FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Soiland Pty Ltd (in liq) (No 2) [2010] FCA 1453

THE COURT ORDERS THAT:

1.    The application for review of the orders made by District Registrar Jan on 23 December 2009 be dismissed.

2.    The director of the defendant, Joanne Karen de Hollander, and the defendant pay the plaintiff’s costs of the application to review (including any reserved costs) to be taxed.

3.    The liability to pay the plaintiff’s costs in accordance with order 2 above:

(1)    be joint and separate; and

(2)    not derogate from order 2 of the Court’s orders made 4 March 2010.

4.    As to the defendant, the plaintiff’s costs in accordance with order 2 above are costs to be reimbursed out of the property of the defendant in accordance with s 466(2) of the Corporations Act 2001 (Cth).

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

review of winding up order

1    On 23 December 2009, the District Registrar in the Perth Registry ordered the winding up the defendant company.

2    Subsequently, on 2 March 2010, the Court ordered pursuant to s 471A(1A)(d) of the Corporations Act 2001 (Cth) that the defendant by its sole director, Ms Joanne Karen de Hollander, be entitled to commence and proceed with a review of the District Registrar’s order: see Deputy Commissioner of Taxation v Soiland Pty Ltd (In Liq) [2010] FCA 168.

3    This is the review proceeding.

4    The parties agree that the review is a de novo review, that is to say, a review where the Court should consider afresh the question of the winding up of the defendant by reference to evidence adduced at the review hearing.

Issues

5    The parties agree there are three issues for consideration on the review:

(1)    Is the plaintiff currently a creditor of the defendant, and if so, in what amount?

(2)    Is the defendant solvent?

(3)    If the Court is not satisfied that the defendant is solvent, ought it nonetheless in exercising the Court’s discretion, refuse a winding up order?

outline of plaintiff’s case

6    The plaintiff is at pains to emphasise that this is not a “disputed debt” case.

7    The plaintiff accepts that overall it bears the onus of persuading the Court that there should, in the exercise of the Court’s discretion, be a winding up order.

8    However, the plaintiff says (and the defendant accepts) that the defendant has the onus of proving its solvency.

9    The plaintiff says whether the plaintiff remains a creditor of the defendant is an intermediate fact going to solvency and depends in part on whether the defendant is able to establish that it has an asset in the form of available net GST refunds. On that basis, the plaintiff says the defendant also has the onus of proof on the issue of whether the plaintiff is a creditor of the defendant.

10    The plaintiff says that the starting point is that the unpaid petitioning creditor has a right, ex debito justitiae, to a winding up order. However, the Court will have regard to the majority in value of the creditors and if, for some good reason they oppose a winding up order, the Court may refuse the order: see Laucke Flour Mills (Stockwell) Pty Ltd v Fresjac Pty Ltd (1992) 8 ACSR 59 at 65–66.

11    In relation to a number of related creditors who oppose the winding up order being maintained, the plaintiff submits the Court ought to consider whether they maintain their opposition for good reason. It submits that, on proper analysis, no good reasons are advanced.

12    The plaintiff dismisses a contention made or implied by the defendant that if the winding up order is revoked, its main asset – land at 665 Welshpool Road East – is likely to realise a greater value following rezoning and subdivision if sold in the longer term, and not as is in the course of liquidation in the short term. The plaintiff says there is no admissible evidence to support the defendant’s assertion or belief in this regard. Nor is there any evidence as to how, given the defendant company’s present insolvency, it will be able to fund further rezoning and subdivision. In any event, potential for rezoning and subdivision is something that will impact on the present value of the land. It cannot be suggested that the liquidator is likely to do other than realise the land for its present market value.

13    The plaintiff also submits that, on discretionary grounds, the winding up should be maintained and that there are discretionary reasons why winding up should occur.

outline of the defendant’s case

14    In the final analysis, the defendant says the plaintiff is the only party interested in maintaining the liquidator’s appointment, a number of other debts identified at the time the winding up order was made by the District Registrar having been paid or otherwise compromised.

15    The defendant says if the plaintiff is a creditor, which it submits is doubtful, the only legitimate interest it has for pressing the winding up is to recover its debt. Ostensibly it has no other interest in the proceeding.

16    The defendant says that, although there is a general rule that a creditor who cannot obtain payment is entitled to a winding up order as a matter of right (see IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 11 ALR 417 at 422), the following points should be recognised:

    it is strongly arguable that far from being a creditor, the plaintiff is a debtor of the defendant when the true GST position is assessed;

    the plaintiff has available to it extensive statutory mechanisms for investigating the defendant’s MYOB records, BAS and fuel tax credit claims, without a liquidator being involved; and

    once such investigations are completed, the plaintiff will have adequate recourse to recover any money (if any) that is owed.

17    The defendant submits that if the winding up orders are not set aside, then:

    it appears unlikely that the liquidator will pursue any opposition to the plaintiff’s fuel tax credit assessments; and

    the defendant will be unable to exercise its rights in relation to the alleged ATO debt.

18    The defendant submits that save for the liquidator’s complaints about Ms de Hollander’s delay in complying with statutory requirements, there is no evidence of any misconduct on her part. The liquidator has not complained to ASIC about Ms de Hollander’s conduct and ASIC has not taken any action in that regard.

19    In these circumstances the defendant contends that, while it is undeniable that its ATO compliance history has been less than perfect, it has now complied with the ATO’s statutory requirements. There is no evidence of any continuing prejudice to any third party and given the limited nature of the company’s current business activities, these matters should cease to be a significant issue.

first issue: is the plaintiff a creditor of the defendant?

20    At the review hearing, officers of the ATO gave evidence concerning what the records of the ATO disclose in respect of Soiland’s alleged debt. Ms BettyJane Logue gave evidence that, as at 27 August 2010, the records disclose that an amount of $483,934.08 was a debt due and payable by the company to the Commonwealth of Australia, having regard to the Running Balance Account (RBA) maintained by the ATO, calculated as follows:

    $80,014 in respect of Pay As You Go (PAYG) withholdings for arrears between April and July 2009.

    $274,200 in respect of net fuel amounts for the periods July 2006 to May 2008, and July 2008 to September 2008.

    $68,550 in respect of tax shortfall penalties.

    $64,535.97 in respect of general interest charge calculated up to 22 December 2009.

    Less payments/credits of $3,365.89.

21    In affidavits filed on behalf of the plaintiff and in submissions made at the outset of the hearing, the plaintiff relied on an evidentiary certificate made pursuant to s 255-45 in Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA) to prove conclusively the debt said to be due and owing. However, during the hearing and in final written closing submissions, the plaintiff abandoned that position and made it plain that it did not rely on these evidentiary certificates by way of conclusive proof.

22    The defendant’s position is that it has paid the debt the subject of the plaintiff’s initial statutory demand, dated 9 September 2009, in full. It says that the sum of $483,934.08 identified on behalf of the Commissioner has never been the subject of a statutory demand or recovery proceeding.

