Urgent company reinstatement to avoid a DPN – Gregg v ASIC

The case revolves around Bradley Stuart Gregg, a former director of a deregistered company, JR Serra Proprietary Limited. Gregg sought a court order to reinstate the company to allow for the appointment of a liquidator. This action aimed to address a Director Penalty Notice (DPN) issued by the Australian Taxation Office (ATO) for PAYG withholding amounts. The company had been deregistered on 26 February 2020, but issues with tax liabilities remained unresolved, necessitating this urgent legal intervention.

Key Legal Issues:

• Reinstatement of Deregistered Company: Gregg applied to the Supreme Court of Western Australia to reinstate the company to appoint a liquidator and subsequently address the DPN. Under Section 601AH(2) of the Corporations Act 2001 (Cth), a company’s deregistration can be reversed if a “person aggrieved” shows it is “just” for reinstatement.
• Director Penalty Notice (DPN): Gregg received two DPNs from the ATO dated 1 August 2024. The first notice related to unpaid superannuation charges, while the second involved PAYG withholding amounts. The reinstatement of the company would affect the latter, relieving Gregg of obligations under Division 269 of the Taxation Administration Act 1953 (Cth).
• Financial Position and Insolvency: The company was found to have financial difficulties before deregistration. Evidence presented indicated that it was likely insolvent, with liabilities exceeding assets, including unpaid PAYG tax.

Court’s Considerations and Findings:

• Urgency of Application: The court recognized the urgency, noting that the application was filed promptly after Gregg received the DPNs. The ATO and ASIC were notified but did not oppose or appear at the hearing.
• Justification for Reinstatement: Justice Howard emphasized that the primary objective was to put the company into liquidation, a step required by law when a company cannot meet its tax obligations. Given the ATO’s decision not to contest the application, the court found it just to grant the orders sought.
• Ex Parte Application and Evidentiary Issues: The court expressed initial concerns regarding the deregistration and whether Gregg acted with full knowledge of the company’s liabilities. However, after reviewing affidavits and considering the ATO’s stance, the court determined there was no significant reason to deny the application.

The Supreme Court of Western Australia granted Gregg’s application, reinstating JR Serra Proprietary Limited and ordering its immediate liquidation. This decision effectively stopped the enforcement of the PAYG DPN against Gregg. The court made seven orders in line with the originating process filed on 21 August 2024.

Accountants should be aware of the following critical points:

1. Director Penalty Notices (DPNs): Directors must act promptly to address company tax obligations or face personal liability. Reinstating a deregistered company to liquidate it can mitigate such risks, but this requires timely legal intervention.
2. Deregistration Risks: Accurate declarations are crucial during deregistration. Misstatements, especially concerning outstanding liabilities, can lead to severe consequences for directors.
3. Legal Precedents: The case references several analogous decisions, reinforcing the need for a thorough understanding of reinstatement laws under the Corporations Act 2001 (Cth).

Understanding these implications can help accountants provide better advice to clients, ensuring compliance and mitigating risks associated with company deregistration and tax obligations.

For further details, refer to the full case on AustLII.