Newsflash – High Court has just handed down its decision in COT v Australian Building Systems PL (in liq)

The High Court, by a 3:2 majority, has dismissed the Commissioner’s appeals from the Full Court of the Federal Court of Australia, in Commissioner of Taxation v Australian Building Systems PL (in liq) [2015] HCA 48. You can read the summary of the judgment published by the High Court on its website here, and the judgment in full here. Four separate judgments were written: by French CJ and Kiefel J and by Gageler J in the majority; Keane J and  Gordon J each wrote separate judgments in dissent.

More to follow when time permits. In the meantime, for some background, my previous writings on this case as it has moved through the courts can be read (in chronological order) here, here, here and here.

Tax laws v Insolvency laws – Bell Group and post-liquidation garnishee notices

Last week the Federal Court declared void two s 260-5 “garnishee” notices which had been issued by the Deputy Commissioner of Taxation to NAB requiring payment of post-liquidation tax liabilities assessed against a company in liquidation and its liquidator of over $298 million and $308 million, in The Bell Group Limited (in liq) v Deputy Commissioner of Taxation [2015] FCA 1056.

The Court held that the Commissioner had no power to issue the notices for post-liquidation tax liabilities. It held that –

  • A section 260-5 notice is an attachment for the purposes of s 468(4) of the Corporations Act (see [75]). (Section 468(4) provides that: “Any attachment, sequestration, distress or execution put in force against the property of the company after the commencement of the winding up by the Court is void.”)
  • A section 260-5 notice that relates to a post-liquidation tax-related liability does not avoid the operation of s 468(4) as a remedy specifically provided for or preserved by s 254(1)(h) of the ITAA36. It is not so preserved (see [75]). (Section 254(1)(h) of the ITAA36 provides that: “For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as the Commissioner would have against the property of the taxpayer in respect of tax.”)
  • Indeed the preferable construction of s 254(1)(h) of the ITAA36 is that it does not confer any remedy on the Commissioner against the property of a company after the commencement of the winding up of the company because such property is not “attachable property”. Thus s 254(1)(h) of the ITAA36 does not override or “trump” s 468(4) of the Corporations Act (see [66]-[69]),
  • Nor can s 468(4) be read down to permit such an attachment even if the Commissioner has some level of priority in respect of post-liquidation tax-related liabilities (pursuant to s 556(1)(a) of the Corporations Act) (see [75]),
  • Applying the High Court’s reasoning in Bruton Holdings with respect to pre-liquidation tax debts, the Commissioner also has no power to issue s 260-5 “garnishee” notices to a company in liquidation (or its liquidator) in respect of post-liquidation tax-related liabilities. The High Court’s reasoning as to the regime in s 260-45 of Schedule 1 of the TAA is equally applicable to the scheme in s 254 of the ITAA36. There is no relevant distinction between the two statutory schemes. “Both require the liquidator to set aside amounts to meet expected tax debts, but leave questions of payment and priority to the Corporations Act.” (see [79] and [81])
  • The Commissioner had no power to issue the notices in this matter. (see [81])

The Facts 

In summary the key facts – which were not in dispute (see [6]-[20]) – are these –

On 24 July 1991, a liquidator was appointed to The Bell Group Company Limited (TBGL) and related entities by the Supreme Court of Western Australia. On 3 March 2000 Mr Antony Woodings was appointed an additional liquidator, and he became sole liquidator on 21 August 2014.

Back in 2000 the well-known, long-running Bell Group litigation commenced against a number of Australian and overseas banks. On 28 October 2008 in his 2,643 page judgment, Owen J found against the banks and ordered them to pay TGBL and related entities total amounts exceeding $1.5 billion. This was increased on appeal by the WA Court of Appeal to over $2 billion.

The banks then sought and obtained special leave to appeal to the High Court. However prior to hearing, a settlement was agreed. The Deed of Settlement provided, amongst other things, for the banks to pay a settlement sum of just under $1 billion plus adjustments to the liquidator Mr Woodings to be held on trust for TGBL and related entities in certain specified proportions. Broadly, the key clauses provided that Mr Woodings held the sum on trust for each of the “Bell Judgment Creditors” in specified proportions, and that the settlement sum was to be held in an interest bearing trust account or accounts, and the same parties would have a vested and indefeasible interest in their proportion of the interest earned.

