Judson & Ors v. Deputy Federal Commissioner of Taxation.

Judges:
Ormiston J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 15 May 1987.

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Ormiston J.

The applicants and plaintiffs Richard Herbert Judson and Anthony George Hodgson ("the Receivers") applied to the Court, in the first place, pursuant to sec. 324F of the Companies (Victoria) Code by way of two summonses each dated 2 October 1985 seeking directions relating to the performance of their functions as receivers and managers of certain property of two companies, namely, Stuart Ferguson Holdings Limited ("Stuart Ferguson") and S.R. Mitchell (Aust.) Pty. Ltd. ("S.R. Mitchell"). The respondent in each case was the Deputy Commissioner of Taxation for Victoria ("the Deputy Commissioner"), but Stuart Ferguson is in fact incorporated in South Australia, whereas its subsidiary S.R. Mitchell is incorporated in Victoria, although both effectively carried on business in Victoria. Because of doubts expressed by me as to the jurisdiction of this Court to entertain a receiver's summons for directions concerning a company incorporated in South Australia, a writ was later issued on 22 October 1986 between the same parties and seeking similar declaratory relief against the Deputy Commissioner in relation to Stuart Ferguson.

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ATC 4491

The issues raised by each set of proceedings concerned the application of that much vexed section, sec. 221P of the Income Tax Assessment Act 1936 and, in particular, the obligation of the Receivers to pay certain moneys obtained upon the realisation of assets in the course of their receiverships to the Deputy Commissioner, which are equivalent to amounts deducted from the salary or wages of employees of the two companies in accordance with the provisions of Div. 2 of Pt III of the Income Tax Assessment Act.

Substantial sums representing those deductions remain unpaid to the Deputy Commissioner, $110,512.76 in the case of Stuart Ferguson and $16,849.73 in the case of S.R. Mitchell, and questions have arisen in the administration of the receiverships as to whether the control of each company's property has passed to the Receivers as "trustees" within the meaning of sec. 221P. The Receivers were appointed receivers and managers of each company at about 4 p.m. on 17 July 1984 by Westpac Banking Corporation ("Westpac") pursuant to deeds of debenture, in the case of Stuart Ferguson executed on 12 April 1983 and in the case of S.R. Mitchell executed on 5 December 1983. However, on the same day and at almost the same time two other receivers David Carl Christensen and Christopher Thomas Daly ("the Marac Receivers") were appointed receivers of all the book debts of each company pursuant to two debentures or charges each dated 25 October 1983 granted to Marac Australia Limited ("Marac"). Although the Marac debentures were granted in respect of the whole of each company's undertaking and assets, the reason for the more limited appointment of receivers by Marac may be found in what was described as a priority agreement dated 21 October 1983 between Marac and Westpac, to the terms of which I shall return. Consequently within 24 hours of their appointment the Receivers took possession of all the assets and books of each of the two companies. Shortly afterwards the Marac Receivers also went to both companies' premises and after discussions with the Receivers on 18 and 19 July it was agreed that neither company would be able to carry on business and that the Marac Receivers should take control, so far as that was physically possible, of the book debts of each company and of all books and records relating thereto.

Thereafter the Marac Receivers, in accordance with the terms of their appointment, confined their administration to realising the book debts of the two companies. On the other hand the Receivers retained possession and control of all assets of both companies, other than the book debts, and in due course realised those assets. However, if one were to compare the total assets of each of the two companies and the sums realised for the book debts after the receiverships began, then, in the case of Stuart Ferguson, between 21 and 22 per cent of the assets realised consisted of book debts, namely approximately $878,000 out of $4.1 million, and, in the case of S.R. Mitchell, between 79 and 80 per cent of the assets realised were attributable to book debts, namely $2.24 million out of $2.85 million. In each case there is a net deficiency in that the Receivers have realised substantially less than would be necessary to satisfy Westpac's secured debt. In each case the Deputy Commissioner has asserted that the amounts which each company failed to remit by way of group employer tax instalment deductions ought to be paid to him in priority to all other debts, including the secured debts owed to Westpac, by reason of subsec. (2) of sec. 221P of the Act.

