About carrieromesievers

I am a commercial law barrister in Melbourne Australia, specialising primarily in insolvency and corporations law.

Sino Iron v Worldwide Wagering – a case of fraud and restitution “with the lot”

It has not been a good week in Australian courts for sports betting enterprises. On Thursday Tabcorp was fined $45million for breaching anti-money laundering and counter-terrorism financing laws. To less publicity, the day prior, the Victorian Supreme Court found another sports betting company and individuals and companies associated with it were liable for the consequences of receipt of stolen funds of over $2million. The case is Sino Iron Pty Ltd v Worldwide Wagering Pty Ltd [2017] VSC 101.

This was a case of fraud and restitution “with the lot” – the issues raised by the fraud and addressed in the judgment include money had and received (the stolen funds), Black v Freedman trusts and when they arise, Barnes v Addy claims against third parties for knowing receipt of trust funds and knowing assistance in breaches of trust, the Baden categories of knowledge, when knowledge of an agent will be imputed to the principal, the change of position defence, indefeasibility of title and the fraud and in personam exceptions, tracing issues, and more.

The facts as found by the Court

The two plaintiff companies were involved in the development of Australia’s largest magnetite mining and processing project, the Sino Iron Project, conducted at Cape Preston in the Pilbara, Western Australia. They incurred large debts to a company called Monadelphous Engineering Associates Pty Ltd.

The fraudster, pretending to be an authorised representative of Monadelphous, contacted the plaintiffs and directed payment of Monadelphous’ invoices to be paid into a new bank account. The bank account details given were those of the fourth defendant, a company incorporated in Norfolk Island called Worldwide Wagering Pty Ltd. Worldwide carried on an international sports betting business under the name “Pinnaclebet”.

The plaintiffs paid a total of $2,147,689 into Worldwide’s ANZ bank account on 30 May 2016. Worldwide’s sole director Mr H (the fifth defendant), and its general manager Mr O (the sixth defendant), initially suspected fraud when the funds were paid into their company’s account, as there had been a similar theft from La Trobe University about two weeks earlier. They reported it to the police. However they then spoke with a Worldwide customer known to them, a Mr S, who claimed an entitlement to bet with the funds, and on 1 June 2016 they arranged for Worldwide to credit the stolen funds to Mr S’s betting account. Mr O and Mr H gave evidence this was after checking by email with the police (see [140]-[142]), although the judge found on the evidence that the emails to the police excluded important information including Mr S’s surname, to protect Mr S from further enquiries by the detective (see [193]-[200]).

The stolen funds were then gambled on international sporting events. Most bets were lost. Worldwide paid out $550,000 to Mr S on winning bets. The Court found that most of the approximately $2million was used by Worldwide, Mr H, or related companies. The defendants admitted they had actual knowledge of the fraud at 1.13pm on 7 June 2016, six days after crediting the funds to Mr S’s betting account, and after Mr S had placed his last bet. However after that time, the stolen funds continued to be used by the defendants or related companies (see [8]). This included a sum of nearly $796,000 which passed through a related company The Odds Broker and was used by Mr H to purchase a bank cheque, which was then used to settle the purchase by Mr H and Mr O as tenants in common in equal shares of a property at Bondi Junction. See [6] – [12] of the judgment for summary details of the application of the funds. After Mr S’s last bet, the remaining credit in Mr S’s betting account was $70,479.40, which was later repaid to the plaintiffs.

The plaintiffs claimed the balance of the stolen funds ($2,077,210) or their specific traceable proceeds, on multiple grounds. See the list of claims held to have been successfully made out, in the next section below .

The defendants’ arguments included that prior to the time they had actual knowledge of the fraud, they were entitled to rely on Mr S’s statements that the stolen funds belonged to him or those for whom he acted as agent and were legally obtained. Hence, so they contended, the stolen funds were received by Worldwide, and thereafter dealt with by it and the other defendants, as a bona fide purchasers for value without notice of the fraud. They argued the change of position defence (see below). They also argued that Worldwide did not receive the stolen funds on trust as alleged, because at the time of receipt it had no knowledge of the fraud. (See [23]) They succeeded in this last contention, although it only delayed the arising of the trust for 48 hours after receipt of the funds. The question of when the Black v Freedman trust arose is discussed below.

THE SHORT VERSION 

For those wanting a short summary of the outcome of the decision, here it is: The Court held the plaintiffs had established an entitlement to relief on the following (co-existing and overlapping) grounds –

First, for $2,077,210 against Worldwide on the basis of:

  1. the common law claim for money had and received;
  2. the proprietary claim under Foskett v McKeown principles; and
  3. breach of its Black v Freedman trust obligations.

Second, against Mr H and Mr O for $2,077,210 for knowingly assisting Worldwide to breach its Black v Freedman trust obligations.

Third, against Mr O for knowingly assisting Worldwide, The Odds Broker and Mr H to breach their respective Black v Freedman trusts by disposing of the traceable proceeds of the stolen funds comprised in the $800,000 transferred from Worldwide’s ANZ account to a bank account of The Odds Broker, from whence it was transferred to personal bank accounts of Mr H.

Fourth, against Mr H for the traceable proceeds of the stolen funds comprised in the $800,000 on the basis of:

  1. money had and received; and
  2. knowing receipt of trust property.

Fifth, against Mr H and Mr O for the traceable proceeds of the stolen funds comprised in the $345,000, for knowingly assisting Worldwide to breach its Black v Freedman trust obligations.

Sixth, against Worldwide for proprietary relief in the form of an equitable charge over the Worldwide ANZ account to secure the traceable proceeds of the stolen funds remaining in that account.

Seventh, against Mr H and Mr O for proprietary relief in the form of an equitable charge over the Bondi Junction property to secure the traceable proceeds of the stolen funds used to purchase that property.

Eighth, against Worldwide for $8,500 as an account of profits made from its breach of trust.

Each of these findings involved rejection of the change of position and bona fide purchaser for value without notice defences, on the ground that the defendants did not act in good faith at relevant times because of their knowledge of the fraud to the level of the third Baden category (wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make). The indefeasibility defence also failed.See [452]-[462] for these conclusions. The proceeding was adjourned to allow further evidence and submissions before determining tracing issues.

For those interested in reading more about the claims and defences argued in this case, and a discussion of the legal principles involved, read on.

THE LONG VERSION

1. Knowledge of the fraud

In making his findings as to knowledge, Hargrave J first set out the 5 so-called “Baden categories of knowledge” at [27], derived from the well-known 1993 UK decision. The level of knowledge required to be proven to succeed in a relevant claim or defence varies according to the particular claim or defence. The Baden categories of knowledge are –

(1) actual knowledge;

(2) wilfully shutting one’s eyes to the obvious;

(3) wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make;

(4) knowledge of circumstances which would indicate the facts to an honest and reasonable person; and

(5) knowledge of circumstances which would put an honest and reasonable person on inquiry.

(For a further discussion of these categories, see my 2012 article on Grimaldi v Chameleon Mining here.)

None of the parties alleged that Mr S was a party to the fraud. His Honour remarked that that remained an open question (see [63]), and applied the rule in Jones v Dunkel to drew an adverse inference from the defendants’ failure to call Mr S to give evidence (see [201]-[203]).

The defendants admitted they had actual knowledge of ‘a suspicion of’ the fraud at approximately 1.13pm on 7 June 2016, several hours after an ANZ officer initially told Mr H of it. By 1.13pm Mr H believed the stolen funds were ‘likely’ to have been fraudulent deposits and instructed a staff member to freeze Mr S’s betting account. The Court found that Mr H had actual knowledge of the fraud in the first Baden category from the time he gave that instruction on 7 June. (See [98]-[99])

Worldwide, Mr H and Mr O contended that at the time the stolen funds were credited to Mr S’s betting account 6 days prior, on 1 June 2016, they had made all reasonable inquiries to satisfy themselves that Mr S was entitled to bet with the funds (see [157]). Hargrove J did not accept these submissions.

His Honour took the view  that the knowledge that they had admitted to having at that time constituted circumstances which would have led an honest and reasonable person in their position to have made further inquiries before crediting Mr S’s account with the stolen funds. Thus they should have made those inquiries, including the ‘simple inquiry‘ of ascertaining the identities of the depositors of the stolen funds (the plaintiffs) from the internet bank statements, and contacting them to ask if the deposits had been made by the plaintiffs for the purpose of the international sports betting customer claiming the funds. His Honour found that had they done so, the fraud would have been revealed and Mr S’s betting account would not have been credited (see [158]-[159]).

That finding is suggestive of Baden category 5, possibly 4. However the Court went further, and held that Mr H and Mr H acted wilfully and recklessly in failing to make the ‘simple inquiry’ – see Baden category 3 above. His Honour observed that they also had a commercial motive to want to believe Mr S’s claims, being their plan to expand the business’s turnover and customer base to ready it for sale from which they each stood to profit. As a result, his Honour found, they accepted as true flimsy information from a man with, at best, a mixed reputation, and made only superficial inquiries (see [168]-[179]).