TBGL’s proportion of the settlement sum specified in the Deed in 2008 had been just over $5 million, plus a share of the adjustment amounts.

Although the Deed provided for the distribution of the settlement sum, for reasons which Wigney J observed were not necessary to go into, the funds held on trust were not distributed, either pursuant to the settlement deed or in the winding up generally. His Honour noted that it appeared not to be disputed that at some stage the funds would be distributed.

At the time of this hearing, Mr Woodings held $300 million paid pursuant to the Deed of Settlement in a NAB term deposit account in the name “ALJ Woodings as Trustee for the Bell Judgment Creditors”. This investment matured on 2 October 2015.

On Wednesday 5 August 2015 Mr Woodings, in his capacity as liquidator of TBGL (as head company of a consolidated group), caused TGBL to elect to form an income tax consolidated group under Part 3-90 of the Income Tax Assessment Act 1997 (Cth) (ITAA97), and the companies entered into a tax sharing agreement for the purposes of Division 721 of the ITAA97. It was common ground that the terms of both of these had no bearing on the validity of the garnishee notices.

On Monday 10 August 2015 the Commissioner issued a notice of assessment to TBGL as head company of the consolidated group for the 2014 income year, assessing TBGL’s taxable income in the amount of over $1 billion and the tax payable in an amount of over $308 million.

On 18 August 2015, due to a calculation error in the assessment, the Commissioner issued an amended assessment to TBGL assessing the 2014 taxable income as nearly $994 million and the tax payable as over $298 million.

Corresponding assessments were also issued to Mr Woodings in his capacity as liquidator of TBGL, relating to the same income and the assessed tax payable of over $298 million.

On 14 August 2015 the Deputy Commissioner issued the two garnishee notices to NAB – one in respect of the assessment issued to TBGL and the other to Mr Woodings. The TBGL notice specified the amount originally assessed of over $308 million, although the NAB was subsequently advised that the amount due under the notice was varied to just over $298 million.

Objections were lodged by both TBGL and Mr Woodings.

Summary – Submissions

TBGL and its liquidator submitted that the reasoning in Bruton Holdings PL (in liq) v Commissioner of Taxation [2009] HCA 32; (2009) 239 CLR 346 applied to the two garnishee notices even though Bruton Holdings dealt with the scheme for pre-liquidation tax-related liabilities in s 260-45 of Schedule 1 to the Tax Administration Act 1952 (Cth) (TAA), as opposed to post-liquidation tax-related liaiblities, and involved the operation of s 500(1) rather than s 468(4) of the Corporations Act. They argued – successfully – that –

  • The Hight Court made emphatic and unequivocal statements in Bruton Holdings, in particular at [10], [19] and [39], that the power conferred on the Commissioner by s 260-5 of Schedule 1 to the TAA does not extend to the case of a company in liquidation, including where there has been a court ordered winding up.
  • The High Court’s reasoning applies equally to the case of post-liquidation tax-related liabilities. This is because post-liquidation tax-related liabilities are also the subject of a specific scheme, being the scheme in s 254 of the ITAA36 and Chapter 5 of the Corporations Act, in particular s 556.
  • That specific scheme excludes the more general provision in s 260-5 of Schedule 1 to the TAA for exactly the same reasons as those given by the High Court in Bruton Holdings in respect  of the specific scheme in s 260-45 of Schedule 1 to the TAA. (See [56])

Contrary to this, the Commissioner submitted that the reasoning in Bruton Holdings was inapplicable to the circumstances of this case because –

  • The statutory scheme in respect of post-liquidation tax-related liabilities in s 254(1) of the ITAA36 is different to the scheme in s 260-45 of Schedule 1 to the TAA in respect of pre-liquidation tax-related liabilities.
  • The main difference is that s 254(1)(h) of the ITAA36 – properly construed – specifically provides for or preserves the availability of hte Commissioner’s remedy in s 260-5 of Schedule 1 to the TAA.
  • As a result, s 254(1)(h) operates to “trump” the more general provision in s 468(4) of the Corporations Act.
  • The Commissioner pointed to several authorities which he argued provided support for the proposition that preference is to be given to specific schemes in taxation legislation designed to protect the revenue over “more general schemes in the Corporations Law”. Those authorities included the High Court’s decisions in COT v Broadbeach Properties PL [2008] HCA 41; (2008) 237 CLR 473 and DCOT v Moorebank PL [1988] HCA 29; (1988) 165 CLR 55, and the NSWCA in Muc v DCOT [2008] NSWCA 96; (2008) 73 NSWLR 378.

