Director reprimanded for failing to comply with PAYGW obligations

In the matter of Deputy Commission of Taxation v Thomas Wilson [2018] NSWDC 302, the New South Wales District Court found against a company director for failing to comply with his duties. In doing so, Mahoney SC DCJ refused to mitigate on the basis of the director’s ‘difficult’ co-directors, asserting that there is no reprieve available to directors who fail to uphold their obligations.

In April 2015, Global Piling Contractors Pty Ltd was incorporated, with Mr Wilson, Mr Wheatley and Mrs Wheatley appointed as directors. Mr Wilson and Mr Wheatley each owned a 50% share in the company.

According to Mr Wilson, it was agreed at the time of incorporation that the directors were not employees of the company and thus would not receive salaries. Rather, they would draw money by way of dividends. In fact, the company was to have no employees, but would instead engage the services of contractors as required.

However, in 2015 the company withheld monies due to the Deputy Commissioner of Taxation on two occasions, before lodging Business Activity Statements which identified two amounts withheld for PAYG tax on employee salaries. The PAYG tax was never paid. Accordingly, in February 2016, Mr Wilson was issued with a Director Penalty Notice (DPN) for failing to remit PAYGW to the value of $111,798 to the ATO.

At trial, Mr Wilson submitted that from the time of incorporation until he received the DPN, he believed the company had systems in place to ensure it complied with its taxation obligations and remitted all amounts due to the ATO. He asserted that he thought those sums would be limited to GST and upon receiving the DPN, he did not understand that the amounts claimed were on account of taxes withheld by the company for wages paid to employees.

Moreover, Mr Wilson submitted that upon receiving the DPN, he phoned Mrs Wheatley who informed him that the amounts claimed in the DPN were on account of taxes withheld from wages paid to workers and not remitted to the ATO. Mr Wilson was also informed that Mr Wheatley had been hiring employees, rather than engaging contractors - a decision which he submitted he had not previously been made aware of. Further, Mr Wilson was informed that both Mr and Mrs Wheatley had also received a DPN and that ATB Partners would be engaged to formulate a payment plan with the ATO.

On 22 February 2016, at Mr Wilson’s request, a meeting of the company was held to discuss the outstanding taxation liability and the company’s ability to pay it. With no involvement in the day-to-day running of the company, and concerned that the company was insolvent, Mr Wilson was apprehensive about his exposure as a Director under the DPN. He subsequently moved a resolution that the company enter into voluntary administration. However, Mr and Mrs Wheatley contended that the company was simply experiencing a ‘temporary lack of liquidity’, and consequently dismissed the motion. They also rejected a secondary resolution by Mr Wilson that the directors convene a general meeting of the members of the company for the purpose of appointing a liquidator.

Mr Wilson subsequently sought legal advice on how to put the company into administration or cause the company to be wound up to avoid liability under the DPN. Mr Wilson was informed that he alone could not put the company into the administration, and that in order to avoid liability under the DPN, the company would need to pay its outstanding taxation liabilities. Mr Wilson was also advised that he could apply to the court for a winding up order but that it would be a difficult process and that by the time an application was heard in court, the time for compliance with the DPN would likely have expired.
In August 2016, Mr and Mrs Wheatley agreed to appoint an administrator, who the court subsequently appointed as a liquidator.

In September 2018, the matter was brought before Mahoney DCJ, with the Deputy Commissioner of Taxation alleging that pursuant to section 255-45 of the Taxation Administration Act, it had a prima facie entitlement to the debt due by virtue of an evidentiary certificate. However, Mr Wilson relied on the statutory defence under s 269-35. Accordingly, the court was required to determine whether Mr Wilson had taken “all steps which were reasonable, having regard to the circumstances of which the defendant, acting reasonably, knew or ought to have known, to ensure that the directors complied with the section.”

Having considered the test in Saunig, the court held that the Mr Wilson had failed to take all reasonable steps, concluding that he “failed to inform himself of the way in which the company was being managed and operated.” In doing so, Mahoney DCJ held that Mr Wilson ought to have known that the company was incurring a tax liability by way of PAYGW. His Honour also concluded that there were further steps available to Mr Wilson, including calling another meeting to persuade his co-directors to appoint an administrator or to have brought an application for leave to wind up the company. Mr Wilson was therefore ordered to pay the debt in the amount of $111,798 plus interest, pursuant to section 100 of the Civil Procedure Act 2005.

Ultimately, this case serves as a warning to other directors that they cannot claim ignorance to satisfy the objective test and absolve their duties as a director.

