FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation, in the matter of Manta’s on the Beach Pty Ltd v Manta’s on the Beach Pty Ltd [2012] FCA 417

THE COURT ORDERS THAT:

1.    The application is dismissed.

2.    The plaintiff is to pay the defendant’s costs of and incidental to the application to be taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

1    A Deputy Commissioner of Taxation (Commissioner) has applied under s 459P of the Corporations Act 2001 (Cth) (Corporations Act)for the winding up in insolvency of Manta’s on the Beach Pty Ltd (Manta’s).

2    The basis for the winding up application is that it is alleged to be insolvent. The proof of that is said to found in the presumption which arises under s 459C of the Corporations Act by virtue of an alleged failure on the part of Manta’s to comply with a statutory demand. The foundation for the statutory demand is an alleged indebtedness by Manta’s to the Commonwealth payable to the Commissioner in respect of a superannuation guarantee charge and general interest charge amounts. The total debt the subject of the statutory demand is $32,064.61. Manta’s overall indebtedness to the Commonwealth in respect of amounts payable to the Commissioner under various federal revenue laws is much more than this. The evidence led on the behalf of the Commissioner establishes that, in total, Manta’s is indebted to the Commonwealth in the sum of $148,321.49, which sum includes the superannuation guarantee charge debt (now, with general interest charge, totalling $34,328.97).

3    There is a controversy as to whether the statutory demand was served. Even if that demand is not proved to have been served, the Commissioner nonetheless submits that, on the evidence, Manta’s ought to be wound up in insolvency.

Service of the STATUTORY Demand

4    I had occasion recently to summarise the provisions of the Corporations Act relevant to the winding up of a company in insolvency where a creditor relies upon a failure on the part of a corporation to comply with the terms of a statutory demand: see Deputy Commissioner of Taxation, in the matter of ABW Design & Construction Pty Ltd v ABW Design & Construction Pty Ltd [2012] FCA 346 at [2] and [3] (ABW). In this case, as in ABW, the Commissioner has chosen to use the post as a means of serving the statutory demand. ABW is also therefore relevant for the discussion in that case to the various provisions of the Corporations Act (s 109X), the Acts Interpretation Act 1901 (Cth) (Acts Interpretation Act) and the Evidence Act 1995 (Cth) (Evidence Act) which permit service by post and which provide for presumptions as to by when documents sent by post are taken to have been served, together with various authorities concerning the same. I shall not separately reproduce that discussion but instead incorporate the same by reference.

5    Unlike ABW, this case is not attended with any administrative oversights in relation to the adoption of the post as a means of service. By that I mean that there is no evidence of any absence on the envelope containing the statutory demand and supporting affidavit of a return address for delivery or partial obliteration of the recipient’s address. The Commissioner has proved that the statutory demand together with its supporting affidavit was sent by prepaid post in an envelope which bore the address of Manta’s registered office. Further, the Commissioner has adduced evidence, which I accept, of a system maintained in the course of his administration of the Australian Taxation Office for the recording of correspondence, including materially statutory demands sent by post, which are returned undelivered or otherwise returned to sender. There is no record within that system of this statutory demand and supporting affidavit being returned to the Commissioner.

6    The statutory demand is dated 23 August 2011. It was posted that day by an officer of the Australian Taxation Office in Moonee Ponds, Melbourne, Victoria (Moonee Ponds).

7    The sole director of Manta’s, Mrs Karyn Anne Battersby (Mrs Battersby) has given evidence that she first saw a copy of the statutory demand in early March 2012 in the form of an attachment to an email from the Australian Taxation Office. She deposed that she did not see a copy of the statutory demand in either August or September last year. During that time she was living at the same address as that of the registered of Manta’s, which is an address at Yeppoon in Central Queensland. During those months in 2011 Mrs Battersby was working very long hours. She rarely collected the mail herself. Instead, the practice was that her now estranged husband, Mr John Battersby (Mr Battersby), would collect mail from the mail box located at the side of that property in Yeppoon. He was then living with Mrs Battersby at that address. Mr Battersby’s practice was to leave any mail either for Mrs Battersby or Manta’s either on the kitchen bench at the property or on the dining room or on Mrs Battersby desk. In turn, then as now, her practice was regularly to open and review any mail including mail addressed to Manta’s. Her practice was not to dispose of mail without first opening it and checking its contents. The mail collection and placement practice described by Mrs Battersby was confirmed by Mr Battersby in a separate affidavit. Neither Mr nor Mrs Battersby was required for cross-examination.

8    Mrs Battersby stated unequivocally that she did not receive any correspondence by mail from the Commissioner enclosing a statutory demand in August or September 2011. She stated that she was confident that she would remember the receipt of such a document.