23    The defendant seeks to dispute that anything is currently due and owing.

24    In this regard, the defendant accepts that the production of an RBA statement is prima facie evidence that the amounts and particulars in the statement are correct, as provided for by s 8AAZI of the TAA. However, it contends that the RBA is not conclusive evidence of the veracity of the ATO debt and its quantum can be disturbed by contrary evidence. In the circumstances, the Commissioner is not relying upon any conclusive evidence provisions and I accept the submission made by the defendant that it is entitled to challenge the veracity of the debt by reference to the whole of the evidence adduced. Nonetheless, as noted below, some evidence provisions of the TAA are still relevant.

25    The first item of the ATO debt challenged by the company is in respect of fuel tax credits and associated tax shortfall penalties which, as noted, constitute $274,200 and $68,550 respectively of the sum calculated by Ms Logue.

26    From 1 July 2006 to 30 September 2006, the defendant claimed fuel tax credits totalling $274,200. They were reported in the BAS for the relevant periods.

27    On 23 December 2009, the liquidator was appointed to the company and thereafter the plaintiff directed all further correspondence on the topic of the fuel tax credits to him.

28    After that appointment, Mr Jamie Pollock purported or attempted to obtain details of these credits on behalf of the defendant so that he could deal with them directly.

29    In short, the company’s representatives claim the defendant was entitled to credits and that the liquidator did not fight sufficiently hard for them. When the liquidator received correspondence from the ATO concerning an audit of the fuel tax credits, the correspondence was merely forwarded to Mr Jamie Pollock but little else done was with it.

30    Eventually, on 25 May 2010, the plaintiff notified the liquidator that it had reassessed the fuel tax credits as nil and had imposed penalties totalling $68,550. This, the defendant says, had the effect of increasing the notional tax debt by $342,750.

31    The defendant says the reassessment occurred by reason of the liquidator’s failure to respond adequately to the plaintiff’s correspondence.

32    The defendant says this happened even though Mr Peter Laurier, the defendant’s former bookkeeper, attempted or purported on behalf of the company by fax dated 9 June 2010 to object to the fuel tax assessment.

33    The plaintiff eventually advised Mr Laurier and the liquidator that this objection was invalid because Mr Laurier had ceased to have authority over the company’s affairs once it was placed in liquidation.

34    In summary, the defendant submits that:

    The defendant was entitled to fuel tax credits because of the nature of its business.

    It should be inferred that the liquidator authorised Mr Jamie Pollock and therefore Mr Laurier to deal with an objection to the assessment.

    There was no proper basis for the plaintiff to reject the objection as it did.

    The effect of the plaintiff’s and the liquidator’s conduct was to unfairly increase the defendant’s liabilities in respect of fuel taxes and associated penalties by $342,750.

35    The substantive response made on behalf of the Commissioner is that the assessment in respect of the $274,200 concerning the net fuel amount is in evidence as attachment BJL1 to the affidavit of Ms Logue, made 27 August 2010, and that the production of the assessment is, in this particular instance, conclusive evidence that the assessment was properly made and that the amounts and particulars specified are correct: see s 105100 in Sch 1 of the TAA.

36    I accept the Commissioner’s submissions. While the defendant may after the event wish to dispute the Commissioner’s assessment, it is not an assessment that can be overturned in these proceedings in a collateral way. The evidence of the assessment is conclusive evidence of the debt under the TAA. If there had been a desire to challenge the assessment it may have been done under the TAA by way of review or appeal.

37    In these circumstances, the fuel tax and associated penalties of some $342,750 is proved and cannot be set aside in this proceeding.

38    Whether or not a challenge to the audit of the type Mr Laurier attempted might have succeeded in other circumstances is difficult to say. What can be said is that the liquidator does not seem to have seen any obvious merit in the issues raised by Mr Laurier. At the same time, there is little evidence to disclose that the liquidator closely examined the issue. This is something I will consider later in determining whether, on discretionary grounds, the winding up should continue.

39    The defendant also challenges the imposition of general interest charges. In this regard, the platform of the challenge concerns the calculation of BAS payments more generally.

40    The defendant accepts that at the date of the liquidator’s appointment the company had failed to lodge BAS for June 2008, and October 2008 to December 2009.

41    The defendant says that at a meeting on 6 January 2010, Mr Kevin Pollock, as a representative of the sole director Ms de Hollander, informed the liquidator that the outstanding BAS could be prepared and lodged within days. The defendant says that, at that meeting Mr Birman, Ms de Hollander’s lawyer, asked whether it was in order for the company’s director to lodge the outstanding BAS with the ATO, given that the liquidator had been appointed. According to Mr Young, an articled clerk to Mr Birman who was present at the meeting, the liquidator responded that the director should lodge the outstanding BAS as soon as possible.

42    When all this was put to the liquidator at the hearing, he did not expressly deny it.

43    On 13 January and 10 February 2010, Mr Laurier purported to lodge BAS for June 2008, and October 2008 to December 2009.

44    The defendant says that, in the ordinary course of events, BAS containing GST credits higher than the ATO’s threshold amount would be subject to its auditing procedures, as explained by Ms Logue in her evidence (in crossexamination).

45    Of the BAS which Mr Laurier lodged, the ATO:

    did not process BAS for the months of July, September, November and December 2009 because they contained GST credits higher than the threshold amount; and

    automatically processed the remaining BAS on 13 January and 10 February 2010, applying the related GST credits and debits to the Running Balance Account (RBA).

46    However, on 15 February 2010, Ms Logue attempted to have the processed BAS cancelled.

47    Correspondence from about this time between Ms Logue and the liquidator shows that written confirmation was sought by Ms Logue that the liquidator had had no input into the completion of the BAS and gave no authorisation for them to be lodged with the ATO. By email dated 16 February 2010, the liquidator, amongst other things, stated that he had no input into the completion of the BAS returns. That, of course, is something short of saying whether he encouraged their lodgement or authorised them to be lodged.

48    On 18 February 2010, the Commissioner, in light of the fact that the processed BAS could not be cancelled, transferred the relevant balances from the RBA to a separate “CAC” account.

49    The defendant says that the effect of the transfer to the CAC account coupled with the failure to process the deferred BAS, was that:

    the defendant was denied the benefit of credits to the RBA in the sum of $169,069 (the total of payment and refund amounts specified in the unprocessed BAS); and

    there was a debit of $106,751.31 at the date of the hearing for leave to commence these review proceedings on 18 February 2010.

50    The defendant says the only reason advanced by the plaintiff for its refusal to allow the defendant the benefits of the deferred and processed BAS was that the liquidator had not authorised them.

