Re Neander Constructions Pty. Ltd.

McPherson J

Supreme Court of Queensland

Judgment date: Judgment handed down 4 February 1988.

McPherson J.

By order of the Supreme Court made on 24 April 1987 the abovenamed company was ordered to be wound up and the present applicant, who is Mr J.W. Armstrong, was appointed liquidator. By an application filed on 10 June 1987 the applicant sought directions on the following matters: (1) whether he should be appointed receiver and manager of the assets of ``The Neander Constructions Trust''; (2) as to whether he should apply to Court under sec. 80 of the Trusts Act 1973-1985 to have himself appointed trustee of that Trust; and (3) as to the order in which the proceeds of realisation of the assets of the company and the trust are to be distributed.

The application came before me as Chamber Judge on 16 June 1987, when the matter pursued was the application for the directions sought in para. (3) above. On that occasion I referred to
Re Blackbird Pies (Management) Pty. Ltd. (No. 2) (1970) Q.W.N. 14, where Hanger J. held that directions given on an application pursuant to sec. 237(3) of the Companies Act 1961-1964, were in the nature of judicial advice only, not having the effect of a judicial determination binding the rights of parties to the application. The position may well be different when it is clear that the parties to such an application proceed upon the footing of accepting the directions as having the effect of a binding declaration. See
Re Evers Motor Company Limited (1962) Q.W.N. 6, although it should be noticed that the application in that instance was made in voluntary winding up under the section corresponding to what is now sec. 413(1)(a) of the Companies Code.

The provision corresponding to sec. 237(3) of the Act considered by Hanger J. in 1970 is now sec. 379(3) of the Companies Code, to which his Honour's reasoning in Re Blackbird Pies (Management) Pty. Ltd. (No. 2) continues to apply with equal force. The application before me on 16 June 1987 was, I gathered, designed to promote a result which would be binding on the Commissioner of Taxation. It was, however, made ex parte. Under these conditions, I declined to do more than direct that the applicant liquidator would be justified in paying liabilities of the kind referred to in sec. 441(1)(a) of the Companies Code, and doing so in priority to other debts and liabilities of the company. Section 441(1)(a) refers to the costs, charges and expenses of the winding up, which under that provision are accorded first priority in payment in winding up.

On 26 June 1987 application was again made to me in Chambers. On this occasion the application was made by originating application, which had been served on the Commissioner for whom Miss Wilson of counsel appeared to oppose, seeking a declaration that the priority of the Commissioner under sec. 221P of the Income Tax Assessment Act 1936 is limited to property which is beneficially owned by the company. Material read in support of the application included an affidavit by the liquidator stating that the company had carried on no business other than that of a trustee trading as The Neander Constructions Trust; that its debtors and creditors arose from carrying on that trust business; and that the company has ``no assets of its own apart from those represented by its shareholders' funds''. Material filed on the earlier application discloses that in June 1987 the liquidator held approximately $20,100 ``and expects to receive funds by way of collection of debtors, retention moneys and recovery of preferential payments''. It also discloses a sum due to the Commissioner in respect of ``outstanding group tax deductions'' and what are called ``prescribed payment deductions'' of approximately $18,000. Liquidator's costs and expenses, including those incurred as provisional liquidator, were at that date estimated at a sum totalling $12,750.

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Amounts due to unsecured creditors are very large being of the order of $390,000. It is said that none of the proving creditors has sought to claim in winding up as a secured creditor.

For present purposes it is, I think, sufficient to refer to sec. 221P of the Income Tax Assessment Act, which is as follows:

``221P(1) Where an employer makes a deduction for the purposes of this Division, for the purposes of the corresponding provisions of a State income tax law or for the purposes of section 78 of the Income Tax (Arrangements with the States) Act 1978, or purporting to be for those purposes, from the salary or wages paid to an employee and refuses or fails to deal with the amount so deducted in the manner required by this Division, or to affix tax stamps of a face value equal to the amount of the deduction as required by this Division, as the case may be, he shall be liable, and where his property has become vested in, or where the control of his property has passed to, a trustee, the trustee shall be liable, to pay that amount to the Commissioner.