His Honour made his findings to the Briginshaw standard (see [180]-[182]). He found that the defendants had knowledge of the fraud in the third Baden category at the time Mr H and Mr O issued the instructions for Mr S’s betting account to be credited with the stolen funds, and thus before any bets were placed. If that were wrong, his Honour held that the defendants had that level of knowledge after the account was credited but before any bets were placed, or alternatively, prior to the final $1.3m in bets were placed on the morning of 7 June (see [272]).

2. Claims in restitution based on mistaken payments, money had and received

The principles his Honour identified from the authorities were these (see [275]-[279], [286]- [288]) –

  1. When money is paid under a mistake of fact, the person paying the money may recover it from the recipient in a common law action for money had and received. Recovery depends upon whether it would be inequitable for the recipient to retain the benefit. Retention may not be inequitable if the recipient has changed its position on the faith of the receipt and thereby suffered a detriment:  Australian Financial Services Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; (2014) 253 CLR 250, 568 per French CJ;
  2. Direct receipt is unnecessary; indirect receipt by a volunteer of traceable proceeds of the money paid by mistake is enough: Fistar v Riverwood Legion & Community Club Ltd [2016] NSWCA 81; (2016) 91 NSWLR 732, 746 [62]-[64];
  3. In a common law action based on money paid by mistake, it is not necessary for the plaintiff to allege or prove that the retention of the money received by the defendant would be inequitable. That is a matter for defence, on which the defendant bears the onus: ASFL v Hills Industries at 593 [66]-[67]; David Securities Pty Ltd v CBA [1992] HCA 48; (1992) 175 CLR 353, 379;
  4. One such defence is change of position. Gageler J in AFSL v Hills Industries proposed two conditions for proof of this defence –
    1. That the defendant has acted or refrained from acting in good faith on the assumption that he/she/it was entitled to deal with the payment received. The defendant need not have relied on knowledge derived from the payer.
    2. That by reason of having so acted or retained from acting, the defendant would be placed in a worse position if ordered to make restitution of the payment than if the defendant had not received the payment at all. The detriment need not always be financial. If it is, it need not be established with precision. It can be an opportunity forgone. However it must, in every case, be shown by the defendant to be substantial: ASFL v Hills Industries at 625-626 [157];
  5. This formulation has been accepted by the Victorian Court of Appeal as consistent with the defence and the principles on which it is based as set out by the majority in AFSL v HillsSouthage PL v Vescovi [2015] VSCA 117; (2015) 321 ALR 383, 399 [65].
  6. A defendant relying on a change of position defence who, prior to the change of position, wilfully and recklessly fails to make such inquiries as an honest and reasonable person would make in all the circumstances (i.e. once they have knowledge to the 3rd Baden category), does not act in good faith on the assumption that he, she or it is entitled to deal with the mistaken payment (which is the 1st of Gageler J’s two conditions for this defence): Macquarie Bank Ltd v Sixty Fourth Throne PL [1998] 3 VR 133, 143-144.

The plaintiffs’ claim under this head was against Worldwide for all of the $2.14 million stolen funds (less the approx $70,000 balance at the end, already repaid), and against related company The Odds Broker for $800,000, and against Mr H for $800,000.

The Court held that the defendants could not avail themselves of the defence here because they had sufficient (Baden category 3) knowledge of the fraud at the time each bet was accepted (see [282]). Worldwide was held liable to the plaintiffs for money had and received for the approx $2million.

The Odds Broker and Mr H argued they were not direct recipients of the stolen funds from the plaintiffs. As regards The Odds Broker, $800,000 was paid to it from the Worldwide ANZ account which was substantially comprised of traceable proceeds of the stolen funds (see [290]). There was no evidence The Odds Broker provided any consideration for the payment or changed its position on the faith of the receipt. On the evidence, it did not act in good faith. It was held liable to the plaintiffs for the traceable proceeds of the $800,000 as money had and received.

As regards Mr H and the $800,000 on-paid by The Odds Broker to Mr H’s personal accounts and applied towards the purchase of the Bondi Junction property, the tracing exercise was not straightforward. However even on the defendants’ case, $731,349.45 of the $800,000 was traceable to the Bondi Junction property. The Court found Mr H did not act in good faith because he had the requisite degree of knowledge. Mr H was held liable to the plaintiffs for $800,000 (or its traceable proceeds) as money had and received. ( See [286]-[294])

3. The Black v Freedman trust on which Worldwide held the funds for the plaintiffs – and when it arose

Hargrove J considered the nature of the trust created by receipt of stolen moneys under the Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 line of authorities from [306]. His Honour discusses these principles –

  1. Black v Freedman has been treated in Australia as a settled law that a thief holds stolen property on trust for the victim: Levy v Watt [2014] VSCA 60; (2014) 308 ALR 748, 766 [65] (see [313]);
  2. For volunteer recipients of stolen money from the fraudster:  a person entirely innocent of a fraud who comes to know that he or she has received and still retains the proceeds of, or taken advantage of, a fraud to which he or she was not party, cannot knowingly seek to retain those proceeds or that advantage without, in effect, becoming a party to that fraud and liable accordingly: Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230, 253 [92] (see [314]);
  3. The innocent recipient’s liability is limited to the amount of the stolen funds (or their traceable proceeds) remaining in the hands of the innocent recipient at the time sufficient knowledge of the theft is obtained: Heperu at 264-268 (145]-[163] (see [315]);
  4. In summary, a third party who receives stolen money as a volunteer is only obliged to account to the beneficial owner of the stolen property on Black v Freedman principles to the extent the recipient holds the stolen property or its traceable proceeds at the time the recipient obtains sufficient knowledge of the theft (see [316]).

(In relation to the first principle above, I note in passing that whilst that proposition is settled law, there has been much controversy about whether this is indeed the correct proposition for which Black v Freedman stands. In Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81; (2016) 91 NSWLR 732 at [37] Leeming JA noted this and discussed the cases and academic writings . Leeming JA noted the principal perceived difficulty is that it is said that a thief can have no title to stolen property and so cannot become a trustee for the true owner. His Honour preferred the view on this of Dr Fox expressed in his 2008 book Property Rights in Money, that what the thief is treated as having is legal possession, and therefore a possessory legal title which is capable of being held on trust. A mere finder of a chattel who has nothing more than possession, has a right against other putative possessors who lack better title. This extends even to thieves. But the thief’s right to possess is exigible only against others, not against the true owner: see Bride v Shire of Katanning [2013] WASCA 154 at [72] per Edelman J (with whom Newnes JA agreed). I note that there are other points of controversy concerning Black v Freedman, including whether the reasons there were confined to property disposed of by those in a fiduciary position.)

His Honour concluded that a trust did not arise upon Worldwide’s receipt of the stolen funds. It had not been proven it had sufficient knowledge of the fraud when it received them on 30 May 2016 (see [316]). However, when the defendants did acquire sufficient knowledge of the fraud on 1 June 2016, Worldwide became liable in equity to account to the plaintiffs for the stolen funds, all of which were still in its hands. The Court held that from that time, Worldwide was a trustee of those funds for the plaintiffs under either a constructive or resulting trust (see [325] and the citations of Heperu at [154]-[155] and Sze Tu v Lowe [2014] NSWCA 462 at [141]-[162]).

4. Knowing receipt – Barnes v Addy first limb

On the findings of knowledge already made, it was held The Odds Broker knowingly received the $800,000 with sufficient knowledge of the fraud. The Odds Broker thus became liable to account to the plaintiffs for that amount as a constructive trustee. It breached that trust by paying the $800,000 or its traceable proceeds to Mr H (see [326]).

Similarly, Mr H received the on-payment from The Odds Broker with knowledge of the fraud. Mr H gave evidence he did not know the money was sourced from the stolen funds when he received it into his bank account. However it was held this made no difference, because Mr O knew all the relevant facts and acted as Mr H’s agent in arranging the transfer of the $800,000 to Mr H’s account to enable the purchase of the property. Mr O’s knowledge was attributable to Mr H, so Mr H knowingly received the traceable proceeds of the $800,000 and thus became liable to account to the plaintiffs as a constructive trustee for that amount. He beached that trust when Mr O, as Mr H’s agent, used the traceable proceeds to purchase the Bondi Junction property (see [327]).

5. Knowing assistance – Barnes v Addy second limb

To be liable under the second limb of Barnes v Addy for knowing assistance, his Honour pointed out at [331] that it must be established that –

  1. The defendant assisted a trustee or fiduciary in a breach of trust or fiduciary obligation;
  2. That breach of trust or fiduciary obligation is characterised by the Court as a ‘dishonest and fraudulent design’, and
  3. The assistance was given with the requisite degree of knowledge of that dishonest and fraudulent design.

