On Tuesday 1.11.2016, the Qld Court of Appeal allowed an appeal by 2 company directors against summary judgments made on 1 April 2016 for an aggregate $1.8m in Directors Penalty Notice (DPN) liabilities. It overturned the decision of Bond J, at first instance, in the Queensland Supreme Court in DCT v Rablin; DCT v Shaw [2016] QSC 68.

The facts that were material were as follows.

  1. The defendants were directors of State Wide Trades & Labour Hire Pty Ltd (the Company).
  2. The Company withheld amounts from staff wages and relevantly failed to remit weekly amounts due between 21.3.13 and 27.6.13 that totalled about $1.0m. The obligation to remit withheld amounts is to be found in by s16-70 of the the Taxation Administration Act 1953 (TAA), First Schedule (TAA1)).
  3. The relevant quarterly BAS’s were for the quarter ended 31 March 2013 (which it lodged on 27 May 2013) and the quarter ended 30 June 2013 (which it lodged on 3 Sept 2013). In addition to not remitting the withheld, the Company completed the BAS’s showing the amount it had to remit as ‘zero’.
  4. The Company went into the liquidation on 3 October 2013 paying the Commissioner a distribution of about $120k, leaving unremitted PAYGw at about $880k.
  5. The Commissioner issued DPN’s dated 21 January 2014.

The Commissioner issued recovery proceedings.

The directors admitted the Company had failed to remit the amounts referred to above but denied personal liability under the DPN provisions on two bases:

  • The penalty was remitted under s269-30 of the TAA1; or
  • The defence in s269-35(2)(a) of the TAA1 applied so that there was no director penalty liability.

The Commissioner then applied for summary judgment on the ground that the defendant directors had no real prospect of success under r292 of the Qld Uniform Civil Procedure Rules 1999. Bond J then began his analysis of whether the pleaded defences had any real prospect of success.

The remission argument – rested on two propositions.

  1. That the directors ceased to have any liability (under s269-15) by the time the Commissioner issued the DPN (21.1.14) because the Company had been liquidated prior to that (3.10.13).
  2. This would have been a sufficient answer until 30 June 2012, after which the new ‘lock down’ provisions (in s269-30(2)) made it impossible for directors to avoid personal liability, by putting the company into insolvent administration, unless they did so within 3 months of giving the Commissioner s16-150 notice of the PAYGw amount the company was due to remit. The directors argued that it’s BAS’s represented the relevant notice but they were not lodged in time for about half of the liabilities and, more fatally, they did not advise the Commissioner of the relevant amounts due.

Bond J found that this argument had no reasonable prospects of success and the directors abandoned this ground on appeal.

The directors second argument was that there was a defence to personal liability – the relevant provision being s269-35(2)(a) the TAA1, which provides as follows.

269-35(2)  You are not liable to a penalty under this Division if:

(a)      you took all reasonable steps to ensure that one of the following happened:

(i)       the directors caused the company to comply with its obligation;

(ii)      the directors caused an administrator of the company to be appointed under section 436A, 436B or 436C of the Corporations Act 2001;

(iii)     the directors caused the company to begin to be wound up (within the meaning of that Act); or

(b)      there were no reasonable steps you could have taken to ensure that any of those things happened.

Addressing these requirements, the directors pointed to:

  • their (unsuccessful) actions to increase the debtor factoring facility the company had with a bank,
  • attempts to refinance the bank facility with other debtor factoring companies, and
  • attempts to settle the bank facility in order to accommodate a refinancing, and
  • the liquidation of the company on 3 October 2013.

Bond J found that this argument also had ‘no real prospects of success’ but the Court of Appeal did not agree. At para 45, Gotterson JA said

[45] Insofar as the learned primary judge expressed scepticism towards the defence, I would agree that serious questions might well be posed about a number of matters including the adequacy of the proposed increase in the facility limit, the adequacy of the approved refinancings, the vigour with which each of them was pursued, and justification in pursuing them in the face of the Bank’s requirement that STC be sold. However, they are questions that would be appropriate to an inquiry into whether a defence has been made out. To pose them at this point would risk error by substituting such a test for the one of no real prospects of successfully defending the claim set by r 292. Moreover, to infer that the questions could never be satisfactorily answered because they were not comprehensively addressed in response to a summary judgment application, would tend to compound such an error.

The Court held the appeal should be allowed and the order made in each proceeding on 1 April 2016 be set aside. It said each application should be refused insofar as it seeks summary judgment. Given that the primary judge did not determine the claim to alternative relief sought and that the Court of Appeal was not addressed on it, the Court held the applications ought to be remitted to the Trial Division for further consideration.

The alternative relief the Deputy Commissioner sought was an order striking out various parts of the defences on the basis that they do not plead matters which have any real prospect of success or they otherwise fail to comply with the rules of pleading.

(Shaw & Anor v DCT [2016] QCA 275, Qld Court of Appeal, Gotterson and Philip McMurdo JJA and Atkinson J, 1 November 2016.)

[FJM] [LTN 211, 1/11/16]