The WA District Court has overturned a Registrar’s decision to enter summary judgment against a company director for the recovery of unremitted PAYG withholding amounts.

  • Mad Monk Pty Ltd was a subsidiary of Oz Brewing Ltd, which was a publicly listed company.
  • The defendant in these proceedings was a significant shareholder of Oz Brewing.
  • In August 2008, Oz Brewing sold 49% of Mad Monk to Emem Management Pty Ltd, which also took over the day-to-day management of Mad Monk.
  • In September 2008, Oz Brewing was placed in administration.
  • On 19 October 2009, the defendant was appointed a director of Mad Monk.
  • Both before and after his appointment, the defendant unsuccessfully tried to ascertain Mad Monk’s financial position.
  • Frustrated with the lack of information about the company’s financial position, the defendant resigned as a director on 9 November 2009.
  • Unknown to the defendant, at the time of his appointment as a director of Mad Monk, the company had unremitted PAYG withholding liabilities totalling id=”mce_marker”01,138, which remained outstanding during the 21-day period when the defendant was a director.
  • A Directors’ Penalty Notice (DPN) was issued to the defendant on 18 November 2009 under s 222AOE ITAA 1936.

A Deputy Commissioner obtained summary judgment against the defendant, who appealed. Under the District Court Rules, the appeal took place as a new hearing of the summary judgment application.

The defendant relied on a number of submissions.

(1) He was not a director of Mad Monk at the relevant time. This failed because the tax liability was still outstanding 14 days after he became a director (s 222AOD).

(2) The Deputy Commissioner was estopped from enforcing the DPN. The defendant alleged that the ATO officer who had signed the DPN made verbal representations that the ATO would not pursue the defendant if he verified his resignation as a director (which he did). The District Court decided that the facts needed to be investigated further and therefore this submission should be tested in court proceedings.

(3) The defendant took all reasonable steps, or there were no reasonable steps he could have taken, to ensure the company paid the unremitted amount, negotiated an agreement with the Commissioner or went into administration or liquidation (s 222AOJ).  The District Court said that, in the particular circumstances of this case, it was arguable there was nothing the defendant could reasonably have done to cause Mad Monk to pay its outstanding tax liabilities or negotiate an agreement. In addition, the option of causing the company to be wound up required further investigation of the facts and the law.

The District Court concluded that there was a real uncertainty about the Deputy Commissioner’s right to judgment and, therefore, the summary judgment application must be refused.

(DCT v Roget (No 2) [2014] WADC 25, District Court of Western Australia, Ref No CIV 2052 of 2010, Davis DCT, 27 February 2014.)

[LTN 46, 10/3/14]