Newsflash – High Court grants special leave to the Commissioner in CGT/liquidators case

This is a brief heads up for those who have been waiting for this. Last week the High Court granted special leave to the Commissioner to appeal the decision of the Full Court of the Federal Court in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133. For my discussion of the first instance decision of Logan J, see my earlier post here

It will indeed be interesting to see the High Court’s decision on this, after the appeal is heard. For those interested, the transcript of the special leave hearing may be read here. It can be seen that the Commissioner emphasised several matters in oral submissions, including the Commissioner’s propounded construction of section 254 of the ITAA 1936, and what the Solicitor-General described as “the radical differences” between sections 254 and 255, the construction of the latter having been decided previously by the High Court in Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54; (2007) 232 CLR 598. The High Court’s decision in Bluebottle was relied on heavily by the primary judge in his reasoning.

In oral submissions, the Solicitor-General advanced the argument that section 254(1)(a) creates a taxation liability in the trustee or agent. This, of course, is contrary to what the Full Federal Court had held. See, for instance, at [25] where Edmonds J observed (with whom Collier and Davies JJ agreed):

That s 254 is a “collecting section” and has no operation to render a trustee liable to be assessed to tax if the trustee is not otherwise liable to be assessed under the provisions of Div 6 of Pt III of the 1936 Act, comes out of two more recent High Court authorities.

The Solicitor-General argued that this taxation liability which he said is created by s 254(1)(a) is ancillary to the primary liability which, he acknowledged, will rest somewhere else in the Act. But he submitted that it was a true creation of a liability as well as then being a collection mechanism. He submitted that s 254(1)(b) makes that liability more explicit, that the trustee or agent must lodge returns and “be assessed thereon” in the representative capacity. And, so he submitted, then the critical paragraph (d), which is the collection mechanism, should be read in the light of what has gone before so that it is an authority and duty to “retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is suffficient to pay tax which is or will become due in respect of the income, profits or gains.

High Court today pronounces on liquidators’ shelf orders and other extension of time orders in 2 judgments

The High Court of Australia has today handed down two judgments regarding shelf orders and other extension of time orders, both cases arising from the Octaviar liquidations.

1. In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10 the Court unanimously dismissed an appeal from the NSW Court of Appeal and held that a court can make an order under s 588FF(3) of the Corporations Act 2001 (Cth) to extend the time within which a company’s liquidator may apply for orders in relation to voidable transactions, even though those transactions may not be able to be identified at the time of the order. There has previously been some discord between state courts on this issue, and this decision provides reassurance to liquidators as to the availability of shelf orders. The judgment may be read in full here, and the summary on the High Court’s website here.

2. In Grant Samuel Corporate Finance Pty Ltd v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2015] HCA 8 the Court unanimously allowed both appeals, holding that the rules of courts of the States and Territories cannot apply so as to vary the time dictated by s 588FF(3) of the Corporations Act 2001 (Cth) for the bringing of proceedings for orders with respect to voidable transactions.

Sub-section 588FF(3)(a) requires an application for orders in relation to voidable transactions to be made within a prescribed period. (Either 3 years from the relation-back day or 12 months after the first appointment of a liquidator in the winding up.) Sub-section 588FF(3)(b) allows a liquidator – only during that period (usually 3 years) – to bring an application to extend this time period.

In this case, the liquidators had applied for and obtained an order under sub-section 588FF(3)(b) extending the period within which they could bring proceedings under s 588FF(1) by four months beyond expiry of the prescribed period. During that four month extension – but after the expiry of the original period – the liquidators made a further application to again extend the period. The NSW Supreme Court made an order under r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) varying the extension order by changing the date by which the liquidators could bring voidable transaction proceedings. The appellants applied to set aside that variation order, and it was this which lead to this High Court appeal. The appelllants were unsuccessful at first instance, and their appeal was dismissed by a majority of the NSW Court of Appeal, but they were ultimately successful in the High Court .

The High Court held that the bringing of an application within the time required by s 588FF(3) is a precondition to the court’s jurisdiction under s 588FF(1) to make orders as to voidable transactions, and that the only power given to a court to vary the period prescribed in s 588FF(3)(a) is that given by s 588FF(3)(b). It followed, so the Court held, that once the period in s 588FF(3)(a) had elapsed, the UCPR could not be utilised to further extend the time within which voidable transaction proceedings under s 588FF(1) could be brought. (See [23] and the discussion which precedes it.)

