Accountant thrown under bus in director’s judgment debt fight

“She was appointed as director of BH from its incorporation on 16 September 2014, and in place of her husband, Mr McDonald, as director of BRT on 17 June 2021,” the court said.

Clayton asserted the taxation and superannuation compliance and general financial struggles arose from the actions of a former in-house accountant and financial controller who allegedly “misused his position and concealed the true financial state of the companies until he was ultimately terminated in October 2020”.

The accountant was terminated in October 2020; the court said no reliance could be placed on his management from this date.

Clayton was personally served the director penalty notice on 11 January 2025 for the unpaid taxation and superannuation obligations.

Application to set aside default judgment

Clayton’s application to set aside the default judgment was filed on 1 May 2026, 13 months after default judgment had been obtained.

Her defence was submitted on the grounds that she was uneducated in company management, that she did not understand why she became director, and that the accountant was put in charge of the entire management of the companies.

The court rejected these explanations, finding that Clayton’s affidavits revealed that she was told that her name needed to be on the documents for the business.

“I conclude that the defendant was involved in the business of the company at least to the extent that she monitored the incoming mail and then sought to action issues arising from that mail,” the court said.

Further, the court found that Clayton had been involved in decision making on behalf of the companies, such as in hiring directions, and she attended meetings and took care of company obligations and arrangements.

“Such participation in management of the companies would not support the assertion that the role of management of the companies was entirely left to the accountant and other advisers. The defendant’s participation is too involved to reach such a conclusion,” the court said.

Liability on the basis of experience

The court also found that Clayton had owned and operated a previous business with a number of employees for eight years prior to her directorship, which contradicts her submission that she was “uneducated without any of the basic knowledge or skills necessary to take part in the management of the companies”.

“The defendant’s ability to own and manage her own business does make it difficult to accept her education level prevented her from understanding her role as director of a company,” the court said.

“I am not satisfied that the evidence demonstrates a prima facie defence that the defendant did not participate in the management of the company for some ‘good reason.’”

As an alternative claim, Clayton argued that she took all reasonable steps to defend the proceedings, and there were no further reasonable steps she could have taken due to the accountant’s actions.

She also gave evidence that her solicitor told her “[y]ou don’t have a defence. Just let it be,” which she said led her to not seek further legal advice until the default judgment was entered on 28 February 2025.

Upon consideration of her submission, the court determined that Clayton had not succeeded in her claim for the setting aside of the default judgment on the merits.

Following this determination, Clayton accepted that the correct course of action was to amend the judgment to reduce it to the sum of $2,660,204.80 for director penalties, dismiss the balance of the application, and that costs of up to 60 per cent of standard costs follow this event.

The case citation: Deputy Commissioner of Taxation v Michelle Wendy Clayton.