RE LESLIE; EX PARTE DFC of T

Members:
Tamberlin J

Tribunal:
Federal Court

Decision date: Judgment handed down 31 October 1994

Tamberlin J

This matter concerns a Bankruptcy Petition dated 19 August 1993 filed on behalf of the Deputy Commissioner of Taxation (the petitioner) on 10 September 1993 in respect of a debt of $179,272 stated to be due from the respondent debtor to the Commissioner in relation to group tax deducted by Phillip Leslie (the debtor) but not paid to the Commissioner. On 6 September 1994 the period within which the Petition would otherwise have lapsed was extended to 24 months from the date of presentation.

On 31 May 1994 the debtor, Mr Phillip Leslie, by his solicitors, filed a Notice of Opposition to the Petition in the following terms:

``1. Notwithstanding the judgment, the debtor is not indebted to the Judgment Creditor in the sum of the Judgment, by reason of the fact that the debt due to the Judgment Creditor is not due by Phillip C. Leslie but due by Messrs Kelly and Cook acting as receivers appointed by CBFC Ltd for Leslie's Omnibus Services on 12 October 1992.''

The debtor's case turned on s 221P of the Income Tax Assessment Act 1936 the relevant parts of which read as follows.

``221P(1) Where an employer makes a deduction for the purposes of this Division... 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... 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.

221P(2) Notwithstanding anything contained in any other law...

  • (a) an amount payable to the Commissioner by a trustee in pursuance of this section has priority over all other debts...''

The debtor's argument, in substance, is that control of his property has passed to trustees (the receivers) and therefore the trustees are the only persons liable to pay the group tax to the Commissioner and that there is no continuing liability in the employer to pay the group tax and therefore the Petition ought to be dismissed.

The contention of the petitioner, in substance, is that in order for the debtor to succeed it is necessary for the whole of the property of the debtor to be vested in or to pass under the control of the trustees in order to make the trustees liable and that in the present case the whole of the property has neither vested in nor passed under the control of the trustees as required by the decision in
FC of T v Barnes 75 ATC 4262; (1975) 133 CLR 483. Therefore, it is argued for the petitioner that liability remains with the debtor to pay the outstanding group tax debt.

It was also submitted by the petitioner that even if the trustee is liable in respect of the group tax under s 221P(1) the employer still remains liable, in any event for the group tax, although no authority was cited for this proposition.

In order to understand the way in which the case has been argued it is necessary to look at the background to the dispute.

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Factual background

The debtor, Mr Phillip Leslie, as from 1981 was the registered proprietor of a business which traded as Leslie's Omnibus Services which provided school, local, inter- and intra- State bus services and tours. In 1989 he moved the business to 75 Doonside Road, Blacktown (``the land''). The land is comprised in Folio Identifier 1/509194. The postal address later changed and the land became known as 311 Doonside Road, Arndell Park.

On 21 April 1989 Mr Leslie entered into an all moneys mortgage with CBFC Limited (``CBFC'') in respect of the land and this was duly registered under the provisions of the Real Property Act 1900 on 13 September 1989. The address of Mr Leslie was shown as 465 Meurants Lane, Parklea.

On the same day Mr Leslie entered into a Bill of Sale and Equitable Mortgage over his business with CBFC as mortgagee in respect of an advance of $1.610 million.

On 18 August 1989 Mr Leslie entered into another Bill of Sale and Equitable Mortgage with CBFC over the assets of the business carried on at the land, in respect of a further loan of $285,000, which took borrowings to $1.895m.

In February 1992 CBFC commissioned a report from Price Waterhouse in relation to Leslie's Omnibus Services. That report was furnished on 5 March 1992 and is Exhibit 1 in the proceedings.

In the ``Executive Summary'' to that report Price Waterhouse estimated that the security position of CBFC on a going concern basis was expected to range between a deficiency of $127,487 and a deficiency of $2.168 million dollars. On a liquidation basis the estimated security position of CBFC was estimated as a deficiency of $2.467 million dollars.