Alternatively, the Commissioner submitted that –

  • Even if s 254(1)(h) of the ITAA36 did not operate as he contended, the word “attachment” in s 468(4) of the Corporations Act should be read down so as to permit s 260-5 notices in respect of priority debts.
  • Post-liquidation tax-related liabilities were a priority debt because they would be an expense within s 556(1)(a) of the Corporations Act.
  • Given that priority status, there was no basis for reading the term “attachment” in s 468(4) of the Corporations Act so as to exclude the giving of a s 260-5 notice to enforce that statutory priority. (See [57]-[58])

The Judgment

His Honour Justice Wigney held that the notices were void for two related reasons –

  1. Each notice was an attachment against the property of TBGL and therefore void by operation of s 468(4) of the Corporations Act, and
  2. That conclusion supports the more general proposition that the power conferred on the Commissioner to issue notices under s 260-5 of Schedule 1 to the TAA is not available where the relevant “debtor” for the purposes of that section is a company which is being wound up (or its liquidator). That is so even where the relevant debt is for tax payable on income derived after the commencement of the winding up. (See [59]-[61])

His Honour observed that –

  • The High Court concluded in Bruton Holdings that a s 260-5 notice is an attachment for the purposes of s 500(1) of the Corporations Act. (Section 500(1) provides: Any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up is void.”) While in some respects this finding was secondary to the broader finding as to the Commissioner’s power to issue a notice in respect of a tax debt of a company in liquidation, it was nonetheless an unequivocal and unqualified finding.
  • It applies equally to s 468(4) of the Corporations Act, which is in identical terms to s 500(1) (save that the latter applies to voluntary liquidations, and the former to Court-ordered liquidations).
  • The High Court’s conclusions in Bruton Holdings at both [19] and [39] refer to winding up by court order, “thus clearly indicating that the court saw no relevant distinction between ss 468(4) and 500(1) of the Corporations Act”.

Wigney J noted that the Commissioner “in effect” accepted that a s 260-5 notice was an attachment for the purposes of s 468(4) of the Corporations Act. He referred to the Commissioner’s arguments that s 468(4) did not however render such a notice void if the notice related to post-liquidation tax-related liabilities, because either s 254(1)(h) of the ITAA36 “trumped” s 468(4), or because s 468(4) should be read down. His Honour’s assessment of these arguments at [64] was crisp and succinct: “Neither contention has any merit.”

Construction of s 254(1)(h) of the ITAA36

His Honour took issue with the Commissioner’s contentions as to the proper construction of s 254(1)(h) of the ITAA36 – see [65]-[69]. He discussed the use of the word “attachable” in s 254(1)(h), and took the view that it evinced a legislative intention to avoid any potential conflict between s 254(1)(h) and provisions such as ss 468(4) and 500(1) of the Corporations Act, that prevent attachment of certain types of property. Wigney J observed that a construction of s 254(1)(h) which allows it to operate harmoniously with ss 468(4) and 500(1) of the Corporations Act is to be preferred to one that potentially puts the provisions of two Commonwealth statutes in conflict, or results in a provision of one statute overriding (or “trumping”) a provision in another statute.

His Honour noted at [68] that this meant s 254(1)(h) effectively has no application in the case of a company in liquidation, but found that that does not militate against its availability. The subsection still has significant work to do, even if it does not apply to liquidators, because it operates also in the case of all agents and trustees who derive income in a representative capacity, or by reason of their agency. Subsection 254(1)(h) still has work to do in the case of other agents or trustees, where attachment of property under their control or management is not prevented by provisions equivalent to ss 468(4) and 500(1) of the Corporations Act.