Thus if the liquidators needed more than 4 months beyond the initial 3 years to be in a position to issue voidable transaction proceedings, they could only extend the 4 months to a longer period by also bringing a second extension application before the 3 year period had elapsed. In practice, however, it might be unlikely to become aware of the certain enough need for a longer period to make a second application so soon after the first. Perhaps, in light of this decision, we will find Courts may now become willing to grant somewhat longer extension periods than before. However that may be doubtful, having regard to the legal policy favouring certainty which underlies s 588FF(3), per the observations Spigelman CJ in BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322 at 345-346 ([115] and [118]), which was quoted with approval by the High Court here (see [17]-[21]). I suggest it will usually depend upon the evidence in each case.

The judgment may be read in full here, and the summary on the High Court’s website here.

Merry Christmas & a note for my own amusement

Before I wish you all a Merry Christmas, I thought I would close out the year by sharing with you something that amuses me every time I notice it. (Law can be a dry field in which to practice. We find mirth where we may.)

It is this: the number of companies with the word “phoenix” in their name. Often, they seem to be construction companies, though the field is wide. And they keep popping up in the daily Rodgers Reidy Risk Watch insolvency reports, suggesting that a remarkable number don’t seem to travel too well. Or perhaps I just notice them because I find it funny. Never fails to amuse me. Every single time. Why would you do that, use such a name for your company? Is it not inviting trouble? Unwelcome attention from corporate regulators? Cracks me up.

Let’s look at some stats, shall we? –

*Note I do not suggest any such company has engaged in phoenix activity. It is simply the use of the name, that I enjoy.

  • A search on ASIC’s website shows that there are 2570 entries found containing the word “phoneix”
  • A search on ASIC’s insolvency notices database (including deregistartion notices) brings up multiple pages of current entries, including Golden Phoenix Food Pty Ltd (subject to a DOCA), Phoenix Motor Brokers Pty Ltd (in liquidation), PAJ King Pty Ltd trading as Phoenix Air Systems (in liquidation), Phoenix Refractories Australia Pty Ltd (in liquidation) and Phoenix Hazmat Services Pty Ltd (in liquidation),
  •  A search on Austlii shows a healthy amount of litigation involving companies with the word “phoenix” in their name, including Phoenix Constructions (Queensland) Pty Ltd, Phoenix International Group Pty Ltd and Phoenix Commercial Enterprises Pty Ltd.

Anyway, perhaps I amuse only myself, but there it is. If anyone is unclear on what a phoenixing company is or does, I have written on this before here.

It has been a busy year for many of us. I have at least one part-written post not yet polished enough to post, but it can wait until the New year. It further discusses the Full Federal Court’s decision on the CGT obligations of “trustees” (including liquidators) in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133. My earlier posts on this case are here (first instance) and here (appeal).

Merry Christmas to you all, and my wishes to you and your families for a safe, happy and healthy 2015. May you enjoy a restful break, and return fighting fit for 2015.

On a serious note, thoughts turn to our fallen colleague in Sydney, Katrina Dawson. May she rest in peace. My heart breaks for her little children. For once, words fail me.

Newsflash: Great Southern settlement deed approved

Yesterday in Melbourne Justice Croft approved the deed of settlement ending the Great Southern class action proceedings – Clarke (as trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers & Managers Appointed)(in liquidation) & Ors [2014] VSC 516. I will not make comment on this case, but instead will refer to a few key parts of the judgment –

The principal terms of the Deed of Setlement are set out at [57] and are usefully summarised at [64], which summary is reproduced here –

  1. “The insurers of GSMAL will pay $23.8 million, to be disbursed as follows:
    1. $20 million to M+K Clients, to be disbursed pro rata based upon amounts paid by each M+K Client to M+K for legal fees and disbursements;
    2. $250,000 to Javelin Asset Management Pty Ltd; and
    3. $3.55 million to be disbursed pro rata to investors who invested pursuant to a Product Disclosure Statement issued in relation to a scheme managed by GSMAL, such disbursement to take place in accordance with the terms of a proposed Scheme of Arrangement.
  2. Group Members’ loans entered into to fund the investments and now held by Bendigo and Adelaide Bank Limited (or its related entities) will be admitted as valid and enforceable, and the BEN Parties will waive interest relating to overdue amounts accrued and unpaid as at the Approval Date.
  3. Group Members’ loans entered into to fund the investments and now held by Javelin Asset Management Pty Ltd will be admitted as valid and enforceable, and borrowers with Javelin loans will have 28 days from the Approval Date to make an election to either:
    1. make payment of the outstanding loan balance in full within 14 days of making the election and receive a 20% discount on the loan balance (being the balance as at 1 May 2014); or
    2. agree to a deferred settlement with the loan balance discounted by 17% if the balance is met by way of 12 equal monthly payments; or
    3. agree to an extended term where the terms are varied so that the first 12 months after the Approval Date are interest free and then 5% per annum for the remainder of the Revised Term.
  4. The Lead Plaintiffs, on behalf of themselves and on behalf of Group Members, will release the other parties (and their related entities or persons) from all Claims arising out of the contents of each Product Disclosure Statement, the Loan Agreements and or the allegations made in or the facts giving rise to all the relevant proceedings.
  5. The Group Proceedings will be dismissed with the parties bearing their own costs.”

