The Federal Court has dismissed an application by a company seeking to review a Registrar’s decision refusing to set aside a statutory demand to pay $538,685. The Statutory Demand had been issued the Deputy Commissioner of Taxation (DCoT), in respect of liabilities claimed to be owing, for running balance account deficit debts and unpaid superannuation guarantee charge.
The Taxpayer’s director: Mr Tang appeared unrepresented (and without English as a first language). He claimed that:
- There was only a ‘small mistake’;
- The balance of the tax had been paid;
- The Taxpayer was solvent; and
- The Taxpayer would suffer significant prejudice, if wound up.
The facts were these.
- On 9 April 2018, the DCoT issued a statutory demand, requiring payment of the above amount ($0.5m) within 21 days (under s.459E of the Corporations Act 2001). Failure to pay within this time, gives rise to a presumed insolvency of the Company (under s459F(2)) for winding up proceedings under s459A.
- On 11 July 2018, a District Registrar dismissed the Taxpayer’s application to have the Demand set aside under s459H of the Corporations Act. This includes the ground that there is a genuine dispute about the amount that is payable.
- On 1 August 2018, the Taxpayer applied for review of the District Registrar’s decision (to not set aside the Notice), under s35A of the Federal Court of Australia Act 1976. This was within the 21 days prescribed, for such an application (r16.1(3) of the Federal Court (Corporations) Rules 2000).
The Taxpayer failed in this application, for the following reason.
- The Taxpayer company can only apply to have a statutory demand set aside, if does this within the 21 days specified for payment (21 days from the service of the Demand, under s459G(2)).
- That time had already expired, by the time it applied to have the order set aside.
- There was, therefore, no point in reviewing the Registrar’s decision, as that was out of time and the decision should not have been made.
The Court sought to assuage Mr Tang’s concerns by noting that his company company will have an opportunity to prove that it is solvent (as Mr Trang says that it is) and to raise other discretionary reasons why a winding up order should not be made. This is because the ground for winding up a company is that it IS insolvent. Failure to comply with a Statutory Demand only raises a s459C(2) ‘presumption’ that it is insolvent.
(3Bears Childcare Centre Pty Ltd v DCT, in the matter of 3Bears Childcare Centre Pty Ltd  FCA 1690, Federal Court, Gleeson J, 31 October 2018.)
[LTN 215, 7/11/18; Tax Month – November 2018]
CPD Questions (answers available)
- Had the Taxpayer company, been served a Demand, requiring it to pay over $500k, within 21 days, or suffer the statutory ‘presumption’ of insolvency (a powerful precursor to an application to wind up the company on the ground that it is insolvent?
- Did the Company’s director, appear unrepresented, before the Registrar (and later the Court)?
- Did the Taxpayer company apply to have the statutory demand set aside?
- What was the time by which such an application must be made (under s459G)?
- Did the Taxpayer do this within time?
- Did the Registrar refuse to set the Statutory Demand aside?
- Did the Taxpayer company apply to the Court for a review of the Registrar’s decision?
- Did the Court refuse to review the Registrar’s decision, because it would not have achieved anything (because he was already to late, in applying to the Court, to have the Statutory Demand set aside?
- Did this preclude the Taxpayer Company leading evidence, at any winding up application, of its solvency?