As to the third element – the requisite degree of knowledge by the recipient – it was accepted that Baden categories 1 to 4, but not category 5, are sufficient for both the first and second limbs of Barnes v Addy. This is consistent with authority: Farah Constructions (2007) 230 CLR 89, 163-4 [177]; Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296, 362 [262]; Mathieson Nominees v Aero Developments [2016] VSC 131 [166]. Category 5 is a form of constructive notice, rather than knowledge, and is considered insufficient. (See [332])

The Court concluded at [359] that –

  1. Mr H and Mr O knowingly assisted Worldwide to breach its trust obligations in respect of the whole of the stolen funds and hence each was liable to the plaintiffs for equitable compensation for the unpaid balance of that amount (just over $2million),
  2. Mr H and Mr O were also liable for knowing assistance in respect of the traceable proceeds of the stolen funds comprised in payments totalling $345,000,
  3. Mr O was liable for knowingly assisting Worldwide and The Odds Broker to breach their respective trust obligations regarding the traceable proceeds of the stolen funds comprised in the $800,000,
  4. Mr O was also liable for the traceable proceeds of the stolen funds comprised in the $800,000 for knowingly assisting Mr H to breach his Black v Freedman trust obligations, by using those proceeds to purchase the Bondi Junction property.

These liabilities overlapped with each other and other grounds of liability.

The plaintiffs also made proprietary claims over assets which remained to hand, including the Bondi Junction property.

6. Traceable into the Bondi Junction property?

The plaintiffs claimed entitlement to a proprietary remedy against the property in the form of a charge or equitable lien. This was on the basis that the Bondi Junction property was purchased with a bank cheque sourced from the traceable proceeds of the stolen funds comprised in the $800,000. (Hargrove J noted here that the plaintiffs’ claims against the Bondi Junction property were also established on the basis that Mr H funded the purchase of it in breach of his Black v Freedman obligations, with Mr O’s knowing assistance. See [364])

His Honour noted the following tracing principles –

  1. The beneficial owner of misappropriated property can recover it or its traceable proceeds from the person holding the asset, subject only to the defence that the holder is a bona fide purchaser for value without notice: Foskett v McKeown [2000] 1 AC 102, 129, 108-9, 115;
  2. Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset: Foskett v McKeown, the ‘basic rule’ stated by Lord Millett at 131.

Here, the plaintiffs’ property was constituted by their choses in action against their bank representing funds held to their account, including the stolen funds. When their bank mistakenly paid the amount of the stolen funds to Worldwide, the plaintiffs’ property was extinguished and Worldwide obtained a chose in action against its bank ANZ, which became the traceable substitute for the plaintiffs’ former property. In turn, further traceable substitutes for lesser amounts were created by the subsequent movement of the $800,000 (or its traceable proceeds) to the bank accounts of The Odds Broker and Mr H and, subsequently, the relevant bank cheque and the Bondi Junction property (see [365]).

In accordance with Lord Millett’s ‘basic rule’, the plaintiffs had elected to claim a charge on the Bondi Junction property to secure their personal claims against Mr H and Mr O for the traceable proceeds of the stolen funds comprised in the $800,000. Subject to the defendants’ defence based on indefeasibility of title, the Court held those claims should succeed (see [367]).

7. Is this claim against the property defeated by indefeasibility of title?

The defendants argued that Mr H and Mr O’s title to the Bondi Junction property was indefeasible by operation of s 42 of the Real Property Act 1900 (NSW). The merits of this argument turned on whether the events in this case brought it within the fraud exception to indefeasibility of title, as provided in s 42(1).

Hargrove J noted it has been held that –

  1. ‘Fraud’ in s 42(1) means ‘actual fraud, moral turpitude’ or ‘dishonesty of some sort’: Farah Constructions (2007) 230 CLR 89, 169 [192]; Bahr v Nicolay (No 2) (1988) 164 CLR 604, 614 (see [373]);
  2. The 3rd Baden category of knowledge is a species of actual knowledge (as opposed to constructive knowledge): Farah Constructions (2007) CLR 89, 163 [174] (see [375]);
  3. Causing registration on title in circumstances of wilful blindness (failing to make such enquiries as an honest and reasonable person would make) may be dishonest, and was categorised by Tadgell JA as fraudulent in Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133, 143-4 (see [375]).

The Court found that Mr O’s actions in causing his registration as an equal proprietor of the Bondi Junction property were dishonest (at [375]). It found he wilfully and recklessly failed to make such enquiries as an honest and reasonable person would make before instructing a staff member to credit the stolen funds to Mr S’s betting account on 1 June 2016, thus allowing the stolen funds to be used to place bets on that account. This fell within the 3rd Baden category of knowledge. Other evidence of Mr O’s showed that the $800,000 transferred from Worldwide to The Odds Broker  was directly referable to the stolen funds (see [376]). Moreover, on the defendants’ admissions of when they acquired actual knowledge of the fraud at 1.13pm on 7 June 2016, Mr O completed the purchase after obtaining this actual knowledge. He nevertheless proceeded to do so.

Notably, his Honour observed at [378]: “Although Mr O… may not have appreciated that his actions were dishonest, they were.” His Honour so found based on the evidence, and on the High Court’s observation in Farah Constructions at [173] that: “As a matter of ordinary understanding, and as reflected in the criminal law in Australia, a person may have acted dishonestly, judged by the standards or ordinary, decent people, without appreciating that the act in question was dishonest by those standards.

The Court also found that Mr H’s registration as an equal proprietor of the Bondi Junction property was procured by fraud for which he was responsible (from [379]). The plaintiffs contended that even if Mr H did not know the money in his personal bank account used to purchase the bank cheque to buy the property was sourced from the stolen funds, he had authorised Mr O to act as his agent in obtaining the moneys required for settlement of the purchase and that Mr O’s knowing use of the stolen funds should be imputed or “brought home” to Mr H as principal.

On this question of attributing the knowledge of an agent to the principal, at [389] Hargrave J noted the reasoning of the High Court in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2; (2015) 254 CLR 425 as follows –

  1. The title of a registered proprietary may be invalidated on the ground of fraud ‘brought home’ to the registered proprietary or to his agents: Cassegrain 436-7 [32], citing Assets Co Ltd v Mere Roihi [1905] AC 176, 210;
  2. Whether fraud by an agent will be brought home to the registered proprietor depends upon the ‘scope of authority and whether the agent’s knowledge of the fraud is to be imputed to the principal [registered proprietor]’: Cassegrain 439 [40]. This involves consideration of why the fraudster’s knowledge should be imputed to the registered proprietor: Cassegrain 439 [41];
  3. It is not sufficient to impute the agent’s fraud to the registered proprietor whether the registered proprietor is ‘no more than the passive recipient of an interest in land’: Cassegrain 439 [41];
  4. In order to bring fraud home to the registered proprietor, it is necessary to show that the agent’s fraud was within the scope of the agent’s authority given by the registered proprietor: Cassegrain 439 [42].

In the present case, the Court found Mr H gave a broad general authority to Mr O to move funds between the relevant accounts and he expected that the money required to complete the purchase of the property would be moved into his personal account from one of the accounts Mr O was authorised to operate. Hargrave J found that Mr O’s authority was sufficiently broad to encompass using the stolen funds if that was the only available source at the time to enable completion of the purchase. The Court found that given that Mr H had the same knowledge of the fraud as Mr O at relevant times, and thus acted dishonestly in instructing Mr O to arrange for Mr S’s betting account to be credited with the stolen funds, the Court was satisfied on the evidence that Mr O’s broad authority encompassed him acting fraudulently by using the stolen funds to complete the purchase if that was necessary. (See [391]-[392])

8. The in personam exception to indefeasibility of title

In addition to the statutory fraud exception to indefeasibility of title under s 42 of the Act, Hargrave J went on to find that indefeasibility also did not accrue as the in personam exception to indefeasibility of title was also made out. His Honour noted that in personam exception was generally described as existing ‘in relation to certain legal or equitable causes of action against the registered proprietor’ in Farah Constructions (2007) 230 CLR 89, 169 [193]. This language echoes the requirement that the in personam exception depends on the establishment of a known legal or equitable cause of action: Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133, 146-7. (See [394]) Hargrave J also noted the statements of Brennan J in Bahr v Nicolay (No 2) (1988) 164 CLR 604, 653 to the effect that the in personam exception does ‘not infringe the indefeasibility provisions of the Act. Those provisions are designed to protect a transferee from defects in the title of the transferor, not to free him from interests with which he has burdened his own title‘.