51    The defendant submits the Court should find that:

    at the meeting on 6 January 2010, the liquidator authorised the defendant’s director (and so Mr Laurier) to lodge all outstanding BAS;

    at no time did the liquidator advise the plaintiff that he had not authorised the BAS to be lodged; and

    the plaintiff took steps to cancel the processed BAS and refused to proceed with the deferred BAS not because they were lodged without the liquidator’s authority, but for the sole purpose of justifying its then opposition to Ms de Hollander’s application for leave to proceed to seek relief in this proceeding.

52    As to the plaintiff’s contention that Mr Laurier was not authorised to submit the outstanding BAS, because the functions of officers and employees were suspended entirely during the winding up, the defendant says Ms Logue’s evidence was that:

    she did not know if it was the plaintiff’s practice that all BAS lodged by a liquidator had to be signed by a liquidator;

    she did not know if the plaintiff had a particular policy as to who has to sign a BAS and she assumed that the plaintiff’s only requirement was that the form is signed by someone who is authorised to do so; and

    had the liquidator told the plaintiff he had authorised the BAS, the plaintiff would have processed them.

53    In the circumstances of this case, the defendant submits that Mr Laurier, in preparing and lodging the BAS, was not performing the function or power as an officer of the defendant and so was not “an officer” as defined by s 9 of the Corporations Act 2001 (Cth) and accordingly s 471A of the Corporations Act had no application to him to prevent the performance of the function he performed.

54    Rather, the defendant submits that the liquidator did authorise others – including, indirectly, Mr Laurier – to lodge the BAS. In this regard, the defendant points to other evidence of the liquidator allowing things to be done in relation to the company while in liquidation. For example, the liquidator was aware of negotiations between Ms de Hollander and Mr Jamie Pollock with the Commissioner of State Revenue, but did not involve himself in those negotiations. Nor did he did object to Ms de Hollander’s efforts to make payments to other potential creditors of the defendant. These, the defendant submits, provide examples of the liquidator actually enabling things to happen without there being an exercise of a function or power by an officer of the company without approval.

55    The plaintiff says that the defendant’s closing submissions on the “authorisation” point ignore the evidence of Mr Cribb and Mr Laurier that at no time did Mr Laurier have Mr Cribb’s written authorisation as liquidator to lodge BAS on behalf of the company. Whether or not Mr Laurier was an “officer” is not to the point. He simply had no authority from the liquidator and could not be authorised by anyone else.

56    On the evidence before me I am left in some doubt as to exactly what happened at the meeting on 6 January 2010 that involved the liquidator and Mr Kevin Pollock. It seems to me that the liquidator did not actively oppose the actions foreshadowed by Mr Pollock that would have the effect of resolving liabilities of the company, including in respect of BAS. What he seems to have done is adopt the passive position of allowing Mr Pollock to do whatever he wished while not positively adopting his proposed actions. However, it is less clear that he actually “authorised” Mr Pollock to lodge the BAS. I am left with the clear impression that the liquidator simply concurred in a suggestion that the director should lodge the outstanding BAS as soon as possible. Whether or not the course of conduct may be said, after the event, to be one that was “authorised” by the liquidator is a difficult issue. The fact is that there was no express written authorisation given by the liquidator as one would ordinarily expect there to be for this course of conduct to be undertaken. I say “as one would ordinarily expect there to be” because a liquidator has very precise obligations. One would not ordinarily expect the liquidator to delegate an important function (such as lodging BAS) to officers of a company that has just gone into liquidation, without some form of supervision.

57    In the result, it seems to me that Mr Kevin Pollock, on behalf of Ms de Hollander and through Mr Laurier, believed that by proceeding to lodge the BAS following the discussions with the liquidator, a general position salvaging the company from the liquidation might be advanced – perhaps through a deed of company arrangement. However, the evidence ultimately falls short of supporting the contention made on behalf of the defendant that the liquidator in fact authorised Mr Laurier to lodge the BAS. The liquidator’s later email to Ms Logue advising he had not had any input into the preparation of the BAS was, in my view, literally true. But it also seems to me, there is little doubt the liquidator tolerated the proposal by Mr Pollock that Mr Pollock would cause BAS to be lodged. However, I am not satisfied that he either actively encouraged this course of action, or authorised it, at least in the sense that he thereby indicated he was delegating the task and was prepared to adopt the contents of the BAS so prepared without question.

58    In any event, the Commissioner contends that at best the late lodgement BAS would provide available net GST refunds of no more than $107,948. This is considerably less than the $483,934.08 tax debt verified by assessments, estimates and the RBA. Accordingly, even if the defendant company could establish an entitlement to the alleged available net GST funds, there would remain a tax debt of some $375,986.08 (being $483,934.08 minus $107,948).

59    Central to this calculation of net GST refunds is the company’s entitlement to input tax credits for two alleged peat cartage transactions. In particular, the defendant seeks to claim input tax credits in respect of two transactions totalling $546,062.20, being:

    $287,500 in respect of a tax invoice from Soil and Contracting Pty Ltd, dated 31 July 2009 for $3,162,500 (annexure PNL-4 to Mr Laurier’s affidavit made 13 April 2010), which is reflected in the July 2009 late lodgement BAS; and

    $258,562.20 in respect of a tax invoice from Buildline Pty Ltd (Buildline), dated 15 December 2009 for $2,844,184.20 (annexure AIK–1 to Ms Kuhnert’s affidavit made 13 April 2010), which is reflected in the December 2009 late lodgement BAS.

60    I am far from satisfied that the defendant is entitled to either of these alleged input tax credits.

61    As to the alleged transaction with Soil and Contracting Pty Ltd, I am left in considerable doubt as to the genuineness of the transaction.

62    First, the transaction was between related parties, Ms de Hollander being the sole director of both companies.

63    Secondly, there are no contemporaneous records to substantiate the transaction. All that was produced in answer to a subpoena for information issued by the plaintiff were four pages in respect of an alleged $3,162,000 transaction for peat cartage.

64    Thirdly, the peat the subject of the transaction is not shown in the company’s balance sheet.

65    Fourthly, the alleged transaction was not reflected in the RATA as provided by Ms de Hollander. As at 15 March 2010, the MYOB balance sheet as at June 2009, showed debts to Soil and Contracting Pty Ltd totalling $14,499,928.06. However, the balance sheet as at 31 March 2010 showed debts to Soil and Contracting Pty Ltd totalling $17,572,496.57. It is reasonable to infer that the difference between the two sums represents the alleged peat cartage transaction. I accept the plaintiff’s submission that it should also be inferred that it was not reflected in the defendant’s records until well after liquidation some eight months after the transaction.

66    Fifthly, the alleged transaction was not entered into the defendant’s MYOB records until 2 January 2010, after liquidation.

67    Sixthly, the defendant company’s bookkeeper, Mr Laurier, was only provided with the tax invoice for the alleged transaction shortly before 2 January 2010.

68    Seventhly, the tax invoice relied on by the company is inconsistent on its face with the accompanying record produced under subpoena. The tax invoice seeks payment based on a rate per cubic metre. However, the accompanying records provided for an amount based on equipment at an hourly rate and site supervision. The survey information made no mention of cubic metres and the amount referred to in the tax invoice.

