Re Alspar Pty. Limited

Judges:
Cohen J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 5 October 1990.

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Cohen J.

In these proceedings the application of the provisions of sec. 221P of the Income Tax Assessment Act 1936 to a particular set of facts has to be considered yet again. The application is by the liquidator of Alspar Pty. Limited (which I shall refer to as the company) for directions as to whether he should pay moneys held by him to Westpac Banking Corporation or whether he should pay part of those moneys to the Deputy Commissioner of Taxation.

A deed of charge was executed by the company in favour of Westpac on 30 November 1983. That gave to the bank a charge in respect of advances to be made over the whole of the undertakings of the company. It was expressed to be a fixed charge over certain assets, including land, plant and machinery, but excluding stock in trade, and a floating charge over all other assets not nominated. Although the copy of the deed which is annexed to an affidavit has not been clearly reproduced in some parts there does not seem from my inspection to be any specific act which would cause the floating charge to crystallise. The deed provides that the company will on demand pay the money secured under the deed. Clause 3(ii) provides that the money secured is to be payable not only on demand but also at the option of the bank upon the happening of a number of events. These include the lodging of a petition or the making of an order for the winding up of the company. As I say, there does not seem to be a provision that upon the debt becoming due the floating charge is to crystallise.

On 18 August 1988 a summons was filed to wind up the company and on the same day an order was made appointing Mr P.D. Rodgers as provisional liquidator. At that time the sum of $260,000 was owing by the company to Westpac. On 8 September 1988 an order was made winding up the company and Mr Rodgers was appointed official liquidator.

By an agreement dated 29 August 1988 the company, expressed to be in provisional liquidation, agreed to sell its plant and equipment and stock and also agreed to allow the use of its name. The total consideration to be paid was $183,738. It was provided that there should be a non-refundable deposit of $20,000 and the balance was payable in not more than 30 days. There was a provision that the property in the plant and equipment was to remain in the vendor until final payment was made and there was a right to retake possession and resell the plant and equipment and stock in default of the payment of the balance on the due date.

On 29 September 1988, that is to say after the making of the order winding the company up, the payment of the balance of the moneys due under the contract was made to the official liquidator. A report as to affairs of the company shows that it had book debts totalling $81,456 and these were stated to be realisable. Although there was no evidence as to this fact it was conceded in the course of the hearing that the liquidator has been collecting those book debts. It is not known how much is in his hands as a result of that.

The bank and the Deputy Commissioner of Taxation were joined as parties to the application. The Commissioner claims a right under sec. 221P to the payment of $37,517.46, being the amount due as tax instalments payable under Div. 2 Pt VI of the Income Tax Assessment Act. The bank claims that the whole of the proceeds of sale of the company's business and other moneys held by the liquidator should be paid to it.

In view of the number of times in which sec. 221P has been dealt with there is no need for me to set out the relevant parts in full. The question which arises is whether Mr Rodgers as the provisional liquidator had control of the assets of the company within the meaning of the section and, if not, whether on the above facts the section can apply.

The Full Court of the Supreme Court of Queensland in
Re Obie Pty. Ltd. (1985) 1 Qd. R. 464 held that a provisional liquidator does not have control of a company's assets. In that case the provisional liquidator had placed funds into his trust account and before the order for the winding up of the company was made the secured creditor had given notice of the crystallisation of its floating charge. It was submitted before me that there was a distinction to be drawn from that case because the provisional liquidator there did not have a power of sale whereas that power is given to provisional liquidators in New South Wales by Pt 80 r. 29. That distinction however was not found to be significant by Kearney J. in
Re Rothercroft Pty. Ltd. (1986) 4 ACLC 305 and

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ATC 4948

he followed the finding in Re Obie Pty. Ltd. On appeal, reported as
D.F.C. of T. v. Access Finance Corporation Pty. Ltd. (1987) 8 N.S.W.L.R. 557, it was held that this Court should follow a decision of the Full Court of another State on matters of this nature and accordingly the appeal was dismissed. It will be noted that the company in that case was still in provisional liquidation and accordingly the whole of the relevant transactions occurred without the company ever being wound up.

In the present case it was submitted on behalf of Westpac that the filing of the summons to wind up crystallised the floating charge so that it became fixed over the whole of the property of the company. It was said that it therefore followed that the company no longer was entitled to its assets and that this occurred at the same time as the appointment of the provisional liquidator. Accordingly those assets were not under the control of the provisional liquidator and under the agreement for sale any rights which the company had passed to the purchaser. Accordingly when the official liquidator was appointed he had no control over the assets but only over the equity of redemption. It was submitted that as all of the assets were specifically charged and the control did not pass to the liquidator the principles set forth in
F.C. of T. v. Barnes 75 ATC 4262; (1975) 133 C.L.R. 483 applied.

For the Deputy Commissioner it was submitted that the floating charge had not crystallised but in any case the assets passed from the hands of the provisional liquidator to himself as official liquidator upon the making of the order to wind up the company. Control of the whole of the assets therefore passed to the liquidator and the authorities provide in those circumstances that sec. 221P is to apply.