On the findings in this case, the plaintiffs’ claim for an equitable lien or charge over the Bondi Junction property arises from their establishing the known legal causes of action based on (1) Foskett v McKeown tracing principles, (2) Mr H’s breach of his Black v Freedman trust obligations, and (3) knowing assistance in that breach by Mr O. The Court held that the conduct of Mr H and Mr O, before registration of their interests as proprietors of the Bondi Junction property, had burdened their interests. (See [394]-[397])

(Sidenote: Hargrave J’s seemingly unexamined acceptance here that a knowing assistance Barnes v Addy claim is a personal equity which may defeat indefeasibility of title under the in personam exception appears to be directly inconsistent with obiter in the judgment last year of Vickery J in Mathieson Nominees Pty Ltd v Aero Developments Pty Ltd [2016] VSC 131. In that decision his Honour noted the debate on this point between various courts and confirmed the effect of ratio in Farah Constructions v Say-Dee [2007] HCA 22; 230 CLR 89, 140 [193]-[196] to the effect that a claim under Barnes v Addy is not a personal equity which defeats statutory indefeasibility of title. See my review of the Mathieson Nominees decision and discussion of this issue here.)

9. Traceable into the Worldwide ANZ account? Mixed funds

His Honour discussed the tracing issues that arose here at [398]-[435]. There were complications. He sets out a useful review of the competing tracing rules and principles that may be applied in cases of tracing into (and out of) mixed funds – see in particular at [408]-[422].

In the end Hargrave J concluded more evidence was needed to finally determine the tracing issues, much of which he noted was in the hands of the defendants. His Honour adjourned the proceeding to allow further evidence and submissions as to the remaining tracing issues – see [423]-[430] and [434].

For completion, I should note that an additional claim was made for recovery of the stolen funds under s 2.6.3 of the Gambling Regulation Act 2003, but was unsuccessful (see [440]-[450]).

Conclusion

The judgment is only two days old, so we cannot yet know whether an appeal will be pursued. In the meantime, on a practical level, the case stands as a salient warning to betting companies and those associated with them, and potentially similar entities which may receive questionable deposits into accounts held with them. Each case will turn on its own facts, and certainly here there was, amongst other things, an unusually timely warning of another fraud just 2 weeks prior. However in circumstances where a recipient is put on enquiry in some way, before on-paying or releasing the funds, it may be prudent to make the so-called ‘simple inquiry’ as described by Hargrave J at [158]-[159]: to seek to ascertain the identity of the depositor of the funds, contact them, and inquire as to whether they intended to make the deposit or payment to the benefit and for the purposes of the person or entity claiming to be entitled to access or control the funds. It is worth bearing in mind that whatever the circumstances are, the Baden categories of knowledge (see above) direct attention to what would an honest and reasonable person consider or do in those circumstances and with that awareness. As this case illustrates, a failure to meet that standard may have significant consequences for recipients of suspicious payments

Remuneration of liquidators – Sakr Nominees – 5 member NSWCA panel rights the ship

Today a 5-member panel of the NSW Court of Appeal overturned last year’s liquidator’s remuneration decision of Brereton J in the Sakr case. In an anticipated decision which will be welcomed by insolvency practitioners, their Honours held that in assessing the reasonableness of liquidators’ remuneration, the Court must have regard to the factors in s 473(10) and must have regard to the evidence. Fixing remuneration on an ad valorem basis by simply applying a percentage of realised assets considered appropriate to all liquidations, or to a particular size or class of liquidation without regard to the particular work done or required to be done, is not appropriate. To do so would pay no regard to the requirements of s 473(10) of the Corporations Act all of which, with the possible exception of s 473(10)(l), are directed to the particular liquidation under consideration by the Court. The judgment in full can be read at: Sanderson as liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38.

Facts

The liquidation commenced in September 2012. The only significant assets were three adjacent properties in North Sylvania which the liquidator realised for $3.72million. Subsequently the secured creditors were paid out, the unsecured creditors were paid out, and there remained a surplus of about half a million dollars. The creditors of the company had approved the liquidator’s remuneration up to 3 November 2014, but no further creditor approval could be sought as the creditors had been fully paid. Following paying out the creditors, an issue had arisen as to determining the identity of the contributories entitled to the surplus, and this had occasioned further work. There was a balance of $35,413 owing for work done, and approval of a further $22,385 for future work to compete the liquidation. The total remuneration claimed was $63,577 including GST. Upon hearing the application, Brereton J had approved only $20,000.

First Instance Approach

At first instance, Brereton J had stated that liquidators would not necessarily be allowed remuneration at their firm’s standard hourly rates, particularly in smaller liquidations. He stated that in smaller liquidations, questions of proportionality, value and risk loomed large, and that liquidators could not be expected to be rewarded for their time at the same hourly rate as would be justifiable if more property was available. He further stated that ad valorem or “commission based” assessment of remuneration is inherently proportionate and incentivises the creation of value rather than the disportioncate expenditure of time. See In the matter of Sakr Nominees [2016] NSWSC 709 at [15]-[16].

The Brereton J Series of Decisions – ad valorem assessment

This is far from the first time Brereton J has taken this position on the fixing of remuneration of insolvency practitioners in NSW. Last year in David Lewis Clout in his capacity as Liquidator of Mainz Developments Pty Ltd (in liquidation) [2016] NSWSC 1146, Robb J at [132] surveyed the following judgments of Brereton J over the previous 2 years, noting that the influence of a percentage-based, proportional approach suggested a level of inconsistency –

However the NSW Court of Appeal has now made it clear it does not agree with the approach taken by Brereton J.

The Court of Appeal’s Judgment

Section 473(10) provides –

In exercising its power under subsection (3), (5) or (6), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters –

(a) the extent to which the work performed by the liquidator was reasonably necessary;

(b) the extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary;

(c) the period during which the work was, or is likely to be, performed by the liquidator;

(d) the quality of the work performed, or likely to be performed, by the liquidator;

(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator;

(f) the extent (if any) to which the liquidator was, or is likely to be, required to deal with extraordinary issues;

(g) the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;

(h) the value and nature of any property dealt with, or likely to be dealt with, by the liquidator;

(i) whether the liquidator was, or is likely to be, required to deal with:

(i) one or more receivers; or

(ii) one or more receivers and managers;

(j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company’s creditors;

(k) if the remuneration is ascertained, in whole or in part, on a time basis:

(i) the time properly taken, or likely to be properly taken, by the liquidator in performing the work; and

(ii) whether the total remuneration payable to the liquidator is capped;

(l) any other relevant matters.

The NSW Court of Appeal made the following observations, in considering whether Brereton J had erred in his determination of reasonable remuneration –

  1. Whilst not all of the factors in s 473(10) may be relevant in a particular case, for a court not to take any of them into account would constitute error. (See [53])
  2. The onus is on the liquidator to establish that the remuneration claimed is reasonable and it is the function of the Court to determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues. (See [54])
  3. That is not to say that the question of proportionality has no bearing on the task to be undertaken by the Court. It is a well-recognised factor in considering the question of reasonableness and the factors in s 473(10)(d)-(e) and (g)-(h), which have as their unifying theme the concept of proportionality. (See [55])
  4. The question of proportionality in terms of work done as compared with the size of the property the subject of the insolvency administration or the benefit to be obtained from the work, is an important consideration in determining reasonableness, as was recognised by the Full Federal Court in Templeton v ASIC [2015] FCAFC 137 at [32]. (See [55])
  5. The work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed; that is what is encompassed in assessing the value of the services rendered: also stated in Templeton v ASIC at [33]. (See [55])
  6. Evidence as to the percentage that remuneration constitutes of realisation, will at least provide a measure of objective testing of the reasonableness of the remuneration claimed and will identify those cases in which there ought to be a real concern in that respect, as pointed out by Black J in Idylic Solutions Pty Ltd (in liq) [2016] NSWSC 1292 at [50]. (See [56])
  7. The mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it. The most obvious example is the work done by a liquidator in complying with his or her statutory obligations. As Farrell J pointed out in Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323 at [71], it is relevant to consider whether the work was necessary to be done. If it was, there is no reason the liquidator should not be remunerated for it. (See [57])
  8.  There are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work. Indeed, there is a public interest in liquidators bringing recovery proceedings. However, the liquidator is obliged to make any decision to bring such proceedings with care, and negligence in the exercise of the power may lead to a liquidator being deprived of costs. (See [58])
  9. There is force in the criticisms of time based charging. However, it remains the responsibility of the Court to fix reasonable remuneration on the evidence before it, taking into account the matters referred to in s 473(10). That must include considering the work done by the liquidator, whether it was reasonable to carry it out and the appropriateness of the amount charged for it. Such an evaluative process, whilst difficult in some circumstances, does not seem to be beyond the competence of the Court. (See [59])
  10. It should not be concluded that a time based calculation will always be appropriate. The task of the Court is to fix reasonable remuneration having regard to the evidence before it and taking into account the matters in s 473(10). Thus for example the “Lodestar” approach explained by Finkelstein J in Re Korda, in the matter of Stockyard Limited (subject to DOCA) [2004] FCA 1682 at [47] may, in some circumstances, be an appropriate method of undertaking the task. (See [60])

The Court of Appeal concluded inter alia that Brereton J did not appear to have taken the evidence presented by the liquidator into account or considered any of the factors in s 473(10) relevant to the assessment of remuneration, and erred in failing to do so. (See [63]) Moreover his Honour had erred in his consideration of the question of proportionality. Proportionality is a relevant factor, but Brereton J focused solely on this issue, failing to give consideration to the work actually done and whether the amount charged was proportionate to the difficulty and complexity of the tasks to be performed. (See [64])

The decision was unanimous, with Bathurst CJ writing the judgment and Beazley P, Gleeson JA, Barrett and Beach AJA agreeing. Barrett AJA added the observation that in his view, it was impossible to say, as a general proposition, that any given basis – whether according to time, value, extent of recoveries, size of company, nature of company or any other factor – merits any claim to precedence over any other in the matter of determination of liquidators’ remuneration. (See [71]) The appeal was allowed and the application for approval of remuneration was remitted to a judge of the Equity Division for rehearing.