69    Finally, Ms de Hollander, the common sole director of the defendant and Soil and  Contracting Pty Ltd did not know of any such dealings between the companies. She was unable to say whether Soil and Contracting Pty Ltd had any employees or equipment in July 2009. She had never seen the tax invoice relied on to substantiate the claim. She could not say who created it. And yet she was the sole director of both companies at the relevant time.

70    I am left in considerable doubt in relation to this Soil and Contracting Pty Ltd tax invoice and the genuineness of the transaction it is claimed to represent and accordingly I discount it for the purpose of assessing the existence and extent of the Australian Taxation Office (ATO) debt.

71    I am similarly left in considerable doubt concerning the genuineness of the second alleged transaction involving Buildline, which concerned alleged peat cartage from the Princeton Estate at Hutton Street, Stirling.

72    First, there are no contemporaneous records to substantiate the transaction. All that has been produced in answer to a subpoena are three pages. This is very little record for an alleged $2,844,000 transaction for peat cartage. The peat is not shown in the defendant company’s balance sheet. The transaction was not reflected in the RATA as provided by Ms de Hollander. The transaction was not entered into the defendant’s MYOB records until after liquidation on 2 January 2010. Mr Laurier was only provided with the tax invoice shortly before 2 January 2010.

73    Secondly, the tax invoice is inconsistent on its face with the accompanying record produced upon subpoena. The tax invoice seeks payment based on a tonnage rate. However, the accompanying survey information was in terms of cubic metres, not tonnes removed.

74    Thirdly, cartage of the peat by Buildline is inconsistent with a memorandum of understanding (MOU) (which is exhibit C). The obligation to remove the peat was an obligation imposed on Soil and Contracting Pty Ltd and Buildline as its guarantor, not the defendant company. The defendant company was not a party to the MOU.

75    Fourthly, during crosscrossexamination, Ms de Hollander confirmed that it was Soil and Contracting Pty Ltd that removed the stockpile under the MOU.

76    Fifthly, Ms de Hollander did not know of any other peat stockpiles at the site. She did not know whether Buildline had performed any peat cartage for the defendant company. She had not seen the tax invoice before it was presented to her in crossexamination. She had not discussed it with anyone from Buildline.

77    Finally, Buildline had never had any employees and had never owned any earth moving equipment. One might reasonably question, as does the plaintiff, how it could have conducted any peat cartage in such circumstances.

78    Such evidence as Ms Kuhnert, the sole current director of Buildline, was able to give concerning the activities of Buildline was very general indeed. In her oral evidence, Ms Kuhnert referred to the MOU. However, the MOU predated her involvement in Buildline. She only became a director of Buildline on 28 January 2010. She accepted that she did not know what had happened before she became a director of Buildline. Her evidence is simply unhelpful and does not permit me to determine that there was a genuine transaction between the defendant and Buildline that saw the cartage of peat for an agreed price of $2,844,000 in light of the competing evidence.

79    Mr Laurier in his evidence confirmed that he relied on the transaction simply based on what he was told by Ms Kuhnert and by looking at the tax invoice.

80    The defendant also challenges the general interest charge calculated up to and including 22 December 2009 by Ms Logue in the sum of $64,535.97 based as it is on the veracity of the RBA calculations.

81    The defendant says the plaintiff is prohibited from applying a general interest charge from 23 December 2009, being the date of liquidation. The general interest charges plainly depends upon the correctness of other charges.

82    In summary, the defendant says that if the Court accepts in its entirety its argument in respect of the ATO’s alleged debt, it should find that the RBA balance of $483,934 should be reduced by $532,997, calculated as follows:

    Fuel tax credits and associated shortfall penalties $342,750.

    GST credit for unprocessed BAS $169,069.

    General interest charge $21,178.

83    The effect of making such adjustments would be to negate the ATO debt entirely.

84    Moreover, if these adjustments were allowed, there would be a further consequential reduction in the general interest charge.

85    The defendant says that by the liquidator’s appointment, it has been denied any reasonable opportunity to maintain its objection to the fuel tax assessment and to pursue its entitlement to the BAS credits. The defendant further submits that given the conduct of the liquidator and the plaintiff to date it is reasonable to infer that if the appointment of the liquidator continues the plaintiff’s assessments and the consequential disadvantage to the remaining creditors will never be challenged.

86    The defendant says that even if that argument is not accepted in its entirety, the Court should at least find that there are substantial grounds for the defendant to dispute the quantum of the ATO debt and, subject to other relevant considerations, should set aside the winding up order.

87    For the reasons set out above, I am not satisfied that there should be an adjustment made notionally or actually in respect of the fuel tax credits and associated shortfall penalties. The defendant may wish to argue about the outcome of the plaintiff’s audit. However, there is conclusive evidence relating to the tax position in that regard which cannot be ignored. I am unable to form any clear views concerning the claims represented in Mr Laurier’s objection, although I will regard them further when considering the Court’s discretion to order the winding up of a company.

88    More importantly for present purposes, however, I accept the submission of the plaintiff that the defendant is not entitled to claim input tax credits in respect of the two alleged peat cartage transactions totalling $546,062.20, being $287,500 and $258,562.20 respectively. The removal of these claimed input tax credits has the clear effect that the adjustments contended for by the defendant cannot be maintained. Once removed, the ATO debt is undoubted. The late lodgement of BAS at best could only provide net GST refunds of not more than $107,948. This at best could only reduce the ATO debt of $483,934.08 to $375,986.08.

89    I am, however, satisfied that the defendant is in fact indebted to the plaintiff in respect of the full amount of $483,934.08 as claimed.

second issue: is the defendant solvent?

90    The parties are not in any serious disagreement as to the principles that govern the answer to the question of whether the defendant is solvent.

91    It is accepted that there is a statutory presumption of insolvency where a company has failed to comply with a statutory demand: s 459C(2)(a) Corporations Act. The presumption is rebuttable. By s 459C(3) the presumption operates except so far as the contrary is proved. In other words the defendant must prove to the contrary and satisfy the Court on the balance of probabilities that it is solvent: Turco and Co Pty Ltd v Pendella Holdings Pty Ltd [2010] FCA 213; Ace Contractors and Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 (Ace Contractors).

92    Solvency must be established as at the date of the hearing: Ace Contractors at [44].

93    Section 95A of the Corporations Act provides that a corporation is solvent only if it is able to pay all its debts as and when they become due and payable.

94    It is also well established that the test for insolvency has a commercial aspect, that is, it focuses on the company’s ability to meet current demands. It is in that sense a “cashflow” test, not a “balance sheet” test. Nonetheless, the financial position of the company as a whole may be regarded. See for example, Southern Cross Interiors Pty Ltd (In Liq) v Deputy Commissioner of Taxation [2001] NWSC 621; (2001) 53 NSWLR 213 at [48]-[54]; Re New World Alliance Pty Ltd (No 2) (1994) 51 FCR 425 at 436, per Gummow J; Trinick v EM and RM Williams and Sons [2009] WASC 297 at [92]-[110], per Murphy J.