The question raised by each of the proceedings is whether the Receivers are obliged to remit each of the sums claimed by the Deputy Commissioner in priority to the claims of Westpac. Essentially it was argued that the Receivers were not trustees within the meaning of sec. 221P by reason of the fact that control of the property and assets of each company had been divided between the Receivers and the Marac Receivers, in so far as the book debts had not passed into the control of the Receivers, so that it was said that the whole of each company's property had not passed under the control of the Receivers. On behalf of the Deputy Commissioner, however, it has been argued that control of the whole or substantially the whole of each company's assets has passed to the Receivers, within the meaning of sec. 221P as interpreted by a number of decisions of the High Court and State Supreme Courts, and that consequently the Receivers as "trustees" are obliged to pay over the sums claimed in priority to the claims made by Westpac. I should add that in each case the Receivers have put the argument in

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ATC 4492

favour of their appointor, the secured creditor Westpac, although in none of the proceedings was Westpac joined as a party. My understanding was that Westpac was aware of the proceedings and content to allow these proceedings to be resolved.

Before going to the section and the cases to which I was referred, it is necessary to set out in somewhat greater detail the documents by which Westpac and Marac claimed secured interests in the assets of each company. The present proceedings are somewhat different from others which have been decided in that during the life of each company there were at least two separate debentures in each case by which a floating charge was created over the whole of the assets and undertaking of each company, but which were qualified by a priority agreement. In the case of Stuart Ferguson the earlier mortgage debenture was granted to Westpac on 12 April 1983 whereby, in consideration of Westpac forbearing to sue in consideration of advances or accommodation granted and in respect of subsequent advances or accommodation by Westpac the company charged "ALL AND SINGULAR its undertaking all its assets whatsoever and wheresoever both present and future including the goodwill of its business and its uncalled and called but unpaid capital for the time being and the uncalled premiums for the time being on its shares or stock" with the payment of the moneys advanced or to be advanced by the bank together with the moneys which are conventionally agreed to be secured by a bank debenture. Certain real and personal property was agreed to be subject to a fixed charge and the rest of the company's assets were stated to be subject to a floating charge. The debenture contained a clause whereby the bank was entitled, after the moneys secured became payable, to appoint a receiver and manager over the whole or any part of the mortgaged premises.

Secondly by a deed of charge made 25 October 1983 Stuart Ferguson granted a further debenture by way of floating charge in consideration of Marac arranging credit for it or advancing moneys to it, by which Stuart Ferguson as beneficial owner charged with the payment of all secured moneys "the whole of its undertaking, property and assets whatsoever and wheresoever both present and future (including its uncalled and called but unpaid capital) and goodwill and such charge shall constitute as to any interest of the company and freehold or leasehold land now or hereafter the property of the company and as to the company's uncalled and its called but unpaid capital and goodwill and all of its books and records a fixed and specific charge and as to all plant equipment chattels and other property and assets a floating charge". Likewise this deed gave Marac a right to appoint a receiver or a receiver and manager over the whole or any part of the mortgaged property.

Further, floating and fixed charges were granted by S.R. Mitchell to both Marac and Westpac in almost identical terms. In this case the earlier mortgage debenture produced in evidence was that granted to Marac on 25 October 1983 wherein, in consideration of a slightly differently expressed agreement to grant financial accommodation, the company charged "the whole of its undertaking property and assets whatsoever and wheresoever both present and future...", using language identical to that contained in the charge granted over the assets and undertaking of Stuart Ferguson. Secondly, in the debenture given to Westpac, the company on 5 December 1983, in consideration of certain advances and accommodation, charged "ALL AND SINGULAR its undertaking and all its assets whatsoever and wheresoever both present and future...", in the same terms as were contained in the debenture granted by Stuart Ferguson. There was likewise a similar term creating a fixed charge over certain property and a floating security over the other assets of the company. The rights of both Marac and Westpac under these deeds to appoint a receiver or receiver and manager were substantially the same as were granted under the Stuart Ferguson debenture deeds.