At p 24 of that report reference is made to group tax in the following terms:

``Group Tax

Group Tax outstanding totals $170,050 and represents five months arrears. The average monthly remittance is approximately $35,000.

Under the liquidation case, conducted by an agent of the mortgagee in possession, payment of group tax arrears may be avoided.''

On or about 30 March 1992 a notice pursuant to s 57(2)(b) of the Real Property Act 1900 was sent to Mr Leslie by CBFC requiring him to pay $294,447.60 being the amount said to be due and owing to CBFC under the Memorandum of Mortgage of 21 April 1989.

In or about early May 1992 Mr Leslie suffered a heart attack and was unable to continue to run the business. His wife, Anne, who had had no previous experience, had his Power of Attorney and continued to run the business with the assistance of his accountants and the administrative staff employed by the business.

A further report dated 3 June 1992 was obtained by CBFC from Price Waterhouse. On pages 10, 14 and 15 the following statements appear:

``6 Central Overhead Costs

As illustrated in Appendix II, a number of expense items are classified as general overheads or administrative costs and have not been allocated to the various business segments. These overhead costs in total amount to $306,566. Of this amount, some $115,000 (37%) relates to interest on finance leases and other loans primarily used to purchase land, buildings, and plant and equipment as part of the acquisition of Palmers Bus Services.

F. Central Overhead Costs

Central Overheads amount to over $300,000. In general, with the exception of some $115,000 in interest expense, these costs are not considered excessive. Rather, these costs, coupled with our observation of the operations over the period of the review indicates that great effort is placed on keeping administrative overhead costs to a minimum. This is illustrated by the fact that only $65,000 in wages are considered central overhead costs - a low figure by any standards.

Interest expense of $115,000 is a significant overhead cost which can only be recovered through allocation to the various business segments. The bulk of this interest relates to a loan for the acquisition of land and buildings at the present site in Doonside. Clearly, this debt is too great for the combined bus and coach operations and

ATC 4752

poses a significant financial burden on Leslies.''

In or about August 1993, acting on the advice of his accountants, Mr Leslie entered into an arrangement with his wife whereby the company of which she was a director and major shareholder namely Transwest Pty Ltd would lease the coaches and employ some of the staff employed by Leslie's Omnibus Services and operate the services from the Doonside Road property. This was done, according to Mr Leslie, in order to reduce the future group tax liabilities and payroll tax liability of his business.

On about 12 October 1992 Mr Leslie received a notice from Price Waterhouse notifying him that Messrs Kelly and Cook had been appointed joint receivers of Leslie's Omnibus Services by CBFC pursuant to the Bill of Sale and Equitable Mortgage of 18 August 1989. He was given a copy of the Deed of Appointment of the receivers dated 12 October 1992. Schedule 1 to that Deed authorised the receivers to take possession of and collect and get in the whole or any part of the property specified in Schedule 2 to the deed. Schedule 2 referred to ``all of the property whatsoever and wheresoever both present and future, the subject of the Mortgage, other than property comprising Folio Identifier 1/509194,'' (emphasis added) which was the Doonside bus depot land. The reference to the ``mortgage'' was to the equitable mortgage of 18 August 1989.

When the receivers were appointed, on 12 October 1992, the bus operation was taken out of the control of the debtor. The debtor in cross- examination stated that while he was still in control of the bus operations he resided at 28 Meurants Lane, Parklea and he appears to have continued to reside there since that time. He said that he had an interest in those premises with his wife. He did not know whether that interest was as joint tenant or as tenant in common with his wife. He said that there was a mortgage on that property.