95    Accordingly, funds which are capable of being raised from outside sources may be relevant to the question of whether a company is solvent, based on a realistic commercial assessment. However, the availability of such funds in the form of a loan will not enhance solvency unless the loan terms are such as to exclude the loan liability from consideration in its own right as part of the debts due or near due. Genuine and realistic availability, as a matter of commercial reality, must be demonstrated.

96    Bearing these principles in mind, I turn to consider the financial position of the defendant, which is addressed by the following balance sheets, reports and evidence.

97    First, there is the balance sheet prepared by Mr Laurier, the former bookkeeper to the defendant (annexure PNL9 to his affidavit, sworn 13 April 2010).

98    Mr Laurier’s balance sheet discloses total available assets of $10,149,611.92 which include $106.70 in bank accounts, accounts receivable of $417,873.17, fixed assets of $871,055 and loan assets of $8,860,577.05.

99    It also discloses total liabilities in the sum of $31,280,346.13 comprising trade creditors of $16,864.59, other current liabilities of $50,632.81, ATO accounts at ($302.26), loan liabilities of $28,142,057.14 and a secured creditor of $3,071,093.85.

100    The balance sheet of Mr Laurier therefore discloses a total deficiency of $21,130,734.21.

101    On 15 March 2010 Ms de Hollander, the sole director of the defendant, signed a Report as to Affairs (RATA) in respect of the defendant.

102    The RATA discloses total available assets of $11,536,134.86, not including any money at the bank, accounts receivable of $122,507, fixed assets of $720,000 and loan assets of $10,693,627.86.

103    The RATA also discloses total liabilities of $26,604,413.08, including no trade creditors, other current liabilities of $91,919.41, nothing by way of ATO accounts and loan liabilities of $23,012,493.67, as well as a secured creditor in the amount of $3,500,000.

104    The RATA therefore discloses a total deficiency of $15,068,278.22.

105    Mr Cribb, the liquidator, produced copies of the defendant’s balance sheets as at 30 June 2007, 30 June 2008 and 23 December 2009 from data on a disc supplied to him by Mr Pollock which contained files relating to the company in “MYOB Premier 12” format.

106    The balance sheet drawn from that data, as at 23 December 2009, discloses total available assets of $11,815,316.64 comprising money at a bank of ($87,044.07), accounts receivable of $352,856.78, fixed assets of $888,155 and loan assets of $10,661,348.93.

107    The 23 December 2009 balance sheet also discloses total liabilities of $34,703,116.94 including trade creditors of $3,187,546.60, other current liabilities of $370,483.83, ATO accounts of $699,503.89, loan liabilities of $28,508,548.20 and a secured creditor in the sum of $1,905,768.20, as well as a long term liability in the sum of $31,266.22.

108    The balance sheet as at 23 December 2009 therefore shows a total deficiency of $22,887,800.30.

109    What is immediately evident is that, on any view of the financial affairs of the defendant, the defendant has a considerable total deficiency in respect of which none of the claimed assets provide any cover.

110    It is also noted that Mr Laurier’s balance sheet and that prepared by the liquidator from the MYOB information as at 23 December 2009, produce a broadly similar total deficiency – $21,130,734.21 and $22,887,800.30 respectively. By contrast the RATA signed by Ms de Hollander in March 2010 has a vastly reduced total deficiency, but still in excess of $15,000,000.

111    That said, Mr Laurier’s initial balance sheet includes assets such as a legal trust account in the sum of $38,000 and liquidation costs in the sum of $30,000. The former is plainly a payment into the trust account of the defendant’s solicitors in these proceedings and should not be considered an asset of the company. Certainly it is not readily realisable by the company, having been paid on account of legal expenses. The latter, the $30,000, was security which the Court ordered be paid in relation to the anticipated costs of the review proceeding and which again should not be considered an asset of the company. It certainly is not readily realisable.

112    As will become apparent in relation to the later discussion concerning the fixed assets, the asset that is principally contended for as having value, in the long term, is the land at 665 Welshpool Road East.

113    A variety of loan assets mentioned are in relation to related entities. Some others are discussed later as to their certainty and how realisable they might be considered.

114    Generally in relation to assets at the bank the evidence shows that there is little or nothing there. The liquidator has identified a receipt of $18.45 and I accept that.

115    In relation to accounts receivable, the trade debtors, particularly BioOrganics Pty Ltd (BioOrganics), must be the subject of some real doubt as to their extent. I will discuss BioOrganics in more detail later. On the basis of my later assessment the accounts receivable should probably be treated as zero.

116    In relation to fixed assets, the land at Welshpool Road East is heavily mortgaged and not readily available as security for borrowing purposes, and probably should be considered to have a zero value in such circumstances. Another fixed asset described as Gnangara–Yard construction was not mentioned in the RATA. It is difficult to know on the evidence what value, if any, should be attributed to it. Overall the fixed assets suggest little or no immediate value.

117    As to the loan assets mentioned in the various documents, one is again left in some state of doubt as to whether any of the loans are readily realisable. While most are repeated in each of Mr Laurier’s balance sheet, the RATA and the 23 December 2009 document prepared by the liquidator, the RATA does not include two of the common entries – in respect of White River and performance guarantees. In the RATA Ms de Hollander is unsure whether many amounts are realisable. One is left with considerable doubt as to the value, if any, of the loan assets. I am left considering that they are probably worth little, if anything.

118    So far as the trade creditors liabilities are concerned, as discussed later, it is unclear whether an amount of $16,864.59 in rates and taxes due to the Shire of Kalamunda has been paid. The liquidator’s investigations, whilst not without difficulty, suggest trade creditors in the vicinity of $5,612.97. In respect of other current liabilities, both the balance sheet of Mr Laurier and the RATA, perhaps not surprisingly, tend to minimise these and limit them to payroll tax. However, I accept that there plainly are a number of other current liabilities identified by the evidence, and particularly by the liquidator, which suggest they are likely to be in the vicinity of $576,384.07.

119    As to ATO accounts, I have already found above that the debt identified by the plaintiff in the sum of $483,934.08 is correctly claimed.

120    In relation to loan liabilities, there are a number that are currently listed in Mr Laurier’s balance sheet, the RATA and the 23 December 2009 balance sheet that require comment. By reason of arrangements or understanding concluded with a range of mainly related creditors, a number of debts or liabilities and not immediately payable. One to A.I.K. Corporation Pty Ltd in the sum of $1,603,801.80 and another to Buildline in the sum of $2,844,184.20 may be considered debts not payable in the immediate future. The same may be said of the debt to “Davis R” in the sum of $337,975.97. Similarly an amount due to Formstone Corporation Pty Ltd of $702,273.87 and an amount due to Carina Healey of $9,745.65 is not payable in the immediate future. There are other loan liabilities that are either not payable or immediately payable including to Jo Kosovich in the sum of $14,000, Level Holdings Pty Ltd of $119,954.32, Masterline Pty Ltd in sum of $252,639 and Newcode Pty Ltd in the sum of $261,788.09. An amount due to Simro Pty Ltd in the sum $34,964 also seems not to be payable in the immediate future.