However, the reason for the distribution of the assets between the two sets of receivers can be traced to an agreement between Marac and Westpac entered into by a deed dated 21 October 1983. In this deed, described as a "priority agreement", between Marac, Westpac and the two companies and an associated company, it is recited that the bank and Marac either had made or proposed to make certain advances or to give certain financial accommodation to the companies and that they have taken or have agreed to take certain securities described in the schedule to

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ATC 4493

the agreement. In fact the securities listed in the second schedule extend beyond those to which I have earlier referred but in the case of Marac include the two deeds of charge said to be dated 25 October 1983, although this agreement purports to have been executed on 21 October 1983, and there is a reference both to some earlier debenture with S.R. Mitchell and another debenture which has no date in the schedule. The latter may have been intended to refer to the debenture which was subsequently executed on 5 December 1983. The essence of the deed, however, is in the agreement between Westpac ("the Bank") and Marac as to the "respective ranking and priority of the Bank securities and the Marac securities", as follows:

"The Bank and Marac for themselves and their respective successors and assigns hereby covenant and agree that as between the Bank securities and the Marac securities the effect, ranking and priority of the said securities shall be as follows: -

• The Bank securities and Marac securities shall irrespective of the time of their lodgment or registration operate as between the Bank and Marac as securities over the following assets of the mortgagors to the extent and in the priorities hereafter appearing:

        PRIORITY       SECURITIES       ASSETS
        1.       Marac Securities       All book debts of the mortgagors
                      both present and future, up to but
                      not exceeding $2.0 million plus
                      interest, costs and expenses relating
                      thereto according to the terms of the
                      Marac securities.
  
        2.       Bank Securities       All remaining assets of the
                      Mortgagors both present and future,
                      up to but not exceeding $2.0 million
                      but plus interest, costs and expenses
                      relating thereto according to the
                      terms of the Bank securities.
  
        3.       Marac Securities       All the remaining assets of the
                      Mortgagors both present
                      and future."
                

By cl. 3 the rights of Westpac and marac to exercise their rights, remedies and powers are agreed to be subject to the rights of the other according to the terms of the first clause. Clause 7 states:

"Nothing herein shall or shall be deemed to in any way limit the rights of the Bank and Marac as against the mortgagors"

Clause 8 contains a specific consent by the mortgagors, being Stuart Ferguson and S.R. Mitchell, to the priorities set out in the deed. Clause 9 states that Westpac, subject to the provided priorities, absolutely and unconditionally released to Marac from the Westpac securities such book debts of the two companies as were in any way encumbered by those securities. There is no other provision of significance but it is to be noted that there appears to be no references in the priority clause to any security given to Westpac in respect of any assets exceeding $2 million. Moreover, the funds of the two companies, as well as a related company, are treated in the agreement as if they will constitute a single fund for the purpose of enforcement and administration by any receivers appointed, but this fact appears, so far as the argument revealed, not to have caused or be likely to cause any practical difficulty.

It is in these circumstances that the Deputy Commissioner's claim under sec. 221P must be considered. It will be remembered that the terms of that section, substantially amended in inessential respects in recent years, provide that: "Where an employer makes a deduction for the purposes of this Division... from the

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ATC 4494

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... 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" (subsec. (1)). By subsec. (2) it is provided, in part, that "an amount payable to the Commissioner by a trustee in pursuance of this section has priority over all other debts... whether preferential, secured or unsecured...".

It is unnecessary to examine all the authorities for detailed consideration has been given to the section by the High Court in
F.C. of T. v. Card (1963) 109 C.L.R. 177, and
F.C. of T. v. Barnes 75 ATC 4262; (1975) 133 C.L.R. 483, by Full Courts in Victoria and Queensland in
Horsburgh & Anor v. D.F.C. of T. 84 ATC 4501; (1984) V.R. 773 and
D.F.C. of T. v. Lawson and O'Brien & Anor (1984) 57 A.L.R. 205, and by the Court of Appeal in
D.F.C. of T. v. A.G.C. (Advances) Ltd. & Ors 84 ATC 4177; (1984) 1 N.S.W.L.R. 29.

