The Supreme Court of NSW has entered judgment for a Deputy Commissioner for $1.9 million against a director of 2 companies for unpaid withholding tax and SGC.
The defendant was the director of 2 companies. The companies had withheld amounts from salary, wages and other payments which were not remitted to the ATO. SGC assessments were also raised, but were not paid. The ATO issued several directors’ penalty notices (DPOs) to the director for the unpaid amounts. In seeking to adjourn the hearing, the director argued that as the companies were in liquidation, the liquidators would have funds to satisfy the tax liabilities. He also argued that the liquidators had sold off assets comprising supermarkets with some evidence that the buyers had assumed responsibility for the accrued superannuation entitlements. The Supreme Court did not accept these arguments. It said the liability attaching to the director was a personal and primary liability brought about by the legislation, the SGC assessments and the DPOs.
The director said he made (an unsuccessful) application to a bank for finance to fund the companies’ tax liabilities, arguing that this amounted to “reasonable steps”. The Court said it did not consider that one unsuccessful application for finance to meet the obligation of the director a year or 2 years after the obligation commenced amounted to reasonable steps.
The director argued 2 defences: (1) illness (pressure created by the ATO during audits and reviews led to hypertension and emotional turmoil which led to his marriage breakdown), and (ii) that the liquidators would be able to meet at least part of the claim. The Court rejected both and awarded judgment for the Deputy Commissioner in the sum of $1,894,929.53.
(DCT v Arora  NSWSC 1016, Davies J, 4 August 2017.)
Catchwords from Austlii report
TAXES AND DUTIES – proceedings for recovery against Defendant under Taxation Administration Act 1953 (Cth) – defendant’s companies failed to pay withholding tax and superannuation guarantee charges – director penalty notices issued to defendant – liability not in issue – whether defences of illness or taking all reasonable steps are available under s 269-35 TAA – misconceived defence that liquidators may have sufficient funds to pay companies’ tax liabilities – judgment in favour of plaintiff
CIVIL PROCEDURE – adjournment – application by defendant shortly before hearing – defendant’s companies in liquidation – whether defendant’s company’s liabilities may be paid by other contingencies – defendant would be entitled to refund even if contingencies eventuated – no basis for adjournment
Extract from the Austlii Report
(1) Arora Markets
- From 1 June 2013 to 31 October 2014 Arora Markets withheld various amounts from salary, wages and other payments totalling $674,959. The amounts withheld were reported by Arora Markets to the DCT through the lodgement of various Business Activity Statements and Instalment Activity Statements. Those withholdings were ultimately reduced to $610,966.85.
- Arora Markets was obliged under sub-division 16-B Sch 1 of the TAA to remit those amounts withheld to the DCT by their respective due days. Arora Markets failed to do so and its liability remains.
- By amended assessments dated 14 May 2014, 15 May 2014, 29 July 2014, 3 August 2015, 5 August 2015 and 10 August 2015 Arora Markets was assessed for superannuation guarantee charges (SGCs) and shortfalls totalling $214,986.71 for various quarterly periods between 1 April 2012 and 30 September 2014.
- Pursuant to ss 16 and 46 of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SGAA) Arora Markets was obliged to pay the assessed amounts of SGCs for the relevant quarters by their respective due dates. Arora Markets failed to do so and its liability remains wholly undischarged.
- Since the filing of the Statement of Claim payments totalling $77,755.96 have been received to reduce the SGCs to $137,230.75.
(2) Aurora International
- In the period commencing 1 June 2013 and ending 30 June 2014 Arora International withheld various amounts from salary, wages and other payments totalling $649,717. The amounts withheld were reported by Arora International to the DCT through the lodgement of various Business Activity Statements and Instalment Activity Statements.
- Ultimately, the withholdings were reduced to $492,226.86 by reason of payments being made.
- Arora International was obliged under Sub-division 16-B Sch 1 of the TAA to remit the amounts withheld to the DCT by their respective due days. Arora International failed to do so and its liability remains undischarged.
- By amended assessments dated 23 September 2014, 29 September 2014, 7 October 2014 and 6 February 2015 Arora International was assessed for SGCs and shortfalls totalling $510,507.99 for various quarterly periods between 1 October 2012 and 30 June 2014.
- Pursuant to ss 16 and 46 of the SGAA, Arora International was obliged to pay the assessed amounts of SGCs for the relevant quarters by their respective due dates. Arora International failed to do so and its liability remains undischarged.
(3) The Defendant
- Division 269 Sch 1 of the TAA imposes a duty on directors to ensure a company meets its obligations, or promptly goes into administration or liquidation. The failure to comply is sanctioned by penalties imposed on directors personally. When this occurs, the director’s penalty operates in parallel with the existing liability owed by the company, so that a reduction of one liability reduces the parallel liability to the same extent.
- The Defendant was a director of Arora Markets from 25 February 2010 to 17 November 2014 and a director of Arora International from 12 October 2012 until a liquidator was appointed on 9 April 2015. The DCT’s case is that the Defendant as a director of those companies was under an obligation to cause those companies to comply with their obligations to pay the withholding tax and the SGCs. He remained under that obligation at the end of each due day because the companies had not complied with their obligations to pay those monies to the DCT, an administrator had not been appointed nor had the companies begun to be wound up.
- Before bringing proceedings to recover a director penalty, the DCT must give a Director Penalty Notice under s 269-25 Sch 1 of the TAA. Director Penalty Notices were given to the Defendant on 11 June 2014, 13 June 2014, 25 March 2015, 14 May 2015, 9 June 2015 and 28 January 2016.
- In addition, the DCT claims an amount on a Running Balance Account in respect of primary tax debts owed by the Defendant under the Business Activity Statements provisions as defined in s 995-1(1) of the Income Tax Assessment Act 1997 (Cth).