121    Two debts totalling $17,572,497.57 to Soil and Contracting Pty Ltd would appear not to be debts payable in the immediate future.

122    Similarly, an amount of $3,587,065.10 listed to Soils Ain’t Soils Pty Ltd does not appear to be payable in the immediate future.

123    An amount of $531,477.08, due to Stonetraders Pty Ltd (Stonetraders) or Buildline also appears in the not payable in the immediate future category, along with an amount of $115,674.10 due to Sunbold Pty Ltd.

124    So far as the secured creditor is concerned, Mr Masel of Reliance Finance & Mortgage Service gave evidence that the mortgages secure a loan in the vicinity of $2,800,000 and guarantees in the order of $4,000,000, but are not payable in the immediate future.

125    All that results in a deferred liability of $3,071,093.85.

126    Similarly, a long term liability, being a lease or hire purchase agreement, is not immediately payable in respect of a sum of $31,266.22.

127    If one has regard to the observations I have made about what assets and liabilities ought to be properly regarded for a financial affairs statement, then the total available assets are next to nil, say $18.45. However, the total liabilities are very much in the order as they appeared from the MYOB information supporting the 23 December 2009 balance sheet, namely, $34,019,408.85. While many liabilities may be considered not immediately payable, some $2,829,008.13 is immediately payable. All of this discloses that the defendant is in a hopeless financial position.

128    I turn now to some particular items in question.

129    BOC Limited have a claim in the sum of $5,612.97 that relates to gas cylinders in the defendant’s possession that have not been returned. Whether this is a debt, or as the defendant suggests a quantified claim for damages, is perhaps beside the point. The substantive contention made on behalf of the defendant is that Mr Jamie Pollock gave unchallenged evidence that if the winding up order is set aside and the gas cylinders cannot be found within 7 days, he is willing and able to pay the amount in question to BOC Limited.

130    Sandpiper Asset Pty Ltd (Sandpiper) by its director, Mr Kevin Healey, has deposed that the defendant is indebted to his company in the sum of about $35,000. If the winding up orders are set aside, Stonetraders has undertaken to pay this amount to Sandpiper within 7 days. This assurance was given by Mr Jamie Pollock on behalf of that company.

131    In his letter dated 23 August 2010, Sandpiper’s administrator relies on its books to assert that the defendant’s debt is $145,301. The defendant says the amount is obviously disputed and has not been otherwise substantiated by Sandpiper or accepted by the liquidator.

132    The defendant says the Court should consider that where there is a loan marked in a company’s books and records, it is usual for the company’s liquidator or administrator to issue a demand to recover moneys before conducting any investigation as to the veracity of the debt – as Sandpiper’s administrator is likely to have done.

133    The defendant submits that the Court should conclude that:

    there is an undisputed debt of $35,000 which will be paid if the winding up orders are set aside; and

    at best there is a possibility of a further claim that would be disputed.

134    The plaintiff says that there is no evidence that Stonetraders has the necessary capacity to pay either the $35,000 debt to Sandpiper or any other debts, to which I will come, such as the sum of $39,648.60 to the Commissioner of State Revenue.

135    The plaintiff points to contrary evidence of ability to pay, as follows:

    Stonetraders is indebted to the defendant in an amount of at least $1,056,322.09 (as recorded in the 31 March 2010 balance sheet) which is more probably $2,184,800.27 (as recorded in Ms de Hollander’s RATA).

    The liquidator has made demand for payment of that debt and has not received a response.

136    Plainly, there is a real, not merely a possible, issue concerning the Sandpiper liability.

137    The defendant is indebted to the State of Western Australia Department of Treasury and Finance. There was a debt originally due in the sum of $91,919.41. This was compromised in the sum of $50,632.81, subject to payment by 31 May 2010. Mr Jamie Pollock paid the compromised sum but failed to do so within the agreed time for payment. As a result, the Department has sought payment of the balance. Stonetraders has undertaken to pay the full amount owing to the Department within 48 hours of the later of the winding orders being set aside, or the Department advising Mr Jamie Pollock of its position in relation to the debt.

138    As to the $39,648.60 due and payable the plaintiff again doubts the capacity of Stonetraders to make the payment.

139    By a tax invoice dated 15 July 2010, BioOrganics has demanded payment from the defendant of $908,668.48. The transaction giving rise to the alleged debt occurred in July 2008 and the invoice was rendered in response to the liquidator’s inquiries. The defendant says it is evident from the evidence of Mr David Hargreaves (affidavit sworn 16 July 2010) that the invoice does not relate to a debt, but rather to a potential claim for damages. The defendant says there is no evidence that the liquidator has investigated the veracity of the claim or attempted to recover any monies that Bio-Organics owes to the defendant. The defendant says Mr Peter Pollock gave evidence concerning the relationship between the defendant and Bio-Organics and it is unchallenged. Further, the defendant says there is prima facie evidence from the defendant’s books and records that Bio-Organics is indebted to it in the sum of $122,507.

140    The plaintiff says that the $122,507 debt is disputed and the counterclaim is a much larger sum. In any case, the debt is not readily realisable. Ms de Hollander did not know whether any of the debtors could pay.

141    In my view, the evidence supports the view that there are grounds for concluding that there is a real liability in respect of BioOrganics.

142    An agreed position between the parties concerning Ms Frances Pollock is as follows:

     Ms Pollock was bankrupt between 10 December 2004 and 7 May 2008.

    The $7,185 debt referred to in her affidavit sworn 14 April 2010, was a debt in existence as at 10 December 2004.

143    I accept the plaintiff’s submission that the debt was property of Ms Pollock's bankrupt estate which passed to her trustee in bankruptcy. She was not entitled to and could not in law waive the debt. It remains the case that the defendant company owes that debt to the trustee in bankruptcy.

144    Evidence was given concerning the possible indebtedness of the defendant to the following:

    Police & Nurses Credit Society Limited or Skyvale Nominees Pty Ltd.

    J Blackwood & Son Pty Ltd (otherwise known as Blackwood Atkins).

    Starbrake Holdings Pty Ltd, Boban Pty Ltd or Mammoth Nominees Pty Ltd (Mammoth).

145    The defendant says it is not indebted to any of these entities and that on 2 July 2010 Ms de Hollander caused an advertisement for creditors to be published in The West Australian newspaper to which there has been no relevant response.

146    Evidence relating to the indebtedness of the defendant in relation to these entities is sparse to say the least, and I take no account of it for present purposes.