There can be no doubt, since Barnes' case, that receivers and managers appointed pursuant to debentures may be "trustees" within the meaning of this section. Although under the Marac debentures the Marac receivers may have become "trustees", they were appointed receivers only in respect of the book debts and thus failed to have sufficient control of each company's property to be "trustees" for the purpose of sec. 221P:
Re L.G. Holloway Transport Pty. Ltd. 83 ATC 4164. The critical question is whether, within the meaning of the section, control of the property of each company passed to the Receivers appointed by Westpac.

One may start with the slightly misleading proposition that it must be shown that control of the whole of the employer company's property has passed to a "trustee". It was accepted in argument, correctly in my opinion, that, although expressions to that effect appear throughout Barnes' case, at ATC pp. 4265-4267, 4269-4270; C.L.R. pp. 490-494, 498-499, the expression "the whole of the property" must be read subject to some qualification. Gibbs J. at ATC p. 4270; C.L.R. p. 499 observed that it could not apply literally in most cases where property passes to trustees in bankruptcy. More importantly in the judgments of both the majority, Barwick C.J., Mason and Jacobs JJ., and of Gibbs J., it was accepted that in the case of receivers appointed under a debenture, notwithstanding that an equity of redemption remained in the company, control of the whole of a company's property may be said to pass to those receivers, and the company's equitable interest "from a practical and commercial view" could be ignored: per Gibbs J. at ATC p. 4270; C.L.R. p. 499, and cf. the majority at ATC pp. 4265-4266; C.L.R. pp. 491-492. For present purposes it is unnecessary to consider whether that is confined to those cases referred to by Gibbs J. where the equity of redemption is valueless, although it should be emphasised that it is not the employer's "property" which the section requires to pass, but "control" of that property.

However, although an equity of redemption may remain with the employer company without detracting from the passing of control of its property to a receiver as trustee pursuant to an appointment under a debenture, in other cases an equity of redemption of specifically mortgaged or charged property may be all that can pass of that specifically mortgaged or charged property and yet a liquidator or receiver will be held to be a trustee to whom control of an employer company's property has passed within the meaning of sec. 221P. This much is clear from the judgment of Barwick C.J. and Mason and Jacobs JJ. in Barnes' case where it was said (at ATC p. 4265; C.L.R. p. 491) that what had passed under the control of the receiver pursuant to his appointment under the debenture was "the whole of the assets and undertaking of the Company, control of which could pass to him as receiver under the terms of the deed" (emphasis added). On the same page they observed:

"It is an important qualification that the `property' is limited to that in respect of which control could pass to the defendant. If independently of this security there had been a mortgage or other security over certain assets of the Company, control of those assets could not pass to the receiver. He would have control only of the equitable interest of the Company in those assets. But it does not follow that, because in the case of a security over certain assets only the equitable interest is property within the meaning of the section, therefore in a case

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ATC 4495

where the whole of the property of a company is vested in or passes under the control of a trustee for a secured creditor, the relevant property is likewise no more than the equity of redemption."

They continued (ATC p. 4266; C.L.R. p. 491):

"Section 221P deals with cases where the defaulting employer either remains in control of the whole of his property (subject of course to any security given by him over particular assets) and cases where the whole of that property (again subject to the same qualification) has vested in or passed under the control of a trustee. Thus, for example, if a defaulting employer assigns the whole of his property to a trustee as security for all or some of his debts, the property is the whole of his assets subject to any security previously existing over less than the whole"

(emphasis added).