The Ship is Righted

The past few years have been somewhat alarming for insolvency practitioners in NSW, particularly those taking appointments to smaller liquidations which later turn out to involve some unheralded complexities. This decision of the NSW Court of Appeal gives useful guidance and should provide greater certainty to insolvency practitioners as to the approach to be taken henceforth in NSW on court applications for approval of liquidators’ remuneration. Of course evidence on such applications should always be marshalled paying careful regard to the factors set out in s 473(10) and the aim of demonstrating to the Court the reasonableness of the remuneration incurred, including for certain items why a more senior staff member was required to undertake a particular task, or why a particular task took as much time as it did.

Extending time for convening the second meeting of creditors

In January Gardiner AsJ delivered his reasons for orders made in December 2016 granting an extension of time for the convening of the second creditors’ meeting in Re Southern Riverina Dairy Group Pty Ltd (Administrators appointed) [2017] VSC 4. The case provides a handy reminder of when such orders are likely to be made, and the judgment includes a useful summary of the key legal principles and the reasons for which the courts tend to grant such extensions.

Facts

Southern Riverina Diary Group Pty Ltd operated a 320 hectare dairy farm in southern New South Wales, and milked about 750 cows. In 2016 Souther Riverina experienced financial difficulties. It reached a point where it was unable to meet its financial obligations, became the subject of various court judgments in 2016 and was facing a pending wind up application. (There was evidence that the petitioning creditor’s issues with the Company had been resolved, but that another creditor had applied to be substituted as petitioning creditor.) The Company had seven employees and it appeared the ATO may be owed unpaid Superannuation Guarantee Charges. There were multiple secured creditors owed a total amount of approximately $2.7 million, and a preliminary assessment of the total of unsecured debts was in excess of $4.569 million.

The Administrators of Southern Riverina – Glenn Franklin, Jason Stone and Petr Vrsecky – had been appointed by secured creditors of the Company under s 436C of the Corporations Act on 6 December 2016. If not extended, the convening period for the second meeting of creditors was to expire on 12 January 2017, pursuant to s 439A(5)(a) (see [2]).

The Administrators’ application for extension of time was heard on 19 December 2016. There was evidence of several DOCA proposals in the process of being formulated, but not yet submitted . One of the directors had asked for more time to formulate a DOCA proposal, and requested the second creditors meeting be held after 7 February 2017. Another potential investor was interested in putting forward a DOCA proposal but required until February 2017. There was a further complication in that one potential investor would need to go through the Foreign Investment Review Board process, which was said to take six weeks.

The Administrators submitted that they needed the further time to complete their investigations into the Company’s affairs, and to prepare a proper and informative report to creditors. The report is required to contain their opinions and the reasons for those opinions pursuant to s 439A(4) of the Act, as to whether it would be in the creditors’ interests for the Company to execute a proposed DOCA, for the administration to end, or for the Company to be wound up. This is difficult to do when the DOCA proposals were not yet received and able to be considered as to merit, and comparisons reached as to likely returns under those proposals as compared with a liquidation.

Unusually, the Administrators filed the application prior to holding the first creditors meeting (at [24]). This was because of the timing of the administration and the looming interruption of the Christmas period. The meeting was held several days before the hearing, and the evidence was that all creditors in attendance had indicated their support of the extension of time (including the creditor who had applied to be substituted as petitioning creditor in the wind up application). No objection was raised. The secured creditors who were owed the majority of secured debt had informed the Administrators they had no objection. Other secured creditors had not attended the first meeting nor given their proxy. His Honour observed that presumably, given the attitude of the proposed substituted creditor, it would assent to an adjournment of the winding up application, which would be a powerful factor in the exercise of the Court’s discretion under s 440A(2) of the Act when that matter returned to Court on 25 January 2017.

On 19 December 2016 his Honour made the orders extending the convening period under s 439A(6). The primary reasons (cited at [5]) for the Administrators’ seeking the extension were –

(a) to facilitate the progression and consider the proposals intended to be made for a DOCA,

(b) so the Administrators could be in a position to prepare a report to creditors in advance of the second meeting containing the requisite opinions as to the three options referred to in s 439A(4).

Legal Principles and Key Factors 

The principles to be applied in these applications have been summarised by Judd J in Algeri; Re Colorado Group Ltd [2011] VSC 260 and by Dodds-Streeton J in Re FEA Plantations Ltd [2010] FCA 468.

In Re Colorado Group, Judd J observed at [24] –

When an application is made for an extension of time to convene a meeting, the court will attempt to strike a balance between the expectation that the administration will be conducted relatively speedily and summarily, and the need to ensure that undue speed will not prejudice sensible and constructive actions directed towards maximising the return for creditors and shareholders. Where the relevant business group is large and complex, or there is a prospect of successful realisation of assets through negotiations with third parties, as in the present case, the administration process is often given more time. There is no place for a predisposition against granting an extension.

In Re FEA Plantations Ltd (quoted with approval by Judd J in Re Colorado Group), Dodds-Streeton J observed at [19] –

Relevant authorities recognise that strict compliance with the tight timeframes for convening the second meeting (statutorily imposed to avoid the prolongation of the voluntary administration procedure and its concomitant moratorium and impact on rights) may not be feasible in large and complex administrations, if the administrators are to produce informed recommendations based on adequate investigations, and a sufficiently comprehensive and detailed report capable of providing meaningful assistance to the creditors in deciding the fate of the company.”

In Re Riviera Group Pty Ltd [2009] NSWSC 585; (2009) 72 ACSR 352 at [13] Austin J had noted that extensions had been granted for the following broad categories of reasons –

  1. The size and scope of the business,
  2. Substantial offshore activities,
  3. Large number of employees with complex entitlements,
  4. Complex corporate group structure and intracompany loans,
  5. Complex transactions entered into by the company (for example securities lending or derivatives transactions),
  6. Complex prospects of recovery proceedings,
  7. The time needed to execute an orderly process of disposal of assets,
  8. The time needed for thorough assessment of a proposal for a deed of company arrangement,
  9. Where the extension will allow sale of the business as a going concern,
  10. More generally, that additional time is likely to enhance the return for unsecured creditors.

(See the passages set out at [26] of Gardiner AsJ’s judgment and the cases there cited for each of these categories.)

Application of Principles

Gardiner AsJ noted that in Re Colorado Group Judd J had pointed to the administrators’ inability to prepare and circular a meaningful report to creditors so as to comply with their obligations under s 439A(4) of the Act. Similarly here, Gardiner AsJ found that the preparation of such a report in the absence of receipt and analysis of the foreshadowed DOCA proposals, would be premature.

His Honour also noted that in Re Diamond Press Australia Pty Ltd [2001] NSWSC 313, Barrett J considered that the Court’s function was to strike a balance between the expectation that the administration would be speedy, and the requirement that undue speed should not prejudice sensible and constructive actions directed towards maximising the return to creditors.

Based on the evidence in this case, Gardiner AsJ identified the following factors as prominent and in favour of the grant of the extension sought (at [29]) –

  1. the time needed for a thorough assessment of DOCA proposals,
  2. additional time was likely to enhance the return for unsecured creditors, and
  3. it would enable the preparation of a report which complied with the requirements of s 439A(4) of the Act.

Gardiner AsJ also took into account in this case the following factors (note there is some overlap between these factors set out from [31] and summarised below, and those his Honour identified as prominent at [29]) –

  1. the fact that the extension proposed was modest and was focussed around information received as to the timing of DOCA proposals – at [31]. (As to the former, without the extension the report to creditors would need to be issued by 23 December 2016 and the second meeting held by 10 January 2017 – see [21].)
  2. the intervention of the Christmas holiday period – at [32]-[33]
  3. the need for there to be fully formed proposals capable of proper analysis, in order for administrators to form opinions and produce a proper report to creditors in accordance with their statutory obligations – see discussion at [34]
  4. whether the creditors generally support the extension – they did – see [35]
  5.  if no extension were granted, the administrators would be forced to convene the second creditors meeting and recommend it be adjourned and held at a later time, with the associated wasted expenditure – see [36]
  6. there was evidence of a potential better return to creditors on a DOCA as opposed to an immediate winding up, a matter that has been recognised as relevant to the balancing exercise the Court undertakes on an extension application – [37] & [39]
  7. the significant factor of any material prejudice to those affected by the moratorium imposed by administrations, including lessors of property. Here those owners, although informed, had not taken objection to the proposed extension. There was no evidence of likely prejudice to them, and indeed the potential for benefit. The majority secured creditors supported the extension – [38].