After the close of proceedings on 8 September 1994 further evidence was tendered by consent on behalf of the debtor which indicated that there was a mortgage over the Meurants Lane property but which did not establish the amount secured by that mortgage when the receivers were appointed. There was no valuation of that property furnished by the debtor to establish the value of that property. However, by consent, a letter was tendered from a real estate firm, Starr Partners dated 16 September 1994, to the effect that the Meurants Lane property had been placed on public auction on 7 November 1991, that the highest bid was $385,000, and that the property was passed in as that price was ``well below the reserve price'' and that ``subsequent negotiations with interested buyers went to $425,000 which was still below the vendor's expectations''. There was no evidence as to relevant market movements which could establish any value as at or subsequent to the time the receivers were appointed on 12 November 1992. Nor was there any evidence as to the terms of the Contract for Sale at that auction. Nor was there any evidence as to the identity of the bidder. A Transfer of the Mortgage of Meurants Lane dated 28 February 1992 showed a consideration of $400,000 and a Variation of Mortgage dated 16 April 1993 showed an increase in the principal sum to $500,000. I do not consider that the evidence placed before me enables me to form any reliable estimate as to the value of the debtor's interest in the Meurants Lane premises at or subsequent to the appointment of the receivers.

In addition, the parties before me agreed that, at the time the receivers were appointed, the debtor had a remainder interest in premises at Elizabeth Street, Junee subject to a life tenancy and that the value of that interest was about $20,000.

On 25 September 1992 Mr Leslie directed that a cheque be prepared for payment of group tax. This cheque was filled out and signed but was never sent to the Deputy Commissioner of Taxation. On 22 October 1992 Mr Leslie received a letter from the Commissioner notifying him that judgment would be entered by the Supreme Court in the sum of $156,685 against him and that interest would accrue on the sum from the date of judgment. Since the date of appointment of the receivers no payments have been made by them in relation to the arrears of group tax which had accrued during 1991 and 1992. On 30 October 1992 a Supreme Court judgment was entered for $156,685 against Mr Leslie.

In November 1992 Price Waterhouse issued a Sales Information Memorandum. On page 1 of that memorandum the following statement is made:

ATC 4753

``1. BACKGROUND AND INTRODUCTION

Leslies Omnibus Services (`Leslies') was formed in 1981 upon the acquisition of Cleary Brothers. In 1989 Leslies acquired the assets and operations of Palmers Bus Company including the depot at 311 Doonside Road, Arndell Park from which Leslies currently operate.

Leslies operations comprise the provision of bus services under the school services transport scheme, provision of Countrylink services, provision of normal route bus services in the Doonside/Blacktown area and coach charter work. Messrs GP Kelly and BR Cook from Price Waterhouse were appointed receivers of Leslies on 12 October 1992 by CBFC Limited. It is in their capacity as receivers that they offer the business for sale.''

(emphasis added.)

On page 4 the following paragraph appears:

``4.3 Premises

Leslies premises are located at 311 Doonside Road, Arndell Park. They comprise a secure fenced area of approximately 1.8 acres with a house used as an office, a separate enclosed workshop and separate drivers amenity block. Ample bus and car parking facilities are available.''

On page 5 of the Sales Information Memorandum the following passage occurs:

``7.0 FURTHER CONTACT DETAILS AND BASIS OF SALE

Enquiries regarding the acquisition of the whole or parts of the business should be directed to Mr Mark Prendergast or Mr Greg Kelly of Price Waterhouse. 

    Address:      GPO Box 4177
                  Sydney NSW 2001

                  201 Kent Street
                  Sydney NSW 2000

    Telephone:(02) 256 7000
    Facsimile:(02) 256 7777

Offers for the purchase of the whole or parts of the business are required to be received, in writing, no later than 5.00pm, Monday, 7 December 1992.

It should be noted that the highest or any offer will not necessarily be accepted .''

In the Financial Review of 11 November 1992 the following advertisement appeared:

``BUS AND COACH BUSINESS FOR SALE

Leslies Omnibus Services (Receivers Appointed)

This is an opportunity to purchase a bus and coach business in Sydney's Western Suburbs - one of the largest growth areas in Australia.