At ATC p. 4266; C.L.R. p. 492 their Honours turned to the effect of a floating charge:

"The charge does not extend beyond the equity of redemption in assets separately mortgaged or charged; but subject to that qualification it extends to the whole of the assets and undertaking and it is with that qualification the control of the whole of the assets and undertaking which passes to a receiver when he is appointed under the charge."

Again, after defining "control" for the purposes of the section, they observed (ATC p. 4266; C.L.R. p. 492):

"But we note again that that control cannot extend to particular assets which are separately secured, but only to the equity of redemption in such assets."

I have emphasised in detail these observations, because from time to time it has been suggested that the only security, which may be excepted from the control of property required under the section, is a security in the form of a mortgage or fixed charge. The language employed by the majority in Barnes' case in their judgment points to any security interest and would prevent any narrow interpretation of the kind suggested: cf. D.F.C. of T. v. Lawson and O'Brien & Anor (1984) 57 A.L.R. 205 at pp. 209-211.

So, notwithstanding the omission in the joint judgment of the majority in Barnes' case of any qualification to the expression "the whole of the property" in their discussion (at ATC pp. 4266-4267; C.L.R. pp. 493-494) on the constitutional validity of sec. 221P, the earlier passages set out above show that, where a limited property in certain mortgaged or charged assets remains in a company, then it is sufficient to satisfy the section that control of that limited property passes to a liquidator or receiver, so long as control of all such property and all other property passes. Pursuant to a mortgage or a fixed charge, whether or not hypothecatory in character, some right or interest of greater or lesser significance is taken away from the bundle of legal and equitable rights ordinarily exercisable over an asset owned or possessed by the mortgagor or chargor. To that extent full dominion or control of that asset is no longer held by the grantor of the security, but, as Barnes' case has held, it does not prevent control of the whole of an employer company's property passing to a "trustee", whether upon liquidation or upon the crystallisation of a floating charge and any related appointment of a receiver. It is not control of the assets which must pass, but control of the employer's "property" in them.

In the present case the Receivers' rights are derived from two debentures containing fixed and floating charges in favour of the secured creditor, Westpac. Again, as held in Barnes' case, each company's residual equity of redemption may be ignored. If control of all of each company's property passed to the Receivers, there would be no doubt as to their liability. But it is said that control of each company's book debts did not so pass and these were so significant in value that it could not be said that control of "the whole" of its property had passed to the Receivers. On the other hand if one were to look only at each company's equity of redemption in the book debts, that was valueless and might properly be ignored.

The difficulty arises because at the time of the Receivers' appointment, another similar debenture had been granted to Marac. That company, in conformity with the priority agreement, or at least cl. 1(1) thereof, sought only to enforce its rights over each company's book debts, but at the time of enforcement, i.e. the appointment of the Marac Receivers, it was either only a floating charge or it had become a fixed charge which effectively deprived the

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ATC 4496

Receivers of their power to exercise any of the companies' rights over those book debts.

No argument was addressed to me as to which debenture was first exercised or consequently as to which charge first crystallised. I assume neither party saw it as important, for the following reasons. The Receivers had assumed a right to control all of each company's assets or property upon their appointment but within two days the Marac Receivers had assumed the right to control or get in the book debts. Thus even if Westpac had first acted, it did so with the knowledge that it had agreed to postpone its rights, at least as to $2 million worth of book debts, to Marac. If the Receivers can be said at some moment at about 4 p.m. on 17 July 1984 to have been in control of those book debts, they were no longer in control of them, nor did they have the right to control of them, nor did they have the right to control them, by 19 July 1984 or at any time thereafter, except to the extent that Marac's security may have exceeded each company's liability to it. But at least by the time Marac exercised its rights, the charges granted to it by each company were no longer floating, but had crystallised and become fixed. The limit of Westpac's rights to the book debts was thereafter confined to an "equity of redemption" or at least to the equitable rights each company had to call for those book debts or assert its rights in relation to them after Marac had satisfied each secured debt.

