Bruce Gleeson.
Was a proof of debt a formal notice of payroll tax assessment, with all the force such a determination issued by a statutory authority carries, or was it a mere estimate, which for the purposes of a DoCA vote could be deemed contingent?
This is one of the key questions Federal Court judge Brigitte Markovic will have to decide following conclusion of a case brought by NSW’s Chief Commissioner of State Revenue (the Commissioner) after two Sydney-based insolvency practitioners, acting on legal advice, admitted the Commissioner’s $11.3 million claim in the administration of Dalma Form Specialist Pty Ltd (DFS) for $1.00.
As a consequence of that decision the DoCA was endorsed by a majority of creditors in both number and value at the reconvened second meeting on April 12, against the recommendation of administrators Bruce Gleeson and Daniel Soire who said the company should be wound up.
Control of the company then reverted to its director, despite DFS being part of a broader group under investigation by the Australian Taxation Office investigation (ATO) in relation to an alleged $150 million tax fraud. And nobody, apart from related party creditors and perhaps Gleeson and Soire’s lawyers was happy.
On April 29 the Commissioner commenced proceedings, seeking orders that the decision to admit the proof of debt for $1.00 be set aside, that the DoCA be terminated and DFS wound up.
Shortly afterwards the Deputy Commissioner of Taxation (DCoT) sought leave to appear as an interested person in support of the application, but the DCoT also wanted the court to order that Helm Advisory’s Stephen Hathway be appointed liquidator.
The DCoT had Hathway appointed liquidator of a related party, Admin Form Pty Ltd in September last year and told Gleeson and Soire in December shortly after their appointments to DFS as voluntary administrators (VAs) that the company was part of a broader group suspected of operating a substantial tax evasion scheme. The DCoT wanted the Jones Partners pair to step aside.
Those behind DFS however ensured that the ATO’s claim in the DFS administration was paid, meaning that the DCoT’s attempt to appear as an interested person was challenged by the defendants on the basis of standing.
Justice Markovic will have to decide that question too and if Jones and Soire are ultimately appointed liquidators then they’ll likely pursue that payment as an unfair preference.
Jones’ and Soire’s position on the Commissioner’s claim has been that based on the advice they received from Polczynski Robinson Lawyers and Wentworth Chambers’ Danielle Woods they were correct to treat the proof of debt as a contingent claim and no criticism can attach to their decision to admit it for $1.00 for voting purposes.
The court heard that supporting documentation for the Commissioner’s proof was not provided to Gleeson and Soire until 48 hours before they reconvened the second meeting, which they’d unilaterally adjourned for 45 days on February 7.
Even then it appears there was confusion about whether the estimate constituted an assessment and at what point an assessment creates a debt.
What it all means is that Justice Markovic will be up to her ears in the Commonwealth Taxation Administration Act and the NSW Payroll Tax Act to try and determine whether the estimates provided to the administrators by officers of the Chief Commissioner constituted an “assessment” which would have justified admitting the Chief Commissioner’s proof in full, or not.
At least she won’t have to grapple with the question of who will be the liquidator if she finds that DFS should be wound up.
During the second day of the hearing barrister Karen Petch for the Deputy Commissioner of Taxation (DCoT) told the court her client no longer pressed its application for orders that Hathway be appointed liquidator should the court decide that DFS would be best wound up.
Further she told Federal Court judge Brigitte Markovic that her client had no objection to an order appointing Gleeson and Soire, who are currently the deed administrators of the DFS DoCA, as the company’s liquidators.
Further reading:
Rival IPs bound for court over alleged $150m fraud
VAs and ATO at odds over alleged $150m fraud
Collision imminent: VAs and ATO heading for court
A brave decision by the voluntary administrators as to admission of proof of debt and possibly not consistent with what was said in Bovis Lend Lease Pty Ltd v Interline Interior Linings Pty Ltd by reference to admission for voting purposes.