His Honour held there were substantial grounds for making the order sought for extension of time under s 439A(6) of the Act. His Honour also made several ancillary orders, including a Daisytek order, permitting the administrators to convene the second meeting at any time during the extended convening period or within 5 business days thereafter.  (see [40]-[44])

Comment

This decision provides a handy reminder of the key legal principles that apply and the categories of factors which will tend a Court to favour the granting of an application for extending the convening period of a second meeting of creditors in a voluntary administration.

Practitioners should take care when it comes to preparation of the affidavit evidence . Note that even where there may be an apparently good case with factors favouring an extension of time, practitioners should also be mindful of matters tending against. It is important to consider the impact of an extension, and to inform the Court with evidence of any prejudice that an extension may occasion, as well as the attitude of creditors to the proposed extension. Without this evidence properly put before it, the Court cannot weigh up reasons to extend against the consequences of an extension, and may be less likely to grant the order sought. As Gardiner AsJ observed at [30], the Court will be mindful as to whether –

  1. the evidentiary case has been properly prepared,
  2. there is no evidence of material prejudice to those affected by the moratorium imposed by an administration, and
  3. the Court is satisfied that the administrators’ estimate of time has a reasonable basis.

(These remarks of his Honour at [30] set out the matters drawn from the judgment of Austin J in Re Riviera at [14].)

A refresher – Liquidators’ section 483(1) applications

Section 483(1) of the Corporations Act 2001 (Cth) is concerned with the “delivery of property to the liquidator” and provides –

The Court may require a person who is a contributory, trustee, receiver, banker, agent or officer of the company to pay, deliver, convey, surrender or transfer to the liquidator or provisional liquidator, as soon as practicable or within a specified period, any money, property, or books in the person’s hands to which the company is prima facie entitled.

The section provides a summary procedure to avoid the expense of the company bringing actions against company officers and others who obtain their authority from the company, in possession of the company’s property.[1]

In short, if the company in liquidation is “prima facie entitled” to the property the subject of the application, the Court has a discretion to order it delivered up to the liquidator without resolving the issue of who is the owner of the property. This may be so even where there is a genuine dispute as to ownership of the property the subject of the application [2].

However, somewhat similarly (though not identically) to the position with applications to set aside statutory demands, this may not be the appropriate procedure to employ where there is a real question of ownership to be tried between the company and the proposed respondent to the application. There can be a fine line, though, when the dispute raised does not appear to be well-founded.

Principles

The following is my distillation of the key principles to be derived from the authorities –

  1. The issue for the Court to determine is whether the company is prima facie entitled to the property the subject of the application.[3]
  2. The Court does not inquire into and finally determine or resolve a dispute as to title to the property,[4] if there is one.
  3. The Court may determine the question of whether the company is prima facie entitled to the property and order its delivery up to the liquidator –
    1. Even if there is some evidence to the contrary,[5] and
    2. Even if there is a genuine dispute as to ownership of the property in question,[6] but
    3. Not if a claim is made by the person in whose hands the assets are found that is adverse to the company, such as a claim that that person is entitled to the assets.[7]
  4. If there is a dispute, the Court may determine that the company is prima facie entitled and order the delivery up of the property in question without resolving the issue of who is the owner of the property.[8]
  5. The Court’s jurisdiction to make the order is discretionary.[9]
  6. The persons identified in the subsection are all persons who either derive their authority from the company or are accountable to it.[10]
  7. There is authority for the proposition that “receiver” in s 483(1) refers to a receiver appointed by the company to a debtor; not a receiver appointed to the company by a secured creditor: Home v Walsh [1978] VR 688.
  8. There is authority for the proposition that a constructive trustee may not be a “trustee” for the purpose of s 483(1):  Re United English and Scottish Assurance Company; Ex parte Hawkins (1868) 3 Ch App 787; Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140; (2014) 284 FLR 320; cf Evans v Bristile Ltd (1992) 8 ACSR 344 (WASC).

Case Studies

Home v Walsh

In Home v Walsh [1978] VR 688, receivers and managers had been appointed to a company by a debenture holder prior to the winding up order and appointment of the liquidator. Thus the receivers were in possession of the moneys, property, books and records of the company. The liquidator brought an application under a predecessor of s 483(1) of the Corporations Act 2001 (s263(3) of the Companies Act 1961) for delivery up of the company’s moneys, property, books and records.

The application succeeded at first instance, but was overturned on appeal. This was on  several bases. One was that there was a genuine dispute between the parties as to the entitlement of the company to possession of the property in question. Another was that the provision is directed at “insiders” of the company – those who either derive their authority from the company or are accountable to it. Thus the expression “receiver of the company” in the provision refers to a receiver appointed by a company to its debtor; not a receiver appointed by a secured creditor to the company. In the latter case – at least on the terms of the debenture in this instance – that receiver is the agent of the secured creditor and derives its authority from and is accountable to the secured creditor, not the company.

Sidebar:  I note that this conclusion as to the extent that a receiver appointed to a company is or is not an agent for the company (vs his or her secured creditor appointed) may turn on the terms of the debenture or security agreement in question: see the line of authorities following Sheahan v Carrier Air Conditioning Pty Ltd [1997] HCA 37; (1997) 189 CLR 407 where this question has arisen in a number of different contexts, including:  a preference dispute as to whether payments made by a receiver were payments by an agent of the company (Sheahan v Carrier Air Con); a privilege dispute in one of the many Westpoint cases (Carey v Korda and Winterbottom [2012] WASCA 228).

Boyles Sweets

Boyles Sweets (Australia) Pty Ltd (in liq) v Platt [1993] VicSC 389; (1993) 11 ACSR 76 was one of several cases where a liquidator has made an application for delivery up of property where it appeared there may have been phoenix activity and the liquidator regarded the transaction in question as a sham. In this case the liquidator applied for delivery up of two Boyles Sweets businesses, one operating at Melbourne Central and the other at the Tea Tree Plaza in South Australia, as well as some records of the company.

The respondents to the application were one of the two directors of the company (who were husband and wife) and a company related to them Madame Pier Pty Ltd. They argued that the businesses were the property of Madame Pier, and the company was merely the manager of the businesses, and relied upon a written management agreement as evidence of these matters. The liquidator agued this alleged agreement was a sham.

Hayne J observed that the weight of authority suggests that the summary procedure available under s 483(1) is not available where a claim is made by the person in whose hands the assets are found that is a claim adverse to the company. His Honour found that there was a real question to be tried as to the ownership of the business, and the liquidator’s application was denied.

Re Mischel & Co

Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140; (2014) 284 FLR 320 was another case where, on the evidence reported in the judgment, it appeared there may have been phoenix activity. The liquidator of Mischel & Co Pty Ltd applied under s 483(1) to recover the books and records of the company from Mischel & Co Advisory Services Pty Ltd, claiming the company was prima facie entitled to those books and records. The second defendant was an undischarged bankrupt, and the former director of Mischel & Co Pty Ltd. Before that company had gone into liquidation, it sold its advisory business to Mischel & Co Advisory Pty Ltd, a company controlled by the second defendant’s son. It thereafter carried on the business from the same premises. Subsequently it ceased trading and became dormant.

Upon the liquidator becoming aware of electronic books and records being stored on computers at the premises and that some work was to be done on those computers, he issued these proceedings on an urgent basis together with an application for a search order under order 37B of the Supreme Court (General Civil Procedure) Rules 2005 (Vic).  The records were seized and copies made, with orders having been made for a procedure allowing the defendants to object to inspection of any electronic book or record seized. They objected to production to the liquidator for inspection of a large quantity of the material.

This was a hearing of the liquidator’s application under rule 37.01 for inspection of that material. It was submitted for the liquidator that he believed the sale of business was sham and might be set aside, and that Mischel Advisory held the business and its assets, including the books and records, on a constructive trust for Mischel & Co. Subject to inspection of the records, separate proceedings might be initiated.

The liquidator was unsuccessful, on several bases –

  1. Robson J held that s 483(1) cannot be used to resolve the issue of whether the sale of business was a sham such that the property in question was held for the company. The Court has no jurisdiction under s 483(1) to decide the issue. (See [101])
  2. Mischel Advisory does not fall within the class of persons to whom s 483(1) may be directed, even if it was sought to characterise Mischel Advisory as a constructive trustee. Mischel Advisory was an “outsider”. (See [101])
  3. Even if that were not so, there were competing ownership claims. Michel Advisory had a claim to the property of the advisory business adverse to the liquidator. The authorities have established that the Court has no jurisdiction under s 483(1) to resolve such a contest as to ownership between the plaintiff liquidator and defendant. (See [102])
  4. Further, there was no evidence to support the contention that the company Mischel & Co was prima facie entitled to the advisory business. (See [102]).