Wigney J held that “the preferable construction of s 254(1)(h) of the ITAA36 is that it does not confer any remedy on the Commissioner against the property of a company after the commencement of the winding up of the company because such property is not attachable property.” See [69])

Whether s 468(4) of the Corps Act should be read down to permit s 260-5 notices for post-liquidation tax debts

Wigney J discussed the Commissioner’s submission that s 468(4) of the Corporations Act should be read down to permit s 260-5 notices for post-liquidation tax debts and noted that it seemed to rely on two propositions: (1) that ss 468(4) and 500(1) of the Corporations Act only operate to render void an attachment if the effect of the attachment is to secure priority for the payment of a debt that is not otherwise a priority debt; and (2) that the Commissioner has priority in respect of post-liquidation tax-related liabilities. His Honour again crisply dispatched these too: “Neither proposition is correct.” (See [70])

Whether the Commissioner has priority for post-liquidation tax debts

On this point Wigney J gave consideration to what priority is afforded the Commissioner by reason of s 556(1)(a) of the Corporations Act at [72]-[74]

  • It is not strictly correct to say that the Commissioner has priority in respect of post-liquidation tax-related liabilities by reason of s 556(1)(a) of the Corporations Act.
  • Subsection 556(1)(a) gives priority to expenses incurred by, relevantly, a liquidator, in preserving, realising or getting in property of a company, or in carrying on the company’s business.
  • By reason of s 254(1)(e) of the ITAA36, a liquidator is personally liable for the tax payable in respect of post-liquidation income to the extent of any amount that he or she has, or should have, retained under s 254(1)(d) of the ITAA36. **Sidenote: See below under the heading “Comments” – there is an important appeal that has just been heard by the High Court on ss 254(1)(d) and (e) of the ITAA36.
  • If, for whatever reason, the liquidator does not discharge the company’s tax-related liabilities from its available assets, but instead personally pays (or is required to personally pay) that amount, it might well be regarded as an expense in getting in property of the company or carrying on its business.
  • The liquidator would have priority in recovering that expense by reason of s 556(1)(a) of the Corporations Act.
  • That does not mean however, his Honour observed, that the Commissioner has priority in respect of post-liquidation tax-related liabilities.
  • Wigney J noted that in any event, that expense would not rank any higher than other expenses incurred by the liquidator that might also fall within s 556(1)(a) of the Corporations Act. If there are a number of these but insufficient assets to meet them all, they would rank equally and be met proportionally. His Honour noted that this proportionate system of entitlement would be subject to potential disruption if the Commissioner had full garnishee rights in relation to post-liquidation tax debts in those circumstances.

No Power to issue the Notices

Wigney J referred to the High Court in Bruton Holdings conclusion that the power to issue garnishee notices conferred by s 260-5 of Schedule 1 to the TAA does not extend to a company in liquidation. This is expressed three times in the judgment – at [10], [19] and [36] in clear, unequivocal and unqualified terms.

His Honour took the view that the reasoning of the High Court in Bruton Holdings, insofar as it involved consideration of the regime in s 260-45 of Schedule 1 to the TAA in respect of pre-liquidation tax-related liabilities, is equally applicable in cases which involve the scheme in s 254 of the ITAA36 in relation to post-liquidation tax-related liabilities. There is no relevant distinction between the two statutory schemes. “Both require the liquidator to set aside amounts to meet expected tax debts, but leave questions of payment and priority to the Corporations Act.”

Accordingly, Wigney J held that the Commissioner had no power to issue the notices in this matter. (See [76]-[81])

Trustee Capacity Issue 

Whilst noting it was strictly unnecessary, Wigney J addressed the submission for TBGL and its liquidator that the notices were either invalid or not engaged, because the funds held in the NAB account were held by Mr Woodings in his capacity as trustee for the Bell Judgment Creditors. By reason of the definition of “entity” in the relevant provisions of the ITAA97, Mr Woodings is taken to be a different entity in that trustee capacity, than his capacity as liquidator of TBGL.