The Receivers offer for sale the bus and coach business consisting of:

  • • extensive route bus services
  • • school bus contracts servicing 15 schools under the New South Wales `School Student Transport Scheme'.
  • • two current CountryLink contracts
  • • tour and charter business
  • • a large approved bus depot complete with workshop and office facilities, located in close proximity to the route services.

Expressions of interest are invited and should be received by Monday 7 December, 1992. For further information please contact Greg Kelly or Mark Prendergast at Price Waterhouse, GPO Box 4177, Sydney NSW 2001. Phone: (02) 256 7000 Fax: (02) 256 7777.''

On 11 January 1993 Mr Turnbull of Messrs Abbott Tout Russell Kennedy Solicitors acting for Messrs Kelly and Cook (the receivers) wrote a letter to the then solicitors for Mr Leslie which read:

``Dear Sirs,

MESSRS KELLY & COOK (`THE RECEIVERS') RE LESLIE'S OMNIBUS SERVICES

We refer to your letter dated 8 January 1993.

Although your letter says you have received instructions from Nowra Coaches Pty Limited to make an offer to acquire the business of Leslie's Omnibus Services, your letter by its express terms, constitutes no more than a mere expression of intent and is incapable of acceptance by the Receivers (assuming for the purpose of your letter and this reply that the Receivers have power to do so). If your client wishes to make an offer which can be reasonably considered, then

ATC 4754

we are instructed that the receivers will give that offer prompt consideration.

Any offer your client is prepared to make in respect of the land should be made to the CBFC Limited as mortgagee in possession. We act for CBFC Limited in connection with the proposed sale of the land only, and not in respect of the litigation commenced by your client. However, we will forward the offer on to the mortgagee, bearing in mind the proposal is for the purchase to acquire both the assets of the business and the land on which the depot is located. We are instructed that CBFC Limited will also give any offer prompt consideration.

Any offer which your client is prepared to make should at least:

  • 1. Nominate the price which your client is prepared to pay for the land and the assets of the business.
  • 2. Be expressed to be unconditional.
  • 3. Nominate the date by which your client is prepared to exchange agreements for the sale of the land and for the business.
  • 4. Provide for a payment of a deposit of 10% on exchange of agreements.
  • 5. Provide for completion of the contracts by not later than 22 January 1993 after which either party may serve a fourteen day notice to complete and make time of the essence.
  • 6. Provide that the agreements for the sale of the land and the assets of the business are inter-dependent, and completion of one will not take place without completion of the other.
  • 7. Provide that the agreement for sale of the assets of the business is subject to the Department of the Director General of the New South Wales Department of Transport consenting to the assignment of the Commercial Services Contract dated 29 August 1991, and that either party has a right to rescind the agreement by notice in writing if the Director General's consent is not forthcoming.

In order to facilitate your client making any offer, we enclose drafts of:

  • (a) a proposed agreement for sale of the assets of the business of Leslie's Omnibus Services; and
  • (b) a proposed Contract for Sale of Land.

It would assist both the Receivers and CBFC Limited in their consideration of any offer if your client was able to frame the offer it is prepared to make in terms of those draft agreements.

It is a matter for your client to arrange its finance for the transaction. CBFC Limited informs us that any application for finance by your client should be submitted in accordance with banks' usual requirements, and it will be considered in the usual manner.

Please note that no legal obligations are to arise as between your client as a proposed purchaser and either the Receivers or CBFC Limited as vendors unless and until agreements have been exchanged.''

Two matters should be noted at this stage. The first is that Messrs Abbott Tout Russell Kennedy, by their employed solicitor Ms Gail Howard, were the solicitors acting for CBFC on the sale by it as mortgagee of the land. Mr. Robert Turnbull, also a solicitor at Abbott Tout Russell Kennedy, acted for the receivers, in relation to the sale of the omnibus business.

On 13 April 1993 Ms Victoria Lindsay of Gells, solicitors acting for the purchaser of the land from CBFC, sent the following message to the Blacktown City Council:

``RE: Transit Management Pty Limited from CBFC Limited as mortgagee exercising power of sale 311 Doonside Road, Arndell Park.