147    There is an issue concerning the indebtedness of the defendant to the Shire of Kalamunda in the sum of $16,864. The defendant says there is evidence, or it should be inferred that the defendant has satisfied this indebtedness. The plaintiff says that there is no evidence that the debt has been paid. I am not satisfied by the evidence that the debt has been paid.

148    In broad terms, so far as the land at Welshpool Road East is concerned, I accept the submission of the plaintiff that it does not provide a readily realisable financial resource. The property is mortgaged and cannot be sold or further mortgaged without consent. As the plaintiff submits, even on the most optimistic basis of the valuation tendered by the defendant, the projected value of the land is no more than $10,172,400. That is insufficient to permit the defendant to meet the $34,000,000 deficiency. It has no other means of meeting those debts.

149    The defendant says it has other potentially realisable assets apart from the Welshpool Road East land, including:

    An ATO refund of approximately $50,000;

    Mammoth’s debt of approximately $3,300;

    Bio-Organic’s debt of approximately $122,507;

    a peat stockpile at Gnangara Road;

    trade debtors; and

    loans to related entities.

150    In relation to these claimed assets of the defendant, I have already indicated that I do not accept the contention of the defendant that an adjustment of the ATO debt is required or that there is a potential GST refund.

151    In relation to the property at 665 Welshpool Road East, as noted the facts are that it is mortgaged and cannot be sold or further mortgaged without consent. The land cannot be used to raise funds in the immediate future.

152    There is no evidence that Mammoth owes the defendant company $3,300.

153    As to BioOrganics, I have already dealt with that claim above.

154    As to the peat stockpile at Gnangara Road, it is not shown in the defendant’s 31 March 2010 balance sheet or the RATA. Mr Laurier’s evidence was that this was no more than a future asset with no present tangible value. I am left unsatisfied it is a real asset.

155    As to trade debtors, Ms de Hollander could not say whether any of the related entities could pay their debts to the defendant company. It is difficult to say that there is any basis on which the trade debtors could constitute an available financial resource.

156    The defendant also says that the question of the liquidator’s costs should not be considered in assessing the defendant’s financial position and is no more than a factor that the Court may weigh in the exercise of its discretion.

157    The liquidator currently claims that as at 30 June 2010, costs incurred were $246,900 not including GST. He says that as at 30 March 2010, he had incurred approximately $90,000 of those costs.

158    The defendant submits that, although the proceedings are not an appropriate forum for doing so, there are prima facie cogent reasons to closely scrutinise the liquidator’s costs, including:

    the liquidator’s conduct in apparently preferring the plaintiff ahead of other creditors;

    the liquidator’s failure to seek proofs of debt from any creditor;

    the liquidator’s failure to participate in any meaningful way with the resolution of the fuel tax credit assessments or Business Activity Statements (BAS);

    the fact that he placed significant tracts of inadmissible evidence before the Court; and

    the fact that he sought extensive legal advice regarding matters which one would expect to be within his own area of expertise.

159    The defendant says that if the Court accepts the defendant’s contentions that there is no ATO debt, it may follow that the plaintiff should be required to pay the liquidator’s costs.

160    The plaintiff says that the defendant has failed to address how the defendant company will be able to meet the liquidator’s remuneration expenses to which he is entitled on winding up, even if the winding up order is set aside.

161    The plaintiff says it is wrong to suggest that the plaintiff might be required to pay the liquidator’s remuneration expenses. The plaintiff rejects the premise that there is no ATO debt at the present and that there never was such a debt.

162    Having regard to the findings made about the ATO debt, I do not consider there is any basis upon which the liquidator’s costs should be disregarded in these proceedings. There is no appropriate basis, in my view, for disallowing a claim in respect of the liquidator’s costs.

163    Returning then to the question of insolvency, in my view, the commercial reality is that the defendant is insolvent. It is not open to the Court to find other than that the defendant is insolvent. In short, the defendant is not carrying on any business. It does not trade. It does not earn any revenue. It has a secured creditor to whom it has outstanding loans of at least $3,071,000 together with contingent liabilities. It has substantial liabilities to related party unsecured creditors. There is no real evidence of readily realisable assets. The defendant is simply unable to meet debts in the future as and when they fall due. The fact that the supporters of the defendant say they are prepared to do all that they can commercially to salvage the main asset of the company – the land at Welshpool Road East – does not, in my view, mean that the defendant has rebutted the presumption of insolvency, rather it tends to affirm it. The only question remaining is whether the Court in its discretion should halt the winding up. There is no evidence here, for example, of any legally enforceable agreements providing for releases, deferred payments terms, subordination or limited recourse arrangements so far as related creditors are concerned. Nor is there any evidence of legally enforceable commitments providing for the director or others to make advances available to meet debts or liabilities falling due in the immediate future.

164    While there is some limited evidence that Buildline and Stonetraders may make funds available to the defendant, as might Mr Jamie Pollock, there are no legally enforceable commitments to do so. Moreover, the evidence suggests that it is highly questionable whether those companies have the capacity to make any substantial payments. As noted earlier, Stonetraders is indebted to the defendant and the liquidator has made demand for payment without receiving a response. Buildline  has very little cash in the bank and a large category of trade creditors in the region of $3,300,000.

165    Here, the defendant simply asks the Court to accept as part of the “commercial reality” the likelihood that supporters of the company will continue to do what is necessary to keep the company afloat, in order to preserve the future development potential of the Welshpool Road East land.

166    While the defendant has demonstrated a level of commitment from related parties and supporters, the commercial reality is that the defendant is utterly insolvent. The largess of other entities or individuals in supporting the defendant highlights the fact it is insolvent. That support may or may not be maintained. The defendant certainly has no right, contractual or otherwise, to claim the support. In substance, by reference to such support and expressions of future support as well as other factors pertaining to the ATO debt, the defendant seeks the Court’s grace to stay out of liquidation.

167    The presumption of insolvency has not been rebutted by the defendant.

third issue: should the court in its discretion overturn the winding up order?

168    Section 459A of the Corporations Act provides that on an application under s 459P, as here, the Court “may order that an insolvent company be wound up in insolvency”. The parties accept that the power of the Court to order winding up is discretionary, having regard to the word “may” that appears in this provision. That the power is discretionary is consistent with s 467(1)(c) which recognises the broad powers of the Court to make appropriate orders in relation to a winding up application. However, it is also generally recognised that a discretionary power is to be exercised judicially and for the proper objects and purposes of the Act in which the discretionary power resides. Accordingly, as a general rule, a creditor who cannot obtain payment is entitled to a winding up order as a matter of right: IOC Australia Pty Ltd at 427.

