Insights

In brief - Decision could be useful to creditors with running account debts

In the case Deputy Commissioner of Taxation v Swoosh Hand Car Wash, the court found that the tax debt amounted to a running account debt and that in such circumstances, a creditor is entitled to ask the court to wind up the debtor company.

Company fails to comply with statutory demand by paying debt within 21 days

Earlier this month the Federal Court handed down a judgment on statutory demands which could have widespread ramifications for debtors and give creditors, potentially, more reason to consider using statutory demands.

Justice Jacobson in the case Deputy Commissioner of Taxation v Swoosh Hand Car Wash Pty Ltd [2014] FCA 73 dealt with a set of facts where:

• Swoosh failed to comply with the statutory demand by paying the debt within the 21 day period.

• It did pay the debt after the 21 day period.

• After it failed to comply with the demand, it incurred further tax debts (and there was no dispute as to the existence of those debts).

Tax debt amounts to running account debt and company to be wound up

The court found that the tax debt amounted to a running account debt and that a creditor, in those circumstances, has the right to ask the court to wind a company up.

The court:

• canvassed the existing authorities, and

• had regard to the size of the debt, which was in excess of $140,000; and

• focussing on the fact that the additional debt was not disputed,

• it then determined that it was appropriate to wind Swoosh up.

This decision may be of use to creditors with running account debts such as regular suppliers, landlords and of course regulatory and tax authorities.

Debtor companies resisting winding up should provide evidence that debt can be paid

The only way of avoiding this, apart from obviously paying the additional debt before the wind up application is heard, is being able to provide the court with evidence that the debt can be met in the foreseeable future, either through the company's funds or through the director making a commitment out of his or her own assets. If that evidence is put forward, the court will conceivably exercise its discretion not to order the winding up of the company.

Finally, Justice Jacobson made it plain that it is incumbent upon a company which seeks to resist a winding up application to make full disclosure to the court of its financial position, and if it does not it will suffer the fate of being placed into liquidation; which is precisely what happened here.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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