Federal Court sets aside statutory demand in respect of unpaid legal costs issued during the period in which costs may be assessed  

The recent Federal Court of Australia decision of Rusca Bros Services Pty Ltd v Dlaw Pty Ltd, in the matter of Rusca Bros Services Pty Ltd (No 2) [2019] FCA 1865 serves as a timely reminder that a statutory demand may be at risk of being set aside when issued in circumstances where a statutory period for assessment of costs comprising the debt claimed has not yet expired.


Rucsa Bros Services Pty Ltd (Rusca) engaged Dlaw Pty Ltd trading as Doyles Construction Lawyers (Doyles) to act on their behalf in a dispute with Lendlease Building Pty Ltd (Lendlease) connected with construction works at RAAF Tindal in the Northern Territory in about September or October 2017.

Throughout the course of the retainer, Doyles rendered invoices to Rusca totalling $500,529.79.  Rusca paid a total of approximately $300,000 to Doyles between about October 2017 and about March 2018.

In April 2018 a director of Rusca sent an email to Mr Doyle of Doyles expressing surprise at the size of the recent invoice given the significant fees already paid to that point and stating that Rusca would need to go through each of the bills to ensure that they were reasonable.

On 8 May 2018, Rusca requested that Doyles provide it with an itemised invoice for all of the bills rendered by Doyles to Rusca.  By section 187(3) of the Legal Profession Uniform Law (NSW) (LPUL) Doyles were required to provide the itemised bill within 21 days of the request. The equivalent provision in Queensland, secion 332 of the Legal Profession Act 2007, provides that a firm must provide an itemised bill within 30 days of such a request.

Also on 8 May 2018, Rusca received a statutory demand from Doyles dated 7 May 2018 seeking payment of a total sum of $191,022.15 being the unpaid balances of 3 invoices issued in February, March and April 2018 less funds held in trust.

On 25 May 2018, Rusca filed an application to assess the costs charged to it by Doyles over the course of the retainer.

As at the date of the hearing, whilst the costs assessor had completed his assessment of the costs, his fees had not been paid and neither Rusca nor Doyles had taken steps to obtain the costs assessor’s Costs Determination (the equivalent of a certificate of assessment in Queensland).

Statutory Demand

Rusca applied under sections 459H and 459J of the Corporations Act 2001 (the CA) to set the statutory demand aside.

The grounds relied upon included, relevantly:

  • as the legal costs comprising the debt the subject of the Demand were the subject of an assessment application, there was a statutory prohibition on proceedings to recover the costs and the debt the subject of the Demand was not presently due and payable; and
  • Doyles had failed to give an adequate estimate of total legal costs at the commencement of the retainer and as a result, was not permitted to commence or maintain proceedings for recovery of its costs until the costs had first been assessed. This also constituted a statutory prohibition on proceedings to recover the costs and for this reason as well, the debt the subject of the Demand was not presently due and payable

In ordering that the Demand be dismissed, Markovic J referred to section 198(7) of the LPUL.  That section provides that once an application for costs assessment has been made:

the law practice must not commence any proceedings to recover legal costs until the costs assessment has been completed.

There are similar provisions in other jurisdictions in Australia. The Queensland equivalent is section 338 of the Legal Profession Act 2007 (LPA), which is identical to section 198(7) of the LPUL save that a law practice may commence proceedings with the leave of the court.

Her Honour cited authority to the effect that:

if a statute prohibits commencement of proceedings to recover a debt, then so long as the statutory prohibition remains in place the debt is not “due and payable” and consequently cannot found a statutory demand.[8]

Her Honour held that:

the statutory prohibition in s 198(7) means that the debt the subject of the Demand can no longer be said to be immediately “due and payable” as required by s 459E of the Act. This is because the debt the subject of the Demand cannot presently be enforced by action by the commencement of any proceeding for recovery. That is so even if the Demand was served prior to the commencement of the Assessment Application. While the debt might have been due and payable at the time of service of the Demand because there was no prohibition on the commencement of a proceeding for recovery at that time, that status changed as soon as the Assessment Application was filed.[9]

After determining that the costs assessment application was not complete because the Costs Determination had not been obtained, in the result her Honour held that:

the Assessment Application is not complete. As that is the case, it follows that Doyles is precluded by s 198 of the LPUL from taking steps to recover its costs and, in those circumstances, the debt the subject of the Demand is not due and payable and the Demand should be set aside pursuant to s 459J(1)(b) of the Act.

Other grounds relied upon

Her Honour also dealt briefly with other grounds relied upon by Rusca in order to set aside the Demand, including, relevantly, the contention that Doyles had failed to provide a proper estimate of legal costs at the commencement of the retainer.