His Honour took the view that this argument had some merit in the case of the notice referable to the liquidator Mr Woodings, having regard to the applicable proviisons of the ITAA97. NAB did not owe money to Mr Woodings in his capacity as liquidator of TBGL, but in his capacity as trustee. Therefore, even if the Woodings Notice was not void by reason of s 468(4) of the Corporations Act, it would nevertheless have no application to the NAB account. His Honour took the view that this capacity issue did not, however, affect the validity of the TBGL Notice, if it were not otherwise void by reason of s 468(4). (See [82]-[89])

COMMENT

Tax Laws v Insolvency Laws – Another current case – COT v Australian Building Systems

As many of you will know, this is not the only significant case before the courts at present, involving a clash of sorts between provisions of the tax legislation and insolvency provisions of the Corporations Act.

Just last month the High Court heard the Commissioner’s appeal from the decision in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133, a CGT case largely concerned with s 254(1)(d) and (e) of the ITAA36. For my previous posts discussing the first instance decision of Logan J in that case and the High Court’s hearing of the special leave application, see here and here respectively. The transcript of the hearing in the High Court can be read here.

At first instance this case was, at least in part, more squarely run as a clash between these provisions of the ITAA36 and the scheme of priority laid down by the Corporations Act; particularly notable given that the former crown priority for unpaid tax debts was abolished in the early 1980’s with the passing of legislation. However the appellable issues were narrowed by the reasons for judgment given at first instance. On appeal to the High Court, the submissions filed for the parties show that of the 3 issues raised in the appeal by the Commissioner, only one was contested by the liquidators. (The parties’ submissions may be read here.) That issue was this:

Whether, following the derivation by a trustee or agent of income profits or gains in a representative capacity, but prior to a tax assessment, s 254(1)(d) requires and authorises the agent or trustee to retain moneys then in their hands or thereafter coming to them so much as is sufficient to pay tax on it; or whether s 254(1)(d) only authorises and requires a trustee or agent to retain such moneys after an assessment for tax on the income profits or gains.

Note that the personal liability imposed upon agents and trustees (including liquidators by s 254(1)(e) applies to the extent of any amount that he or she has retained, or should have retained under paragraph (d).

It will be interesting to see the extent to which the High Court grasps the opportunity in COT v Australian Building Systems to clarify the operation of both ss 245(1)(d) and (e) in its decision in this case, and provide certainty for liquidators as to their potential scope for personal liability under s 245(1)(e). That is, as to how s 245(1)(e) operates – in light of the conclusions the Court may reach as to the proper construction of s 245(1)(d) – and the extent to which s 245(1)(e) might (as the Commissioner argued in Bell Group vis a vis s 245(1)(h)) serve to override or “trump” certain provisions of the Corporations Act; here the scheme of priorities laid down in the Corporations Act. It is unfortunate but it may be the case that as events have transpired, it may not turn out to be the ideal test case vehicle for this issue.

The Bell Group Collapse – 20+ years and counting – mixed messages as to handling of distribution 

You may recall in the chronology above that the Deed of Settlement was reached in 2008 and we presume that payments made thereunder in about 2008. The next step in the chronology recited above is the activity in August 2015 in relation to taxation matters.

Between those points in the chronology, I ought to interpose the observation that reportedly there had been other litigation both threatened and run about the distribution of money from the pool both in the WA Supreme Court and in the British High Court. In May 2015, it was reported by ABC news that according to the WA State Government, the total $1.7 billion settlement sum was going to be disbursed through a statutory authority. See my comments on this further below. ABC News reported that WA Treasurer Mike Nahan had mentioned the introduction of legislation to ensure there was certainty about the process of distributing funds to treasurers. They reported that a bill had been introduced to Parliament by Dr Nahan to dissolve the companies and place the assets under the control of a statutory authority that would administer and distribute them. Dr Nahan reportedly said that the four major creditors owed money were the Insurance Council of WA, the ATO, and two other legal parties. Dr Nahan, it was reported, said that “the bill would ensure an expeditious end to the Bell litigation and the equitable distribution of the pool of funds.” One cannot know all that transpired thereafter. Perhaps the forming of the consolidated group for taxation purposes may have triggered the ATO’s actions. However it would appear possible that the Commissioner may not have concurred with the approach put forward in the bill.

It is early days, but do not be surprised if this decision is appealed.

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 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

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.

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