(2) Notwithstanding anything contained in any other law of the Commonwealth, or in any law of a State or of the Northern Territory -

  • (a) an amount payable to the Commissioner by a trustee in pursuance of this section has priority over all other debts (other than amounts payable under sub-section 221YHJ(3)), whether preferential, secured or unsecured; and
  • (b) where an amount is payable by a trustee to the Commissioner under sub-section 221YHJ(3), an amount payable by the trustee in pursuance of this section ranks equally with the amount payable under sub-section 221YHJ(3) in priority to all other debts, whether preferential, secured or unsecured.

(3) Where a trustee, being the trustee of the estate of a bankrupt or the liquidator of a company that is being wound up, is liable to pay an amount to the Commissioner in pursuance of this section, sub-section (2) does not operate so as to make that amount payable in priority to any costs, charges or expenses of the administration of the estate or of the winding-up of the company (including costs of a creditor or other person upon whose petition the sequestration order or the winding-up order, if any, was made and remuneration of the trustee) that are lawfully payable out of the assets of the estate or of the company except where, in the case of the winding-up of a company, the Crown in right of a State or any other creditor is entitled to payment of a debt by the liquidator in priority to all or any of those costs, charges and expenses and has not waived that priority.''

The expression ``trustee'' in that section is defined in sec. 6 of the Act to include a liquidator. Recent decisions, in particular
F.C. of T. v. Barnes 75 ATC 4262; (1975) 133 C.L.R. 483, have established that sec. 221P applies only where control of the employer's property has passed to the trustee, in this case the applicant liquidator. In the case of the present application information about what assets passed to the liquidator is scant; but I was referred to a balance sheet for the year ending 30 June 1986 and to the statement of affairs. The latter discloses total assets estimated to be worth $58,507, none of which is shown to be subject to any specific charge. From this it seems reasonable to conclude that all the assets of the company had, within the meaning of sec. 221P(1), passed to the control of the liquidator as trustee: cf.
Re Obie Pty. Ltd. (1985) 1 Qd.R. 464.

That being so, there is no reason why sec. 221P should not apply to the liquidator in this case, unless it be, as was submitted on his behalf, that sec. 221P has no application because the only corporate assets are assets the subject of a trust. In this regard reliance was placed upon the presence in sec. 221P(1) of the words ``his property'' as demonstrating that the provision was limited to assets owned beneficially by the employer, in this case the company. As to that, it seems to me that what was said in F.C. of T. v. Barnes 75 ATC 4262 at pp. 4265-4266; (1975) 133 C.L.R. 483 at pp. 491-492, renders such a submission untenable: see
D.F.C. of T. v. A.G.C. (Advances) Ltd. 84 ATC 4177 at pp. 4180-4181, per Mahoney J.A. In any event, the trust deed constituting The Neander Constructions Trust contains the common-form indemnity in favour of the trustee out of trust assets in respect of liabilities incurred in the

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execution of the trusts. As well, the company as trustee of that trust is entitled to the statutory indemnity conferred by sec. 65 of the Trusts Act. Plainly its liability to make the group tax deductions was incurred as employer in the course of conducting the trust trading operation and so attracts the right to that indemnity. The total amount of the liability exceeds by a very wide margin the value of the trust assets available to meet it. That means that the whole of those assets are subject to an equitable charge in favour of the company in support of the trustee's right of indemnity, with the consequence that the entire beneficial interest in those assets is in the company and not in the cestui que trust: see
Kemtron Industries Pty. Ltd. v. Commr of Stamp Duties 84 ATC 4380 at pp. 4385-4386; (1984) 1 Qd.R. 576 at pp. 585-586, where the authorities are collected.

It follows that, on the information before me, all of the trust assets belong beneficially to the company. There is as matters now stand no prospect of any surplus for the cestui que trust. In the circumstances there is nothing to be gained from making the declaration sought, which, I have said, is that the Commissioner's priority under sec. 221P is limited to property beneficially owned by the company.

The application is consequently dismissed with costs.

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