In a lengthy decision, the NSW District Court has upheld a director’s penalty notice (DPN) for $369,904.86.
The taxpayer worked for a family freight and logistics business. The defendant claimed his role in this business was only to oversee the maintenance of the fleet of trucks and to supervise the mechanics working at a workshop, and not to participate in the administrative part of the business. He said he believed his brother (who died in February 2013) was the sole director.
The Court said ASIC was notified of the appointment of the defendant as director of the company from 1 January 2011 by way of lodgment of a Form 484 on 7 February 2011. The Deputy Commissioner said on that same day, the previous director (the defendant’s brother) resigned.
PAYG amounts were deducted from employees’ wages and withheld by the company but were not remitted to the ATO. An affidavit by an employee of the defendant set out amounts withheld and owing by the company between May and September 2011. A DPN was served on 6 November 2012.
The defendant relied on 3 defences:
- he was unable to take part in management because of illness or other good reason;
- he was not a director;
- the monies should be deemed to be remitted.
After reviewing the matter, the Court found that the defendant’s claims that he was not a director failed.
- The Court said it was satisfied that the defendant was a director of the company for the whole of the period from 1 January 2011.
- The Court also considered there was no evidence that the defendant was at any time, let alone at all times, so ill that it would have been “unreasonable” for him to take part in the management of the company.
- It also held that the penalty imposed should not be regarded as remitted under s 269-30(1) of the TAA.
(DCT v Panayi  NSWDC 113, NSW District Court, Gibson DCJ, 24 June 2016.)
[LTN 126, 4/7/16]
Extract from Court’s decision
An overview of the facts behind the defence
- The defendant says that at all relevant times he was employed in the company’s truck repair centre, and that he believed that his brother, Terry Panayi, who died in February 2013 (T 89), was the sole director of the company, which his brother ran from separate premises at Matraville. Where the defendant did take any part in the running of the business, he relied on the knowledge and expertise of the in-house accountant of the company, Graham Conn, who died from cancer in or around October 2011 (see paragraph 10 of the Amended Defence). Mr Conn did not work in the company office, but “largely worked from home making access to the company records difficult for the defendant” (paragraph 10.2(d)).
- The defendant lived with his adult son, Christopher Panayi, who also worked for the defendant’s brother in the Matraville office. On occasion Christopher Panayi would bring home documents for the defendant to sign, which he did without reading them or querying this practice until about mid-2012.
- The defendant was in poor health. He “was suffering high blood pressure, high sugar levels and high cholesterol”, was taking tablets regularly for these conditions and has recently suffered “a major heart attack” (paragraph 10.2(h)). During most of the time that the company was in operation, Terry Panayi was also in poor health, receiving dialysis treatment which required him to attend numerous medical appointments on a very regular basis. He was then diagnosed in late 2010 or early 2011 with cancer.
- The company, according to ASIC registers, has had three different directors throughout its existence. The first of these was Terry Panayi, who was a director from 16 July 2004 to 30 November 2005. Following disqualification procedures, Thomas Panayi became a director on 25 November 2005 and remained a director until 2 December 2009. According to the ASIC register, Terry Panayi reassumed being a director on 2 December 2009 but ceased on 1 January 2011. The defendant then became the director on 1 January 2011 and remained a director till 3 February 2014.
- The defendant and his brother, Terry Panayi, had a long history of holding company directorships in business either together or successively. To give several examples, both the defendant and Terry Panayi were appointed directors of NAP Trading Pty Ltd on 18 December 1996 and ceased on 1 October 1998 (Exhibit E, Tab 3), and were appointed as directors of Kemps Creek Distributors Pty Ltd on 9 October 1995 and of Drisha Pty Ltd on 3 April 1995 until these companies went into liquidation (Exhibit E, tab 4).
- The defendant and his brother also shared a history of disqualification as a director by the ASIC. In the case of the defendant, according to the ASIC registers, he was the director of the following entities which were either deregistered or put into liquidation:
|Company||Date commenced as Director||Date resigned as Director||Fate of company|
|AAMAC Transport (NSW) Pty Ltd||1 January 2011||3 February 2014||Deregistered following strike-off action|
|AAMAC Warehousing & Transport Pty Limited||8 October 2002||30 November 2005||Liquidation|
|Kemps Creek Distributors Pty Limited||
24 April 1990
9 October 1995
6 September 1991
30 September 2000
|Drisha Pty Ltd||3 April 1995||3 July 2000||Liquidation|
|Kalicain Pty Ltd||13 January 1997||30 April 1999||Liquidation|
|Pan Express Pty Ltd||9 April 2001||30 June 2003||Liquidation|
|NAP Trading Pty Ltd||5 December 2000||30 September 2002||Liquidation|
|Ranana Pty Limited||23 June 1983||26 April 1994||Deregistered due to non-payment of annual returns|
|Berogold Pty Limited||7 June 1988||26 April 1994||Deregistered due to non-payment of annual returns|
|Atlas Satellite Pty Limited||27 July 1977||8 April 2000||Deregistered due to non-payment of annual returns|
|Teakdock Pty Ltd||19 September 1990||24 June 1993||Deregistered due to non-payment of annual returns|
|Rent-A-Skel Pty Limited||13 July 1988||24 June 1993||Deregistered due to non-payment of annual returns|
|Valdox Pty Limited||13 September 1988||13 June 1996||Deregistered due to non-payment of annual returns|
|Transport Logistics Pty Ltd||16 November 2012||16 November 2012||Liquidation|
|Magnetic East Holdings Pty Ltd||10 May 2011||Registered|
|Warehouse Solutions International Pty Ltd||1 January 2011||20 May 2013||Registered|
- The defendant was disqualified as a director by the ASIC for 4 years dating from 30 November 2005. He was a director of at least five companies which had been wound up in the preceding seven years, none of which paid any distribution to unsecured creditors (affidavit of Prateek Das sworn 17 February 2016, Annexure A).
- The relevance and admissibility of this evidence were both challenged by the defendant both during the hearing and in subsequent submissions, as is set out in more detail below.
The appointment of the defendant as a director
- As set out in Annexure A to the affidavit of Prateek Das sworn 10 September 2014, ASIC was notified of the appointment of the defendant as director of the company from 1 January 2011 by way of lodgement of a Form 484 on 7 February 2011. That form was electronically lodged by Accountax Pty Limited (Annexure B to the Affidavit of Peter Panayi sworn 15 October 2014). By reason of the earlier cessation of Terry Panayi as director of the company on 1 January 2011 the defendant was the sole director of the company from this time onwards. He remained a director until 3 February 2014.
- The defendant has not tendered any contemporaneous documentation to rebut the presumption that he was a director during this period. There are no minutes of general meetings of members appointing directors, directors’ consents, correspondence or other documents referring either to his appointment or to the cessation of Terry Panayi as director. The company’s liquidator gave evidence of having sought such documents unsuccessfully from the defendant and the company, and the plaintiff has similarly been unsuccessful in obtaining these documents under subpoena.
- There are, however, some documents in existence which do refer to the defendant as being the chairperson and sole director at a meeting of directors of the company. The timing of the ASIC notification coincided with significant developments in the company’s management. On the same date as the ASIC notification (7 February 2011), the company resolved to acquire trucks, equipment and other items from the defendant personally, for use in the company’s operations at an agreed price of $2,274,800, on the terms of a written agreement (the “Agreement”, which is set out in full below). The defendant signed minutes of that meeting in his capacity as chairperson of the company (Affidavit of Bruce Gleeson sworn 13 May 2015 at pages 11-12).