For these reasons, his Honour held he would not exercise his discretion to order inspection under r 37.01 to assist the liquidator in seeking in s 483(1) proceedings to obtain an order for delivery up of the advisory business in the possession of Mischel Advisory.(See [103])

Note that at [71]-[96] his Honour sets out a useful review of the authorities as to the scope and purpose of s 483(1) and its predecessors.

Re United English and Scottish Assurance Company

I will finish with a case decided a century and a half ago – Re United English and Scottish Assurance Company; Ex parte Hawkins (1868) 3 Ch App 787. In this case the liquidator sought to recover moneys obtained from the company’s bankers by a creditor under a garnishee order obtained between the presentation of the winding up petition and the order for winding up. The Court held that the money could not be ordered to be returned under an English predecessor to s 483(1).

At first instance, the liquidator had successfully argued that the creditor was a “trustee” within the meaning of the section, and obtained an order for delivery up of the money. On appeal, however, the Court held that it had no jurisdiction under the provision to make such an order, on several grounds –

  1. The section applies to contributories and officers of the company, and others in the position of trustee (or, broadly, agent), and not to others. The defendant was a creditor of the company, and was not in possession of the money in a position of a trustee or receiver.
  2. The money was not the property of the company at the time of the winding up petition. It was paid to the creditor prior to the making of the winding up order.

*******

[1] Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 per Robson J at [77], citing Re United English and Scottish Assurance Company; Ex parte Hawkins (1868) 3 Ch App 787, 790.

[2] Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 per Robson J at [76].

[3] See s 483(1); see also Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 at [76].

[4] Boyles Sweets (Australia) Pty Ltd (in liq) v Platt [1993] VicSC 389, 10-11 per Hayne J; Home v Walsh [1978] VR 688, 704 per Harris J; Blackjack Executive Car Services PL v Koulax [2002] VSC 380 at [17] per Habersberger J.

[5] Home v Walsh [1978] VR 688, 704 per Harris J.

[6] Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 per Robson J at [76].

[7] Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 per Robson J at [75] citing Home v Walsh and Boyles Sweets and [96(3)].

[8] See s 483(1); see also Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 per Robson J at [76].

[9] Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 per Robson J at [96(2)].

[10] Home v Walsh [1978] VR 688, 700 per Harris J; Re Mischel & Co Pty Ltd (in liquidation) [2014] VSC 140 per Robson J at [96(7)].

Barnes v Addy claims and indefeasibility of title

In a Victorian Supreme Court decision handed down last week, Vickery J has confirmed that a claim under Barnes v Addy is not a personal equity which defeats the indefeasibility provisions (ss 40-43) of the Transfer of Land Act 1958 (Vic) (TLA). The case also illustrates when a security interest described as an “Instrument of Charge” may, despite the words used, give rise to an equitable mortgage, rather than a charge. The case is Mathieson Nominees Pty Ltd v Aero Developments Pty Ltd [2016] VSC 131.

The case involved a claim by the plaintiff (Mathieson Nominees) that it was entitled to an equitable charge over vacant subdivisional land at Point Cook in Victoria (the Property), and that it had an interest in the land capable of supporting a caveat.

Broadly, the facts of the case were these:

The plaintiff Mathieson Nominees had loaned funds of $250,000 to a company called Sprint Homes Pty Ltd to enable it to pay the deposit to purchase the Property from VicUrban. Sprint Homes was unable to raise the funds to pay the balance of $4.5m plus GST and settle the purchase. Its director registered a new company Aero Developments Pty Ltd (the defendant) and Sprint Homes nominated this company to take the transfer of land as nominee under the contract of sale (without notifying Mathieson Nominees).  The defendant Aero Developments subsequently completed the purchase, after a change of ownership and directorship, and became registered on title.

Mathieson Nominee’s loan to Sprint Homes for the deposit had been supported by several securities. One of these was a fixed and floating charge granted by the borrower Sprint Homes under an executed Instrument of Charge. The terms of this instrument included that the Charged Property was all the present and future property of Sprint Homes, wherever situated, that it was a fixed charge on all present and future estates and interests in land, and that Sprint Homes must not, without the consent of Mathieson Nominees, dispose of or otherwise deal with the Charged Property. The Instrument of Charge was registered with ASIC.

Within 6 months – Sprint Homes went into voluntary administration, Mathieson Nominees lodged a caveat over the Property claiming an interest as chargee and appointed a receiver and manager over Sprint Homes, Sprint Homes went into liquidation, and Aero Developments lodged an application with the Registrar of Titles to have Mathieson Nominees’ caveat removed. Mathieson Nominees commenced these proceedings.

In this proceeding, Mathieson Nominees sought various declarations and orders, including –

  • that Mathieson Nominees is entitled to an equitable charge over the Property, and
  • (in summary) that it have possession of and be at liberty to sell the Property.

(It abandoned an allegation that the registration of Aero Developments as proprietor of the Property was affected by fraud within the meaning of ss 42 and 44 of the TLA. It also at trial did not pursue its claims against two other defendants, being the director of Sprint Homes and a related company.)

In the judgment, the Court dealt with a number of issues worth noting.

1. Whether the Instrument of Charge gave rise to an equitable mortgage rather than an equitable charge? 

Even though the relevant instrument was termed an “Instrument of Charge”, there was a question in this case as to whether it instead gave rise to an equitable mortgage. Vickery J observed that this is a matter of the proper construction of the relevant instrument.(See [65]-[89])

His Honour discussed the four kinds of consensual security over property – pledge, contractual lien, equitable charge and equitable mortgage, and noted that an equitable lien may also arise by operation of law. Vickery J canvassed the authorities, particularly as to equitable charges and equitable mortgages.

In relation to equitable charges, his Honour in reviewing the authorities cited inter alia cited the description of the essence of an equitable charge given by Gillard J in AVCO Financial Services v White [1977] VicRp 62; [1977] VR 561, 563 –

“An equitable charge for a debt is a security whereby only a right to payment of the debt out of the property is conferred by the owner of the property to the holder of the security. The remedy of the holder of the security on default in payment of the debt was to apply to a court of equity to have the property sold and the proceeds paid into court.”

Vickery J also noted that an equitable charge is to be distinguished from a purely contractual arrangement giving rise to no proprietary right.

As to the distinction between a charge and equitable mortgage, his Honour quoted from Sykes and Walker where the authors observe:

“The most important result, so far as the difference in substance is concerned, is that the equitable mortgagee has the potentiality of full beneficial ownership through the process of foreclosure; the equitable charge as such can never attain to the position of full beneficial owner.”

His Honour noted the authors of Fisher and Lightwood’s Law or Mortgage state that:

“The principal remedies of the charge are [judicial] sale and the appointment of a receiver.”

His Honour then considered the facts in this case, and held that the Instrument of Charge which gave rise to the security claimed by Mathieson Nominees, when read as a whole, gave rise to an equitable mortgage and not an equitable charge. It gave immediate rights to Mathieson Nominees in the event of default, including the right to take possession of the property. Although Mathieson Nominees could seek a court order in aid of the enforcement process, this was not a pre-condition to enforcement. Its remedies were not confined to a judicial sale and the appointment of a receiver. (See [84]-[87]) However, little turned on this conclusion, in the end. (See [89])

2. Whether the Instrument of Charge became enforceable against the nominated purchaser Aero Developments

Mathieson Nominees argued that the Property was subject to a charge in favour of Mathieson Nominees when it was purchased by Sprint Homes, and the charge remained in place as an encumbrance on the Property, despite the nomination of a substitute purchaser.

In short, after a consideration by Vickery J of the contractual effect of the nomination, this contention was defeated by his Honour’s conclusion that Aero Developments acquired an indefeasible title upon becoming the registered proprietor of the Property pursuant to ss 40-43 of the TLA.

In the oft-cited passage from the judgment of Barwick CJ in Breskvar v Wall (1971) 126 CLR 376, 385-6, the effect of the Torrens scheme of registration of land was described thus –

“The Torrens system of registered title of which the Act is a form is not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietary formerly had, or which but for registration would have had. the title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor.”

His Honour observed that the scheme of the Torrens legislation is such that, with very few exceptions, a purchaser who becomes the registered proprietor of an interest in land title takes free from all unregistered interests, whether he has notice of them or not (see [128]).

Vickery J noted that the statutory fraud exception arises where there is dishonest conduct on the part of the registered proprietor whose title is challenged. The emphasis in the authorities is on actual fraud on the part of the registered proprietor, although his Honour commented it has been suggested that it may be based on actual knowledge that a fraud was committed or wilful blindness to that possibility (see [124]).