His Honour took the unusual step of annexing the mammoth 2012 page unpublished judgment he had written but had never been delivered (calling them the “Great Southern Reasons”) to this judgment approving the settlement deed. His Honour notes at [2] that the trial of the Great Southern proceedings had extended over 90 sitting days from October 2012 to October 2013. Judgment was reserved. On Wednesday 23 July 2014 the parties were informed that the judgment was ready and listed for delivery on Friday 25 July. Within hours, the Court was notified that the proceedings had settled.

At [3] Croft J notes that the Great Southern Reasons are not published as reasons for judgment, simply annexed to this one, which suggests that as a precedent to future cases their status may be uncertain, and perhaps something less than obiter. Nevertheless his Honour explains why he has had regard to his Great Southern Reasons in considering whether to approve the Deed at [50]-[56], in particular at [56].

7.3% of the 21000 group members notified the Court of their objections to the settlement. These are considered by his Honour from [83].

As Croft J’s approval judgment at [6] makes clear, if the proceeding had not settled and the Great Southern Reasons had been handed down as his Honour’s judgment in the case, the plaintiffs’ claims would have been wholly unsuccessful. Moreover, given the length and expense of the proceedings and the trial, costly adverse costs consequencse for the plaintiffs are likely to have followed. This settlement avoids that outcome and achieves finality in the litigation.

Practice Alert: Federal Court’s New National Framework

carrieromesievers:

I commend practitioners to take note of this important Practice Alert written by my esteemed Sydney colleague Dominique Hogan-Doran. It outlines the new national structure for the Federal Court of Australia, and the incoming national framework for the regulation of the market for legal services, noting that the Legal Profession Uniform Law is expected to take effect in NSW and Victoria from early 2015. I also note that last week the Victorian Legal Services Commissioner published a useful summary of the changes here.

Originally posted on DOMINIQUE HOGAN-DORAN - BARRISTER | MEDIATOR:

A new national structure for the Federal Court of Australia has been proposed by its Chief Justice, Justice James Allsop.

Jurisdiction and the problems of the existing structure

First, by way of recap, created by the Federal Court of Australia Act 1976, the Court began to exercise its jurisdiction on 1 February 1977.

The Court has jurisdiction to hear and determine any matter arising under the Commonwealth Constitution through the operation of s 39B of the Judiciary Act 1903. The Court’s original jurisdiction is conferred by over 150 statutes of the Parliament. The Court hears appeals from decisions of single judges of the Court and from the Federal Circuit Court of Australia in non-family law matters. The Court exercises general appellate jurisdiction in criminal and civil matters on appeal from the Supreme Court of Norfolk Island.

Much of the commercial law of Australia is regulated by Commonwealth legislation: taxation, insurance, intellectual property, bankruptcy, insolvency for example. The Court’s…

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Newsflash: Full Federal Court dismisses appeal in CGT/liquidators decision

This is a brief heads up for those of you who have been awaiting this appeal judgment as I have. Yesterday the Full Federal Court dismissed the Commissioner’s appeal in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133. In short, the judgment confirmed that s 254(1)(d) of the Income Tax Assessment Act 1936 (Cth) (the ITAA) only imposes an obligation upon “trustees” (including liquidators) to retain funds to pay an anticipated CGT liability once a relevant tax assessment has issued.

Edmonds J who wrote the principal judgment went so far as to say that he was “firmly of the view” that the primary judge was correct in that conclusion (at [4]). For my discussion of the first instance decision of Logan J, see my earlier post here. There is more to be said about the significance of this conclusion of the Full Federal Court, which some of you will have heard me speak about following the first instance decision. My review of this appeal judgment to follow.  ***Time has beaten me as Christmas now approaches. My review is part-written, and will now follow in the New Year.

Newsflash – ASIC’s appeal in ASIC v Franklin successful

Today the Full Court of the Federal Court of Australia allowed ASIC’s appeal, concluding that on the grounds of a reasonable apprehension of bias, Messrs Franklin, Home and Stone ought be removed as liquidators of Walton Construction Pty Ltd and Walton Construction (Qld) Pty Ltd. The judgment in full is up on Austlii and may be read here. My review of the first instance decision of Davies J may be read here.

