Making an application in the company’s name to set aside a winding up order?

Deputy Commissioner of Taxation v AGJ Businesses Pty Ltd [2024] FCA 400
Can a company’s director make an application in the company’s name to set aside a winding up order?

Overview

In this case, the Court considered a request by a company’s sole director and shareholder for leave to bring an application in the company’s name to set aside a winding up order. The Court considered the various statutory bases on which the director sought to set aside the order and refused to exercise its discretion to do so. The Court emphasised that applications of this kind must be approached with caution, cognisant of the importance of the public interest in the finality of litigation. Here, the evidence established that the company was not in a position to currently pay its debt, and that the director was simply seeking more time to do so. In these circumstances, it was not appropriate to set aside the order.

Background

AGJ Businesses Pty Ltd operated a Mayfield, NSW-based in-home child care service. On 21 February 2024, on the application of the Deputy Commissioner of Taxation, AGJ was ordered to be wound up in insolvency and Richard Stone of RSM Australia was appointed as its Liquidator.

On 26 February, Amanda Johnstone, the sole director and shareholder of AGJ, commenced an application in its name seeking to set aside the winding up under s 482 of the Corporations Act 2001 (Cth). Ms Johnstone had not sought approval of the Liquidator or the Court to bring the application, and later sought leave. The application for leave was opposed by the Deputy Commissioner, and the Liquidator took the position that the liquidation should not be terminated since there was no evidence of solvency.

The Court’s Decision

Ms Johnstone was precluded from performing or exercising a function or power as a director while AGJ was under the control of the Liquidator unless she obtained written approval to do so from the Liquidator or the Court.

In determining whether Ms Johnstone should be given leave to proceed in the company’s name under s 198G(3)(b), it was relevant to consider:

1. the strength or viability of the case sought to be advanced in the company’s name; and

2. the protection of the assets of the company and the minimisation of the prejudice to the company and its creditors if leave were granted.

The Court found that Ms Johnstone’s attempt to bring the application under s 482 of the Corporations Act was misconceived. AGJ did not have standing under s 482(1A) to apply for relief under s 482(1). Even if this were not so, Ms Johnstone had been frank in acknowledging that AGJ was not in a position to pay its tax debt. Instead, Ms Johnstone was seeking additional time and a payment arrangement in a situation where a September 2023 discussion between the ATO and Ms Johnstone had not resulted in a payment agreement. In these circumstances, the Court was not satisfied that Ms Johnstone should be given leave to pursue relief in the name of AGJ under s 482 of the Corporations Act.

Ms Johnstone also sought to rely on r 39.04 and/or r 39.05 of the Federal Court Rules 2011, pointing to the fact that the order was made in the absence of AGJ (Ms Johnstone had attempted to connect to the hearing but experienced technical difficulty).

The Court was not persuaded. The exercise of the discretion to set aside an order under r 39.04 or r 39.05(a) must be approached with caution, cognisant of the importance of the public interest in the finality of litigation. In the circumstances of this application, where it was acknowledged that AGJ could not presently pay its undisputed debt, the Court was not satisfied it would be just to set aside the order.

Insofar as Ms Johnstone purported to bring an application under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) and r 3.11 of the Federal Court Rules 2011 (Cth), it was necessary for her to bring that application in the company’s name because an application for review can only be brought by a party. Having regard to the evidence, the Court found that there would be no utility in granting leave to Ms Johnstone to bring a review application in AGJ’s name.

Conclusion

The Court dismissed the application with costs.

Judge: Cheeseman J

Counsel for the Deputy Commissioner of Taxation: Thomas Trotman of K&L Gates