Here statutory fraud was not pressed by the plaintiff, but the in personam exception to indefeasibility was sought to be relied upon. As the Privy Council said in Frazer v Walker, indefeasibility “in no way denies the right of a plaintiff to bring…a claim in personam, founded in law or equity, for such relief as a court acting in personam may grant“. However such claims must be brought under established causes of action, whether legal or equitable. Not all established causes of action, however, will found an exception on indefeasibility of title (see issue 4 below).

Thus the answer to this question of whether the Instrument of Charge became enforceable against the nominated purchaser Aero Developments, depended upon the answer to the next question.

3. Whether Mathieson Nominees had an in personam right capable of defeating the title of Aero Developments

(a) Was there any conduct on the part of Aero Developments giving rise to a personal equity which could defeat indefeasibility of title?

Vickery J held that there was no conduct on the part of Aero Developments, either before registration of its interest or after it, which gave rise to any personal equity in Mathieson Nominees such that the interest of Aero Developments as registered proprietary ought to be rendered subject to the Instrument of Charge (see [131]).

Aero Developments had changed hands and had new directors shortly before taking transfer of the land from VicUrban, and the evidence was that when it did so, it took title without any knowledge of any intention on the part of Sprint Homes or its director Mr Evans to defeat the claims of Mathieson Nominees, if ever that was their intention (see [133]). His Honour held that Aero Developments took the transfer of the Property without notice, actual or constructive, of the equitable mortgage comprised in the Instrument of Charge of Mathieson Nominees ([135] and [153]-[154]). In doing so, he noted that when Aero Developments took its transfer there was no caveat lodged against the title by Mathieson Nominees ([136]).

(b) Did Mathieson Nominees have a Barnes v Addy claim for knowing receipt and/or knowing assistance against Aero Developments

Vickery J considered the pleadings, arguments, authorities, and evidence, and held that they did not ([155]-[197]).

I pause here to note:

For those unfamiliar with what a Barnes v Addy claim is – it is a claim brought by a plaintiff not against the wrongdoer who has acted in breach of trust or of fiduciary duty, but against a third party. Third party liability is more commonly pursued by claimants where misdirected funds or property has ended up in the hands of a third party, and/or where the wrongdoer is insolvent or bankrupt. However, certain elements must be established before such a claim can succeed.

In 1874 Lord Selborne made his now famous remark in Barnes v Addy as to the liability of third parties for the breaches of duty of others in two types of cases. What he actually said was this –

[S]trangers are not to be made constructive trustees…unless [they] receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

Stemming from this brief, deceptively simple remark, much case law and academic writings have ensued. There have been shifting doctrinal analyses about the two “limbs” of Barnes v Addy (being “knowing receipt” or “knowing assistance”), debate as to the level of knowledge required under each limb (largely now settled in Australia) and debate as to the level of “dishonest and fraudulent” design required to be shown on the part of the party who acted in breach of trust or fiduciary duty as an element of the “knowing assistance” limb (there is something of a WASCA (Bell) v NSWCA (Hasler) battle being waged on this issue; I am inclined to see Hasler as the better view (link)).

Returning to the present case, here Mathieson Nominees had argued that the director of Sprint Homes Mr Evans in breach of his fiduciary duty to Sprint Homes had procured for the benefit of Aero a windfall to the detriment of Sprint Homes and its creditors ([158]). However his Honour held that on the evidence there was no breach of any relevant fiduciary duty on the part of Mr Evans to his company Sprint Homes ([171]-[194]). There were sound commercial reasons for the nomination of Aero Developments to complete the contract, and no breach of duty arose.

There having been no breach of trust, there was none of which Aero Developments, its directors and relevant agents could have known. There was no Barnes v Addy claim available to Mathieson Nominees, under either limb ([196]-[197]).

4. A Barnes v Addy claim does not defeat indefeasibility of title under the TLA

Importantly, Vickery J went further and confirmed that it has been authoritatively determined that a claim under Barnes v Addy is not a personal equity which defeats the indefeasibility provisions of the TLA, observing that “the dust has settled” on the issue ([198]-[206]).

In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 Tadgell JA, with whom Winneke P agreed, held at 156-7 that a claim under Barnes v Addy was not a personal equity which defeated indefeasibility of title, saying:

“[T]o recognise a claim in personam against the holder of a mortgage registered under the TLA, dubbing the holder a constructive trustee by application of a doctrine akin to “knowing receipt” when registration of the mortgage was honestly achieved, would introduce by the back door a means of undermining the doctrine of indefeasibility which the Torrens system establishes…In truth, I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker and Breskvar v Wall, to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property. The argument that the appellant is liable as a constructive trustee because ‘it had ‘knowingly received’ trust property should in my opinion fail.”

While there had been some debate about this in Queensland ([199] and [203]) and in Western Australia where four judges of the Full Court of the WA Supreme Court followed the reasoning of Tadgell JA and Winneke P in Macquarie Bank v Sixty-Fourth Throne ([204]), in Farah Constructions v Say-Dee [2007] HCA 22; 230 CLR 89, 140 [193]-[196] the High Court resolved the question by adopting the observations of Tadgell JA in Macquarie Bank, and applying it –

“In Macquarie Bank v Sixty-Fourth Throne Pty Ltd Tadgell JA (Winneke P concurring, Ashley AJA dissenting) held that a claim under Barnes v Addy was not a personal equity which defeated the equivalent of s 42(1) in Victoria, namely the Transfer of Land Act 1958, s 42(1)… (at [193])

“That reasoning…applies here…”. (at [194])

“Although the Court of Appeal [ie the NSW Court of Appeal in Farah Constructions v Say-Dee] referred to Macquarie Bank v Sixty-Fourth Throne Pty Ltd on another point, it did not refer to that case or LHK Nominees Pty Ltd v Kenworthy in relation to indefeasibility. It ought to have followed those cases.” (at [196])

Vickery J concluded that although this outcome has been the subject of academic criticism, Farah Constructions v Say-Dee on the issue of indefeasibility has settled the law in Australia. [206]

In the end, his Honour held, Mathieson Nominees’ claims under Barnes v Addy must fail. The caveat was ordered to be removed from the title to the Property.

Take-aways

This decision is a useful reminder of the importance for lenders of lodging caveats on the title of property when a caveatable interest in property is created in their favour. In this case, the Instrument of Charge was executed by Sprint Homes on 18 April 2008, registered with ASIC on 2 June 2008 , but a caveat on the title of the Property (for the payment of the deposit on which the funds had been loaned) was not lodged until 22 January 2010 – 11 days after administrators were appointed to Sprint Homes and 3 months after Aero Developments had been registered on title.

It also contains a useful consideration of when an instrument of security may give rise to an equitable charge or an equitable mortgage, which can run contrary to the name given to the security by the parties, as it did here, and will turn more upon the proper construction of the instrument and the rights that accrue to the secured party under the agreement.

Finally, this judgment confirms that it is settled law in Australia, since the High Court’s decision in Farah Constructions v Say-Dee in 2007, that a claim under Barnes v Addy is not a personal equity which can defeat indefeasibility of title in Torrens land (see [205]-[206]).

There may remain those who will still seek a way to argue around this conclusion, but the High Court’s decision in Farah v Say-Dee – which dealt with both limbs of Barnes v Addy – is likely to present a sizeable road-block to such an attempt.

For more about Barnes v Addy claims (both limbs), the level of knowledge required to establish them (of the Baden categories of knowledge) and the dishonest and fraudulent design on the part of the party in breach of trust or fiduciary duty required to be established for the “second limb”, knowing assistance, see my 2012 article reviewing the Full Court of the Federal Court’s decision in Grimaldi v Chamelon Mining NL (No 2) [2012] FCAFC 6, which may be read here.

Comment

It is not only freehold titles to which these principles apply. Registration of leases of greater than 3 years under s 66 of the TLA also operate to confer leasehold title upon the registering lessee, and indefeasibility of that title under ss 40-44 of the TLA (see Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [51]) and Quest Rose Hill Pty Ltd v The Owners Corporation of Strata Plan 64025 [2012] NSWSC 1548 at [72]-[78]. Similarly, a mortgage acquires indefeasibility upon registration, pursuant to s 74 and ss 40-44 of the TLA: see Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 156-7, where the registered title in question was that of a mortgagee. And by way of a recent illustration, last year in Perpetual Trustees Victoria Ltd v Xiao [2015] VSC 21, Hargrave J confirmed that the fact that the mortgagor’s signature on a mortgage did not, in the absence of fraud on the part of the mortgagee finance company, affect the indefeasibility of the mortgage when registered (see [82]) or the ability of the financier to enforce the mortgage (but only to the extent of the covenant for payment contained in the mortgage – see [83]-[85] – referring to Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188, 196) – see further [86]-[107].

 

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.

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. 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.

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.