We refer to our telephone conversation with Robert Woolf on 8th April, 1993 when we were advised that the s. 317AE Certificate had been typed and required his supervisor's signature before it would be fax (sic) to us.

We refer to our telephone conversations today and note there is a problem regarding classification of the building and this problem is holding up issue of the certificate.

We applied for the Certificate on 12 March, 1993. The inspection took place over 2 weeks ago. We have been advising you for the last fortnight of the urgency of this matter and refer to our letter of 30 March, 1993. The purchase of the business for over $1,000,000, which is operated on the property and is in receivership, is dependent

ATC 4755

on the purchase of the above property. If our client does not proceed on the purchase of the property soon the patience of the Receivers of the business will end and the jobs of the employees of the business are at risk. Our client cannot proceed in this matter until the Certificate is issued and it can assess its position. The delay is therefore jeopardising the purchase of both the business and the property and the employment of a number of people.

Would you please immediately advise us in writing the nature of the defects of the property and advise in writing when we can expect the issue of the certificate.''

On 7 April 1993 Ms Gail Howard of Messrs Abbott Tout Russell Kennedy wrote to Messrs Gells, in relation to the sale of the land on which the depot was conducted in the following terms:

``Dear Sirs

CBFC LIMITED SALE TO TRANSIT MANAGEMENT PTY LIMITED PROPERTY: 311 DOONSIDE ROAD ARNDELL PARK

We refer to your facsimile letter of 6 April 1993 in relation to requisition 25, which reads as follows:

`25. What are the details of each and every use of the property? How long has each such use subsisted?'

We are instructed to reply as follows:

The Vendor is aware that the business known as `Leslie's Omnibus Services' has been conducting a bus company on the premises. The Vendor has no knowledge of the details of each and every use of the property. We suggest that you refer any enquiries in this regard to Gregory Paul Kelly and Barry Raymond Cook as Receivers and Managers of the business. The Vendor has no knowledge as to how long any use of the property has subsisted.

We have amended the settlement statement as discussed.''

On 28 May 1993 Robert Turnbull of Abbott Tout Russell Kennedy wrote to Messrs Gells in relation to the sale of the business Leslie's Omnibus Services in the following terms:

``Dear Sir

LESLIE'S OMNIBUS SERVICES

We refer to your facsimile dated 24 May 1993 and the writer's discussion with Amanda Bossilor today.

We enclose an engrossed Agreement for Sale of Assets. The Agreement is submitted on the basis discussed, that no legal obligations shall arise until exchange, and we confirm our instructions from the Receivers that CBFC Limited must give prior approval to an exchange of the Agreements.

We are instructed that CBFC Limited will not consider whether it will give its approval to exchange unless you first confirm that the engrossed agreement submitted with this letter satisfactorily represents the agreement your client is prepared to make. Would you please confirm that is the case, and that there are no other amendments your client requires.

Subject to the above, we note that Ms Bossilor has proposed that settlement take place on Tuesday afternoon. Gail Howard from this office, who is handling the proposed sale of land, has the title deeds so we suggest the settlement of the sale of assets take place at our offices. Please let us have a time at which it would be convenient for your client to settle when responding to this letter.

Upon receipt of the information requested, we will obtain instructions and inform you whether the Receivers and CBFC Limited are willing to proceed.

In reference to the points raised in your fax, we are instructed as follows:

Page 9 Cause 4.3

Noted and amended.

Page 10 Clause 6

Refer to Annexure `F', which has been adjusted. Clause 6.3.2 has been amended to include May, and the relevant figures are now contained in the Annexure.

Clause 6.3.3

Yes. Refer to Annexure `F'.

ATC 4756

Clause 8

This Clause has been deleted as it is no longer relevant.

There are no changes to Schedule One.

As previously discussed, the definition of `Transferring Employee Entitlements' has been altered to accord with discussions between our respective clients (by deleting the reference to sick leave and length of service credits).''