9    Taking Mrs Battersby’s evidence as a whole and in conjunction with that of her now estranged husband, and the evidence led by the Commissioner, I see no reason to doubt her evidence. Of course the absence of return of the documents to the Commissioner must be taken into account, as must the evidence (detailed below) as to Australia Post’s usual delivery times. So, too, must the element of self interest which attends at least Mrs Battersby’s evidence. It is difficult to see that same feature attending Mr Battersby’s evidence, especially given the subsequence estrangement which has occurred. On the whole of the evidence, I find that the envelope containing the statutory demand and supporting affidavit, though posted on 23 August 2011, was not received at all at Manta’s registered office in Yeppoon either in August or in September 2011. I find that Mrs Battersby and, hence, Manta’s, first became aware of the existence of the statutory demand in early March 2012.

10    Where does this leave matters so far as the statutory presumptions are concerned?

11    The presumptions found in s 160 and s 163 of the Evidence Act operate, “unless evidence to sufficient to raise doubt about the presumption is adduced”. Each of these statutory presumptions goes to when a postal article or as the case maybe a letter sent by prepaid post to a person at a specified address in Australia or in an external territory was received at that address. Establishing not only if but also when a statutory demand was served is essential to the proof of non-compliance with that demand within the period set out in s 459F and, hence, to whether the presumption for which s 459C of the Corporations Act provides has arisen.

12    The onus of adducing evidence sufficient to raise a doubt lies upon the party seeking to rebut the s 160 or s 163 presumption; in this case, Manta’s. A “doubt” is not to be assimilated with proof to demonstration. Accepting as I do the evidence of Mr and Mrs Battersby, I have, at the very least, a doubt as to the receipt of the statutory demand and supporting affidavit within the time frames presumed by s 160 or, as the case may be, s 163 of the Evidence Act. Indeed, I hold more than a doubt. I am satisfied that these documents were not received at the registered office at all in August or September 2011.

13    That then leaves the presumption found in s 29 of the Acts Interpretation Act. The following passage from the judgment of White J in Scope Data Systems Pty Ltd v Goman as representative of the partnership BDO Nelson Parkhill (2007) 70 NSWLR 176 at [49], referring to Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, is apposite:

Clearly, there is a difference between the delivery of a postal article to a place and its receipt by a person. It is this distinction to which the High Court refers in Fancourt v Mercantile Credits Ltd. However, there is no distinction between delivery of an article to a specified address, that is, to a place, and its receipt at that address.

[Footnote reference omitted]

It follows then that my finding as to the absence of receipt of the statutory demand and supporting affidavit carries with it, for the purposes of s 29 of the Acts Interpretation Act, a finding that neither of these documents was delivered to Manta’s registered office either in August or in September 2011.

14    That is so, even taking into account evidence which was led on behalf of the Commissioner on the subject of Australia Post delivery times. The evidence took the form of an extract from Australia Post’s website in respect of standard delivery times for postal articles (exhibit JK1). Though objection was not taken to the receipt of the evidence, submissions were nonetheless made on behalf of Manta’s as to weight to give it. Having regard to the tabulated delivery times in the exhibit and bearing in mind the Moonee Ponds is a metropolitan area in Melbourne, Victoria and Yeppoon is a country location in a different State, the result is that, in the opinion of an unidentified author of the table, it is, according to that person, a matter of “reasonable expectation” and “experience” that delivery would occur in three (3) days. Quite might be the basis for the “reasonable expectation” and “experience” in the table is unstated. The table is also generic in the sense that it does not expressly address the expected delivery time as between Moonee Ponds and Yeppoon, only as between capital cities in one State and country areas in another generally.

15    Perhaps if there had been more specific evidence concerning, for example, an absence of any delivery difficulties at the time in respect of mail as between Moonee Ponds and Yeppoon and in particular the company’s registered office and evidence as to what constituted the “reasonable expectation” and “experience” there may have been a greater interrogative note in respect of Mr and Mrs Battersby’s evidence. It is evident from other authorities that such evidence is available from Australia Post as it has been led in other cases where that has been a contest in respect of alleged service by post. As it is, it is not possible to judge what lies behind the conclusive statements “reasonable expectation” and “experience” which qualify the table on the Australia Post website. Even taking into account the standard delivery times, which do give colour and meaning to what amounts to “the ordinary course of the post” in this case, I am satisfied that the statutory demand and supporting affidavit were not received in August or September 2011. In short, the presumption created by s 29 of the Acts Interpretation Act has been rebutted.

16    It follows from this that, when the application for the winding up of Manta’s was filed on 6 December 2011, there had been no non-compliance by Manta’s with the statutory demand. That document had not been served on it.

17    Even if this were so, the Commissioner’s alternative submission was that, on the evidence, the company is insolvent.

Is the company INSOLVENT?

18    The effect of s 95A of the Corporations Act is that Manta’s will be solvent if and only if, it is able to pay its debts as and when they become due and payable. The onus of proving the converse, ie that Manta’s is insolvent, lies on the Commissioner. In that regard, because of a failure to prove non-compliance with a statutory demand, the Commissioner does not have the benefit of any presumption.

