Background
The Deputy Commissioner sued Michelle Clayton to recover director penalties under the Taxation Administration Act 1953 (Cth), arising from unpaid tax and superannuation obligations of Banfrost Haulage Pty Ltd and Bundaberg Refrigerated Transport Pty Ltd between 2015 and 2021. Clayton was the sole director of both companies when the proceeding was issued.
Clayton was personally served in January 2025 but filed no defence. Default judgment was entered on 28 February 2025. After the Commissioner commenced bankruptcy-related sequestration proceedings, Clayton applied in May 2026 under r 290 of the Uniform Civil Procedure Rules 1999 (Qld) to set aside the judgment. She relied on statutory defences that she had not participated in management for a good reason, or had taken all reasonable steps to secure compliance.
The Court’s Holding
Treston J dismissed the application to set aside the judgment on its merits. Clayton had not shown a prima facie defence under s 269-35 of the Act. Her evidence showed meaningful involvement in the companies: she received and acted on ATO notices, attended meetings, signed documents, made decisions concerning employees, and acted to appoint liquidators. Her claimed lack of education, inexperience and reliance on the companies’ manager and advisers did not objectively establish a valid and sound reason for non-participation.
The Court also held that Clayton had not shown she took all reasonable steps, or that no reasonable steps were available, to cause compliance, administration or winding up. Her evidence did not address the statutory alternatives adequately, particularly after the manager was dismissed and she knew of the companies’ financial problems. Although the parties accepted that part of the judgment was irregular because it included $169,913.80 in BRT director penalties that the Commissioner no longer pressed, the Court amended the judgment rather than setting it aside. The judgment sum was reduced from $2,830,118.60 to $2,660,204.80, and Clayton was ordered to pay 60% of the Commissioner’s standard costs of the application.
Key Takeaways
- A director seeking to set aside a default judgment must support a proposed defence with plausible evidence, not bare assertions.
- Limited participation, reliance on advisers, and lack of business sophistication will not readily establish the s 269-35 non-participation defence.
- An irregular component of a default judgment may be excised by amendment where the remaining judgment is properly maintained.
Why It Matters
The decision underscores the demanding nature of director-penalty defences. Directors cannot avoid liability merely by leaving management to another person; they must show objectively that their non-participation was justified or that they took all reasonable steps available under the statutory scheme.
Procedurally, the case also illustrates that a conceded defect in part of a default judgment does not necessarily undo the whole judgment. The Court may correct the affected amount while refusing relief where the defendant has no prima facie defence to the balance.