A detailed examination of the authorities which relate to the question of whether and in what circumstances a floating charge will automatically crystallise is contained in the judgment of Rogers C.J. of Com.D. in
Fire Nymph Products Pty. Ltd. v. Heating Centre Pty. Ltd. (1988) 14 N.S.W.L.R. 460. He referred at p. 466 to the earlier days of floating charges when it was held that it was appropriate to find that when the business came to an end the charge should crystallise and that this could occur on the cessation of trading or upon the company being wound up. In the next stage of evolution it was said that where there was power to appoint a receiver it was appropriate for the courts to hold that that appointment on default caused the charge to crystallise. It was insufficient merely that there be an act of default entitling the mortgagee to appoint a receiver. The move towards automatic crystallisation later occurred but this required a specific provision in the agreement between the parties. If they agreed that on the happening of a certain event the charge will become fixed then that will occur on the happening of that event.

The deed of charge in the present case does not contain a provision that on the happening of any particular event the floating charge is to become fixed. It merely provides that on the happening of a number of possible events the debt becomes payable at the option of the bank. It is when the money is payable that various powers arise, including the appointment of a receiver. On the basis of what has been referred to above it would therefore seem that as soon as an event such as the filing of a summons to wind up occurs then the mortgagee would be entitled immediately to appoint a receiver without having to make a demand. It would be the appointment of that receiver however which would cause the floating charge to become fixed and not the requirement for repayment.

In any case it will be noted that the money becomes repayable only at the option of the bank and there was nothing to indicate that the bank had exercised that option. When this was put by way of submission counsel for the bank, at the conclusion of the hearing, indicated that she exercised the option on behalf of the bank. I do not regard that statement as having any valid effect on the demand by the Deputy Commissioner for payment. It was a statement made to the Court and not by one party to another but in any case it was made after the rights of the parties had already been established and it could not cause the floating charge to crystallise at any earlier date than when that statement was made in Court. Accordingly, the floating charge had not become a fixed charge at the time of the demand for payment by the Deputy Commissioner.

A summary of certain propositions which arise from F.C. of T. v. Barnes, supra, was set out in the judgment of Priestley J.A. in
D.F.C.

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of T. v. A.G.C. (Advances) Ltd. 84 ATC 4177 at pp. 4184-4185; (1984) 1 N.S.W.L.R. 29 at p. 39. The second of those propositions was that sec. 221P only operates when the whole of the employer's property has become vested in the trustee, whether he be liquidator or receiver. The third proposition was that when the trustee is a receiver appointed under a charge over the whole of the assets and undertakings of a company, control of specific assets subject to mortgage or other security could not pass to that receiver and in respect of those specific assets the only control of the receiver is of the company's equitable interest in those assets. The fourth proposition looked at that last matter in circumstances where a liquidator is appointed. He is required to take into his custody or under his control all property of the company but if specific assets are mortgaged or charged as security he only obtains control under sec. 221P of the company's equitable interest in those specific assets.

It has been held that where a company goes into liquidation and a secured creditor has a charge over the whole of the assets then, if the liquidator purports to realise those assets, the proceeds of sale are payable to the Commissioner under sec. 221P;
Smith & Judge v. D.C. of T. 78 ATC 4561;
Re Mzimba Pty. Ltd. 89 ATC 4229. Thus, in the present case, if the control of the whole of the assets of the company passed to the official liquidator, then under those authorities he became liable to make a payment under the section. In my opinion the whole of the assets did come under his control. Although the contract for sale was entered into by him in his capacity as provisional liquidator that contract was not completed before the winding up order was made. The plant and machinery which was the subject of the agreement remained the property of the company and there was a right to take back the stock, to the extent that it was still in existence, if there were default. The principal assets of the company at the time when the official liquidator was appointed therefore consisted of the property in the plant and machinery or alternatively an equitable interest in the proceeds of sale of the property. The liquidator therefore acquired control of such property as the company had in accordance with the provisions of the Companies (New South Wales) Code. In any case he obtained control of the book debts, the proceeds of which have not been disclosed in evidence but which if collected in full would amount to more than the claim of the Deputy Commissioner.

In my opinion the whole of the assets of the company having come under the control of the official liquidator, he is bound to make the appropriate payment to the Deputy Commissioner. The argument of the bank is that there is excluded from that control the specific assets which are the subject of a mortgage. Assuming that it could be said that the general description in the deed of charge of machinery and plant is sufficiently specific then the liquidator would have taken control only of the equity of redemption in that machinery and plant. He would however have had complete control of the stock in trade and book debts. The stock was sold under the agreement to which I have referred for $98,738, and the proceeds of that sale are held by the liquidator. There remained, as indicated above, the proceeds of the collection of the book debts. In those circumstances it would follow that the Deputy Commissioner would be entitled to be paid the amount which he claims to be due and there would be sufficient funds to satisfy that demand.

For these reasons I order that the liquidator of Alspar Pty. Limited be directed that he would be justified in paying to the Deputy Commissioner of Taxation the sum of $37,517.46 and in paying the balance of the moneys held by him, excluding his costs, expenses and remuneration, to Westpac Banking Corporation.

I order that the costs of the Deputy Commissioner of Taxation be paid out of the assets of the company and the costs of the liquidator be part of his costs in the liquidation.