Her Honour held that Doyles had failed to give sufficient costs disclosure (noting that the estimate given at the outset ultimately comprised 2% of the total costs billed) and that by operation of section 178 of the LPUL, Doyles could not commence or maintain proceedings to recover the legal costs until they had been assessed, with the result that the costs the subject of the Demand would not be payable until they had been assessed.

There are also equivalents to section 178 of the LPUL in other Australian jurisdictions.  The equivalent provision in Queensland is section 316 of the LPA, which provides that a client “need not pay the legal costs unless they have been assessed” in circumstances where adequate disclosure has not been made.


The key takeaways for practitioners from the decision are:

  1. If a client files a competent application for costs assessment after a statutory demand has been issued in respect of unpaid legal costs, the statutory demand is liable to be set aside pursuant to section 459J(1)(a) of the CA on the basis that the costs the subject of the statutory demand are not “due and payable” until the costs assessment process is complete.In Queensland, a client may apply for assessment of costs without leave within 12 months of receiving the final bill or request for payment, so the period of risk extends for at least that length of time; and
  2. A court may be prepared to in effect ‘look behind’ a statutory demand issued in respect of unpaid legal costs to determine whether adequate disclosure has been made for the purposes of the applicable statutory regime and if it determines that it has not, the statutory demand may be set aside as a result.

When is a Release a release?

Deeds are a very common legal instrument that are used for almost infinite purposes. Deeds are a special kind of binding promise or commitment to do something made under seal.  Accordingly, deeds are seen as particularly solemn promises and may attract special legal consideration if breached.

Commonly, deeds will be used when settling disputes or ending relationships such as partnerships or employment.  Often a deed will contain a clause that acts as a bar to bringing future or further legal proceedings.  As a result, there is a perception that action will be prevented even when unscrupulous conduct of a party later comes to light.  However, a recent Queensland Court of Appeal decision demonstrates that this may not always be the case.

The decision of Wichmann v Dormway Pty Ltd [2019] QCA 31 concerned a former office manager who had diverted the employer’s money into her own accounts. Upon discovering that an amount of $2,809.42 had been diverted, the employer terminated the employee despite her offer to repay the money.  As part of the termination procedure, the parties entered into a deed of release containing the following clauses purporting to bar future action:

Recital E stated:

The parties have agreed to settle all matters effective from the 30 April 2018, relating to the employment and the cessation of the employment of WICHMANN, and any matters arising therefrom, save as to any statutory rights concerning superannuation or worker’s compensation, or the subsequent enforcement by either party of the terms of this deed; and without any admissions of liability by either Party; as set out herein.

Clause 4.2 stated:

In consideration for the agreements herein, DORMWAY hereby releases and discharges WICHMANN from all causes of action, actions, suits, arbitrations, claims, demands, costs, debts, damages, expenses and legal proceedings whatsoever arising out of or in any way connected with:

  • The Employment or its termination or any circumstance relating to its termination; or
  • Any matter, act or circumstances occurring between the date of termination of the Employment and the date of this agreement; save as to any unlawful act; and
  • Whether arising under statute, common law or equity,

Or any of these which DORMWAY now has or had the right to bring against WICHMANN at any time hereafter, but for the execution of this agreement; save as to any matter relating to the enforcement of this deed.

Shortly after executing the deed, the employer discovered that the former employee had actually diverted a total amount of $321,593.85 to her own accounts.  The employer sued the former employee for recovery of this money and successfully obtained judgment in their favour. The employee appealed this decision asserting that the judgment was based in an error of law on the basis that the clauses must be taken to have the effect of barring action in regard to her misappropriation, regardless of whether disclosed or not.

The Court of Appeal rejected this argument noting that as the above clauses were in general terms and did not identify specific conduct, it was the responsibility of the employee to demonstrate the release applied to the specific claims against her; it was not for the employer to demonstrate that they would not have entered into the deed had they known of the true extent of misappropriation. As the employee had knowingly not disclosed the extent of her misappropriation to her employer, her duty of good faith was breached.  This gave rise to an entitlement to avoid the deed and recover any money paid under it.

Additionally, it was arguable that the employee had committed common law fraud, which would allow the entire deed to be set aside, a relevant argument but not one that the employer had made.

With these conclusions, the Court dismissed the appeal ordering costs against the employee.

From this case several principles in relation to deeds become apparent:

  1. When entering into a deed both parties should take steps to disclose all relevant information;
  2. A deed will not protect against unconscionable behaviour simply because it has been executed;
  3. Non-disclosure of information may give rise to allegations of fraud or inducement which may result in the setting aside of a deed;
  4. A party relying on a deed must establish that the terms apply to the situation facing them, it is not enough to simply rely on broad general terms.