169    However, the defendant says that its particular circumstances should lead the Court to refuse to wind it up. The defendant says that the appointment of the liquidator has been to the serious detriment of the creditors because the liquidator has deprived the company of the ability to properly deal with the requirements of the ATO. The defendant says it is reasonable to infer that, but for the appointment of the liquidator, in the ordinary course of business the ATO would have processed the unprocessed BAS and allowed the ensuing credits, and neither reassessed the fuel tax credit claims to nil nor imposed penalties in respect of them. The defendant also submits that the liquidator’s costs would not have been incurred as an additional liability issue. The defendant further emphasises that the plaintiff is the only creditor pursuing the winding up application. Finally, the defendant says the majority of the creditors both in value and in number oppose the winding up order being made, and that this has been recognised as a relevant factor in the exercise of the Court’s discretion.

170    In Mercantile Credits Ltd v Foster Clark (Aust) Ltd [1964] HCA 66; (1964) 112 CLR 169 (Mercantile Credits) at 173-174, the Court (Kitto, Taylor and Windeyer JJ) considered it undoubted that a court, under the relevant companies legislation then considered – which was not so different from that under which the Court now acts – had a discretion that might be exercised against the claim for a winding up. The Court emphasised that it was “a judicial discretion to be exercised in accordance with established principles”. The Court noted that the leading principle is that as between a creditor and the company, the creditor has a prima facie right to a winding up order. It is a right, which the creditor possesses on behalf of the whole class of creditors to which he or she belongs. For that reason, the wishes of the majority in value, if they are expressed, will always be considered.

171    In the Mercantile Credits case, the Court, at 175, noted that there was a conflict between the interests of a whole body of unsecured creditors and the interests of one unsecured creditor. It said the conflict was that the one unsecured creditor desired to get for itself the whole of the fund in Court. However, the Court noted that the primary judge had apparently regarded the proceedings merely as a conflict between two creditors, in which no reason had been shown for denying to the creditor which had issued execution, and also was owed the largest unsecured debt, the fruits of the steps it had taken. The Court continued, at 175, to point out that, to decide the matter as if an unsecured creditor, seeking to enforce a prima facie right to a winding up order which must enure for all members of his (or her) class, has to show some positive reason as to why one of them should be denied the right to take part of the company’s assets for his own benefit exclusively of the others, was an error of law. The Court explained that one of the strongest reasons there can be for making a winding up order is that thereby one of a number of creditors will be stopped in an attempt to get more than its proper share out of assets that are insufficient to satisfy all. The Court noted that there are exceptional cases, but the general principle, basic to company law, is that the jurisdiction to order a winding up will be used in order to prevent an execution, which was uncompleted when the petition was presented, from being completed so as to give the execution creditor a priority over other unsecured creditors.

172    Here, a wide variety of related party unsecured creditors are willing to support the defendant’s view that it should not be wound up. Any parties – apart from the plaintiff – who have not been in that category have effectively been paid out by the company’s supporters. However, the defendant has not been prepared to pay out the ATO. Rather, it is aggrieved at the process by which the ATO debt has been crystallised. It wishes to argue, effectively, that the process by which the ATO debt has been crystallised has been unfair to the company and that it failed to process in the ordinary way. It also says the liquidator took little or no steps to prevent the reassessment of the fuel tax credits to nil and remove penalties associated with that tax. In short, the defendant contends it has suffered something in the nature of a wrong that, in the particular factual circumstances of this case, should cause the Court to decline to make a winding up order. If it had not suffered this wrong, it would not have a debt to the ATO. The defendant says the Court should take account of this.

173    What is in this for the defendant, is that its primary asset – the Welshpool Road East land – might be preserved for development at some time in the future when, according to the belief of the defendant, its potential value may best be realised. Whether or not that is likely to come to pass perhaps does not matter; the defendant wants the opportunity at some point in the future to develop the land to its highest potential. As the plaintiff has submitted, the potential value suggested by the respondent is nowhere near enough to satisfy the current $34,000,000 deficiency.

174    The only creditor that stands in the way of the defendant realising its hopes is the plaintiff.

175    If the Court, however, were not to make a winding up order, the simple fact would be that the current dispute between the defendant and the ATO over the ATO debt would effectively remain unremedied and unsatisfied. Winding up provides the plaintiff with its one final course of action. In the end, there are no proper grounds for the Court to deny the plaintiff the fruits of the winding up proceeding it has commenced.

176    Having regard to the findings I have already made, the ATO debt is established on the balance of probabilities.

177    Whether or not the Court were to express some sympathy in relation to the defendant’s predicament, both in relation to the way BAS was processed, and how the liquidator responded to the plaintiff’s audit of fuel tax credits, the fact remains that the plaintiff is a creditor.

178    To the extent that the defendant suggests some want of good faith or ulterior motive by the plaintiff in pressing the winding up application, there is, in my view, no evidence to support this.

179    The most that can be said is that the plaintiff has drawn attention to the fact that there may well be other issues which should be investigated by a liquidator in relation to the earlier administration of the company which the Court should regard when exercising its discretion. But to so contend does not raise questions of ulterior purpose or bad faith on the part of the plaintiff.

180    In this particular case, there is only one unrelated creditor interested in the winding up application. That is because there really are no other creditors in that category. By commercial arrangements or understandings the defendant, or its supporters, have achieved degrees of compromise or deferment of debts with others so that they do not weigh into the winding up process. Most probably, given the huge deficiency of the company, commercial positions have been taken on the basis that if a winding up were to proceed there is little satisfaction is likely to be achieved in respect of the wide array of secured and unsecured debts. But, in my view, that is no reason why the Court should decide in its discretion not to make the winding up order on the application of the only interested creditor, who is shown to be a creditor of the defendant.

181    I should add that the authorities cited by the parties as to the judicial exercise of the discretion to wind up or not to wind up a company all emphasise that the exercise of the discretion one way or the other depends upon the particular circumstances of the case. This observation is reinforced by the decision of Blow J in Re Huon Foam Pty Ltd [2000] TASSC 99 at [9], where his Honour cites a number of decisions where, depending on the circumstances, the Court gave a company an opportunity to trade out of its problems or otherwise adjourned a proceeding to allow a company to develop its situation and avoid winding up. In that particular case, however, not altogether unlike the present case, his Honour considered the company’s position was hopeless and there was no prospect of creditors receiving any significant payment from its own resources. He accordingly wound the company up.

182    By contrast, in Avram Investments Pty Ltd v Deputy Commissioner of Taxation (Vic) (1992) 9 ACSR 580, Harper J in the Supreme Court of Victoria exercised the discretion against winding up in circumstances where all creditors, save for the plaintiff, were in favour of a scheme of arrangement. In such circumstances, his Honour gave considerable weight as a primary consideration to the overwhelming majority of creditors who supported the scheme. Such a case, however, plainly is quite different from that which exists here. Apart from anything else, there is no such alternative proposal here that responds to the interests of all creditors.

conclusions and orders

183    For these reasons, I would maintain the liquidator’s appointment and confirm the winding up order already in place.

184    I will hear from counsel for the parties as to the final orders that should be made on this review including as to costs.

Associate:

Dated:    22 December 2010