Did that mean that control over the book debts "could pass" to the Receivers within the language of the majority judgment in Barnes' case (at ATC p. 4265; C.L.R. p. 491) and, if it could have so passed, did that mean that the Receivers never acquired control of the whole of the property of each company? It should be remembered that "The control which is referred to is that control which enables the receiver to reduce the assets and undertaking of a company into a fund out of which a particular debt or in some cases all the debts of the company, secured and unsecured, are able to be paid if the fund so far extends": Barnes' case at ATC p. 4266; C.L.R. p. 492.

But, consistently with the general reasoning in Barnes' case, any diminution of rights by reason of the grant of a security of any kind will not prevent the Deputy Commissioner from asserting that control of the whole of the relevant property of each company had passed to the Receivers. Two situations may be distinguished, but in my opinion the outcome will be no different. In the first place if Marac exercised its rights before the Receivers were appointed by Westpac, then at the time the Receivers assumed control of the company's property Marac's floating charge, at least in respect of the book debts, had crystallised and had become a fixed charge over those book debts, subject to the equity of redemption in each of the companies. Upon the appointment of the Receivers, control of the whole of each company's property had passed, within the meaning of the authorities, for in respect of the book debts all that could then pass was the equity of redemption in those book debts.

On the other hand if Westpac had acted first and its floating charge had crystallised before that of Marac, then control of the whole of each company's property passed to those Receivers, for there was then no fixed charge upon the book debts. Even if it could be said that by virtue of the priority agreement some lesser interest in those book debts passed to the Receivers, then, by virtue of that agreement binding each company, the whole of each company's property passed in so far as it could pass under the control of the Receivers. Clearly, of course, at the time the Deputy Commissioner asserted his claim the Marac Receivers had been permitted to assert control in respect of each company's book debts, but the mere fact that the person with a specific secured interest, namely Marac, asserted its rights so that the Marac Receivers obtained legal and practical control over certain assets of each company, in accordance with that security, did not deny the Receivers control over all property which could lawfully pass to them and remain in them by virtue of the debentures and the priority agreement. It would only be if the subsequently enforced security had deprived the Receivers of control of "the property", i.e. the whole of the property, of each company that any difficulty could have arisen. That, however, is not the present case and need not be further considered here: cf. the differing views expressed in
Smith & Judge v. D.F.C. of T. & National Bank of Australasia 78 ATC 4561 and
D.F.C. of T. v. A.G.C. (Advances) Ltd. & Ors 84 ATC 4177; (1984) 1 N.S.W.L.R. 29 (the "Wallyn Industries case").

When the Deputy Commissioner made his claim, the only change in the Receivers' control

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ATC 4497

was that Marac had asserted its rights over the book debts, pursuant to a priority agreement binding on both Westpac and each of the companies, and appointed Receivers who had obtained control of those specific assets. But in substance that could only have raised the same issue as was resolved in the Wallyn Industries case, if indeed there had been any deficiency in the assets under the control of the Receivers for the purpose of paying the Deputy Commissioner the unremitted deductions. In that case, for varying reasons, it was held that the extent of a liquidator's control, upon the subsequent appointment of Receivers over the company's book debts, did not extend to those book debts for the purpose of satisfying the Deputy Commissioner's claim under sec. 221P. In the present case there is more than sufficient in the hands of the Receivers of each company to satisfy the Deputy Commissioner's claim.