19    Section 95A of the Corporations Act is not subject to any express qualification such as “from the person’s own money”. Even if it were, that concept extends beyond a corporation’s immediate cash reserves. The classic statement as to proof of insolvency by Barwick CJ (McTiernan and Windeyer JJ agreeing) in Sandell v Porter (1966) 115 CLR 666 at 670-671 (Sandell v Porter) remains pertinent:

But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets 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. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor’s assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.

20    Though it will be necessary to address in a little detail Manta’s present financial position in so far as the evidence discloses the same, it is a feature of the evidence upon which the Commissioner relies, which includes evidence filed on behalf of the company, that there is no evidence as to what resources Manta’s might be able to command within a reasonable time. This is not a case where it falls upon Manta’s to prove that it is solvent in the face of a statutory presumption to the contrary. Rather, it is for the Commissioner to prove insolvency. In this sense, there is no inconsistency between a concession made by Manta’s that, were the presumption to have arisen, it could not, on the evidence which it led, prove that it was solvent and the outcome of this case. That outcome is nothing more than the result of where the onus of proof falls and whether that onus has been discharged.

21    Though there may be cause for apprehension as to Manta’s solvency, it remains a feature of the case that the Commissioner has failed to prove that, having regard to the financial information to hand, the company would be able to command resources sufficient to meet debts already due and such as may fall due. The absence of such proof means that I am not satisfied that the Commissioner has discharged the onus of proving the company to be insolvent.

22    Mrs Battersby has deposed, on the basis of the company’s financial statement to December 2011 and her knowledge of its present situation that Manta’s is trading profitably. She has further stated that, on the basis of “a healthy number of forward bookings, it will continue to trade profitably”. Manta’s conducts a restaurant business. That business was adversely affected by the last year’s floods but it appears that this position has changed for the better.

23    A Ms Suzanne Melissa Greentree (Ms Greentree) who describes herself as a “taxation consultant” in the employ of H&R Block and who is well familiar with the financial affairs of the company has also expressed the opinion that Manta’s is and remains solvent at the present. She has expressed this opinion having reviewed the company’s accounts as kept on a “MYOB” system. These comprise the following:

(i)    General Ledger (Detail) – 1 July 2009 to 31 March 2012

(ii)    Balance Sheet – 1 July 2009 – 30 June 2011

(iii)    Trial Balance – July 2009 - 30 June 2011

(iv)    GST Detail – 1 January 2010 – 31 March 2012

(v)    Payables – 1 July 2009 – 31 March 2012

(vi)    Profit and Loss Statements – 1 July 2009 – 31 December 2011

(vii)    General Ledger (Summary) – 1 January 2012 – 31 March 2012

24    Mrs Battersby’s is but a lay opinion. Quite what a “tax consultant” is was not explained by Ms Greentree. Perhaps she does have accounting qualifications; perhaps not. Even assuming though that she is qualified to express an expert opinion, and she was not cross-examined, whether a company is insolvent in terms of s 95A is a matter for the Court, not an expert, to determine although, as Sandell v Porter shows, an expert may give evidence as to the likelihood on the evidence of a company’s ability to raise ready cash in sufficient time to meet debts as they fall due.

25    The Commissioner has not led any expert evidence as to the likelihood of Manta’s assets or capacities yielding ready cash in sufficient time to meet debts as they fall due. The analysis made by Ms Greentree of Manta’s assets and liabilities, current profit and loss statement, current trade creditors and aged creditors, which was not challenged, disclosed the following:

(a)    Manta’s assets are currently $357,251;

(b)    Manta’s liabilities are $166,712 with a further $234,367 owed to directors;

(c)    The current income of Manta’s is an average of $50,000 per month;

(d)    Manta’s current expenses are an average of $43,500 per month;

(e)    The cash flow projection of Manta’s is approximately $600,000 per annum.

26    The Commissioner did not prove the terms of the director’s loans. They are shown as current liabilities. Frequently, such loans are made on terms that they are repayable on demand but frequency of encounter either in other cases or in earlier practice is no substitute for proof. An examination of the profit and loss statement in evidence discloses that wages are recorded as an expense yet there is no entry in expenses in respect of workers’ compensation premiums. In the ordinary course of events. one might expect to see this where wages are shown as being paid. Taken in conjunction with a failure to pay the superannuation guarantee charge there is at least a suspicion that in 2011 Manta’s was, during the period in which its trading was affected by floods, using the public purse as a banker. That said, what I do not have is any evidence that, having regard to the position disclosed by Ms Greentree’s unchallenged summary, the company would not be able either from existing reserves or money it could readily obtain pay debts as they fall due. It bears repeating that, where a plaintiff/creditor does not have the benefit of the statutory presumption, it is for the plaintiff to prove insolvency on the balance of probabilities. That there are “aged creditors” is certainly a pointer but there is a difference between choosing not to pay a debt which is due even though one has the resources so to do and not having those resources.

27    In short then, the Commissioner has failed to prove an inability on the part of Manta’s to pay its debts as they fall due either via presumption or otherwise. It follows that the winding up application must be dismissed, with costs.

Associate:

Dated:    24 April 2012