters at [56].
[44] Dean-Willcocks v Commissioner of Taxation (2008) 73 ATR 801 at [13].
[45] Mann v Sangria Pty Ltd (2001) 19 ACLC 696 at [46].
[46] Jonas & Lanpac International Pty Ltd v Automation House Pty Ltd [1998] VSC 9 at [51]-[52]; Chicago Boot Co Pty Ltd (supra) at [67]-[68].
[47] For example Cook’s Construction Pty Ltd v Brown (2004) 49 ACSR 62 at [20].
[48] That appears to have been the approach adopted in Dean-Willcocks v Commissioner of Taxation (2004) 51 ACSR 353, but to have been doubted in Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [81].
[49] Pruonto p 26.
[50] Masters p 44.
[51] The test applied in Dean-Willcocks v Commissioner of Taxation (2008) 73 ATR 801 at [15].
[52] The only precedent I know for calling a witness who knows nothing whatever about the matter is the trial of the Knave of Hearts in Alice in Wonderland.
[53] Dean-Willcocks (supra) at [8]. That is, that the defendant’s officers acted honestly and with propriety: Mulherin v Bank of Western Australia Ltd [2006] QCA 175 at [132].
[54] See Cussen v Sultan (2009) 74 ACSR 496 at [33] – [35]; Smith v Deputy Commissioner of Taxation (1997) 75 FCR 339 at 350.
[55] See for example Pruonto p 38; Affidavit of Eagle paras 24, 25.
[56] Affidavit of Eagle para 16.
[57] Had they thought the company insolvent this would have been a waste of time.
[58] The defendant was advised of this by a letter of 4 July 2013.
[59] Affidavit of Stimpson filed 15 March 2018 Exhibit DMS7 p 1.
[60] Affidavit of Eagle paras 8(g), 9.
[61] As to a statutory demand, see Muller v Academic Systems Pty Ltd [2007] QCA 218 at [33], [41].
[62] I only have monthly returns from March 2013, and am extrapolating the wages bill on the basis of the amounts of payroll tax paid each month in the earlier periods.
[63] The fact that the promptness of the payments was improving is a relevant factor: Cussen v Commissioner of Taxation (2004) 51 ACSR 530 at [39]. In that case there had been a series of monthly tax payments which were initially much later than the payments here.