The second part of ASIC’s appeal, as to an alleged contravention of s 436DA as to disclosure in the DIRRI, was unsuccessful. I note in passing that at paragraph [38] Robertson J remarked that he did not regard the (then) IPAA’s Code of Conduct to be extrinsic material to be taken into account in construing ss 60 and 436DA of the Corporations Act.

Newsflash: AFSA announces Debtor’s Petition lodgement fee to cease

For those of you who have been concerned at the introduction of the $120 fee on lodgment of a Debtor’s Petition under the Bankruptcy Act 1966 (Cth), AFSA has announced its cessation, following a notion passed by the Senate yesterday (link). AFSA’s announcement states that the fee is no longer payable after the close of business on 23 June 2014.

For anyone interested in reading a transcript of the questioning of AFSA by Senator Penny Wright during an Estimates hearing in February on this issue, here’s the link

Newsflash – High Court judgments today in Newtronics and Hills Industries

Further to my post on Sunday, the High Court has earlier this morning handed down two important judgments – one in insolvency law (Universal Distributing principle) and one in restitution (change of position defence): Stewart v Atco Controls Pty Ltd (in liquidation) [2014] HCA 15 and Australian Financial Services and Leasing Pty Ltd v Hills  Industries Limited [2014] HCA 14.

First, the High Court unanimously allowed the appeal of the liquidator of Newtronics Pty Ltd (in liquidation) from the Victorian Court of Appeal’s decision in Atco Controls Pty Ltd (in liquidation) v Stewart [2013] VSCA 132. The High Court held that the liquidator was entitled to an equitable lien over a fund constituted by a settlement sum with respect to costs and expenses incurred in getting in the fund, being his costs and expenses in litigation against the respondent, a secured creditor, and receivers appointed by the respondent.

The bench of Crennan, Kiefel, Bell, Gageler and Keane JJ held that:  “there is no basis for excepting this case from the application of the principle in Universal Distributing (at [65]). You can read the judgment in full here, the High Court’s judgment summary here, and my analysis of the Victorian Court of Appeal decision from which this appeal was brought here.

Secondly, the High Court unanimously dismissed the appeal of Australian Financial Services and Leasing Pty Ltd from the decision of the NSW Court of Appeal in Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd [2012] NSWCA 380; (2012) 295 ALR 147, holding that the first and second respondents would not be required to repay monies that had been mistakenly transferred to them by the appellant as a result of a fraud committed by a third party, because each respondent had established a defence that they had changed their position on the faith of the receipt of the payments.

While the decision was unanimous, three judgments were written. The joint judgment was that of their Honours Hayne, Crennan, Kiefel, Bell and Keane JJ. Their Honours French CJ and Gageler J each wrote a separate judgment. You can read the judgment in full here, the High Court’s judgment summary here, and my analysis of the NSW Court of Appeal judgment from which this appeal was brought here (the second case discussed there).

More to follow – I will endeavour to return to analyse the High Court judgments in each case as soon as time allows.

Heads up #2 – Two other insolvency law appeals before the Courts

Two other insolvency law appeals have just been heard.

Today, a Full Federal Court bench of their Honours Jessup, Robertson and White JJ heard ASIC’s appeal from the decision in ASIC v Franklin (liquidator), in the matter of Walton Construction PL (in liq) [2014] FCA 68. At first instance, her Honour Davies J had refused an application by ASIC for the removal of liquidators because of an apprehension of a lack of independence and impartiality, brought under s 503 of the Corporations Act 2001 (Cth). ASIC had also claimed that the DIRRI (declaration of relevant relationships) made by the liquidators upon their appointment as administrators was deficient, and had sought a declaration that they had contravened s 436DA of the Act. This appeal decision is likely to be instructive, and worth looking out for. I wrote an analysis of the first instance decision and the then upcoming appeal in March of this year – link.

And on Friday, a Victorian Court of Appeal bench of their Honours Ashley, Neave and Almond JJA heard the directors’ appeal from the decision in Le Roi Homestyle Cookies Pty Ltd (in liquidation) v Gemmell [2013] VSC 452. This is an appeal from an interesting decision her Honour Ferguson J handed down in August last year. It concerned public examinations of directors for potential insolvent trading claims – including de facto and shadow directors – and the consequences of those individuals failing properly to maintain their privilege against self-incrimination for criminal or penalty proceedings. I wrote an analysis of that decision also, which may be read here.

I will endeavour to inform you when the appeal decisions are handed down.