A forceful argument was put forward on behalf of the Receivers that in substance a large part of each company's property was no longer under their control because of the significant value of the book debts which was under the control of the Marac Receivers. Indeed in one case it was close to 80% of the value of those assets, but it does not seem to me that the value of those excepted assets is of any relevant significance, at least if one is to apply the accepted tests laid down by the High Court. In at least three cases book debts were the subject of specific charges and the exercise of rights by the holders of those charges: cf. the Wallyn Industries case (supra);
Waters & Anor v. Widdows & Anor 84 ATC 4921; (1984) V.R. 503 and Horsburgh & Anor v. D.F.C. of T. 84 ATC 4501; (1984) V.R. 773, but in none of these cases was it said to be of any significance that there were a large number of book debts of considerable value excepted from the control of "the trustee" within the meaning of sec. 221P, although differing views were expressed as to control of those book debts. As long as the book debts are subject to a charge which denies the receiver or liquidator control over "the property" in them, in that the company retains only an equity of redemption or other equitable right to recover that property after satisfaction of the charge, then the whole of the relevant property either remains in the company or control of it will have passed to a receiver or liquidator, for the purposes of the section, where liquidation occurs or a receiver is appointed generally. What must be shown, as has been shown in this case, is that the relevant control for the purpose of possession and realisation has passed to a "trustee" over the generality of each of the company's property, and that all that has been excepted is that over which another person may lawfully assert proprietary or equitable rights. In those circumstances, regardless of the value of that excepted property, that trustee will be subject to the liability imposed by sec. 221P. For those reasons I do not think it useful, as was argued, to make a comparison between the volume or value of assets which pass to one or the other, as long as the person against whom the claim is made has in truth obtained general control of the property of the company.

Reliance was placed on cases such as Re L.G. Holloway (supra) to argue that the question was whether, in a practical or realistic, commercial sense, control of the whole of each company's property had passed to the Receivers. That test may well be useful in a negative sense and in the circumstances there discussed, but it has no relevance where receivers have assumed control, pursuant to a floating charge over the whole of a company's assets and undertaking, of all the assets of a company other than those which are the subject of specific securities. Merely because the effective capacity to possess and realise all assets formerly in the possession of the employer company does not pass to a "trustee", it does not follow that control of the whole of the employer's "property" has not passed. Even if an apparent exception to the passing of control is created by the decision in Barnes'case, it is clear that the majority of the Court held that if the true property in certain assets could not pass because of the effect and operation of a security over those assets, then control of all relevant property would pass to a liquidator or receiver, if he took all the employer's residual proprietary interests in the assets affected by the security.

Thus, consistently with that authority, it does not matter that, in terms of value, 20 per cent or 80 per cent of those assets did not pass to the receiver, for in law 100 per cent of each employer's company's "property" in the assets had passed. As pointed out in argument, many companies in financial difficulties find it hard to retain many of their assets and, for example, often are left with little more than the land and

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ATC 4498

premises from which they carry on business. As their difficulties increase, those premises are mortgaged to one, two or more mortgagees. Upon liquidation, or appointment of a receiver under a general floating charge, although it might appear that 75 per cent or 90 per cent of its total assets passes to those mortgagees, it is only the employer company's residuary equity of redemption with which sec. 221P is concerned, at least in circumstances like the present. The liquidator or receiver will still have obtained control of the company's property for the purposes of the section, consistently with reasoning in Barnes' case. The present case is no different, although the charged assets are the company's book debts, for upon crystallisation each company only retained its equity of redemption in their assets and control of that interest as well as all other property of each company had passed to the Receivers. So control of the whole of each company's property had passed to the Receivers for the purposes of sec. 221P.

For these reasons the Deputy Commissioner is entitled to enforce his claim against the Receivers in respect of the property of each company and I shall give the directions sought on the summons and make the declarations sought in the action accordingly.

Consequently in Summons Co. No. 666 of 1985, the Court orders and declares, by way of direction, that the applicants are not entitled to distribute to Westpac Banking Corporation the sum of $16,849.73 held by the applicants on trust in Trust Account No. 86-0986, referred to in the said summons, and that they are liable to pay the said sum to the Deputy Commissioner of Taxation of Victoria. The applicants are ordered to pay the respondent's costs of and incidental to the application. No order, including any order for costs, is made in Summons Co. No. 665 of 1985, but in action No. 6066 of 1986, the Court orders and declares that the plaintiffs are not entitled as against the defendant to distribute to Westpac Banking Corporation such proceeds of realisation as amount to the sum of $110,512.76 referred to in the endorsement on the writ. It is ordered that the plaintiffs pay the defendant's costs of the action. I reserve liberty to apply.