In brief - Decision could be useful to creditors with running
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.
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
Tax debt amounts to running account debt and company to be
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.
canvassed the existing authorities, and
had regard to the size of the debt, which was in excess of
focussing on the fact that the additional debt was not
it then determined that it was appropriate to wind Swoosh
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
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.
When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).