On 3 June 1993 the receivers of the business entered into a contract to sell the business Leslie's Omnibus Services to Bus Ways (Blacktown) Pty Ltd. The sale agreement for the business contained the following clause:

``7.2 Completion of this agreement is conditional upon and shall be contemporaneous with completion of the contract for sale made between CBFC as Mortgagee exercising power of sale and Transit Management Pty Ltd (ACN 001 910 863) (`Transit') in respect of the land comprised in Folio identifier 1/509194.''

On 3 June 1993 the contract for the sale of the land by CBFC acting as mortgagee exercising power of sale was entered into. The contract for the sale of the land did not have a corresponding clause to that quoted above in relation to inter-dependence and contemporaneous completion. However, the evidence is that settlement of the sale of the business known as Leslie's Omnibus Services and the settlement of the sale of the land both occurred on 3 June 1993. The land was sold for $507,000 and the business was sold for $1,313,713.00.

The legal framework

The parties agree that a receiver is a ``trustee'' within the meaning of s 221P(1) of the Income Tax Assessment Act. Section 6 of the Act expressly provides that ``trustee'' includes a receiver.

It has been decided in
FC of T v Card (1963) 13 ATD 149; (1963) 109 CLR 177 that a receiver, appointed by a mortgagee of the assets of a company pursuant to a floating charge which had crystallized, was not liable to pay a debt of the company owing to that Commissioner of Taxation pursuant to s 221P except out of property of the company which had vested in him or passed under his control.

In FC of T v Barnes 75 ATC 4262 at 4266; (1975) 133 CLR 483 at 491-492 Barwick CJ, Mason and Jacobs JJ said:

``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. The relevant property is not, and cannot sensibly be regarded, as the interest of the employer remaining after payment of those debts security for payment whereof is the whole purpose of the assignment.

What is true of such an assignment is true also of a floating charge over the assets and undertaking of a company. 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. That is the purpose of his appointment. 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, that are able to be paid if the fund so far extends. 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.

Control does not necessarily signify authority in the receiver to pay all debts out of the funds in his hands. Control is directed to possession and realisation of the Company's property and, in determining whether control of the property of the Company passed to the receiver, it is not relevant to enquire whether, independently of sec. 221P, the receiver has authority to make the payment which sec. 221P requires.''

ATC 4757

The underlying reason why it was considered that the whole of the property of the employer must vest or pass under the control of the trustee is set out at ATC 4267; CLR 493-494 as follows:

``... sec. 221P is directed to employers who retain tax payable by employees to the Commissioner and then default in passing the moneys on to the Crown. Where the whole of the property of a defaulting employer vests in or passes under the control of a trustee, that property necessarily includes some property in some form which would not exist in the hands of the employer if, having made the deductions under sec. 221C, he had not retained them in his own hands. The amount of the deductions may be identifiable or may be unidentifiable in his hands. It does not matter. In the first case, the identifiable deductions should have been handed over. In the second case, the deductions are represented by property which the employer would have had to realise in order to pay over the deductions to the Commissioner of Taxation or would not have been able to purchase if he had paid the deductions over.''

In
Re Obie Pty Limited (In Liquidation) (No 5) 84 ATC 4776, at 4780; (1984) 9 ACLR 151, at 157 McPherson J in relation to the requirement that all of the property of the debtor must pass before the trustee becomes liable, said:

``The explanation for that requirement must, I think, be to ensure that all creditors bear a rateable proportion of the liability imposed by the section. That object can be accomplished only if all the property of the employer is brought under a single process of administration or `control'.''

The later decisions tracing developments since Barnes' case are comprehensively reviewed by Drummond J in
Australian Securities Commission v Macleod & Ors 94 ATC 4061 and I will not repeat here the detailed history of relevant decisions on s 221P.

As the New South Wales Court of Appeal pointed out in
DFC of T v Chant & Ors 91 ATC 4734 at 4745-4746; (1991) 24 NSWLR 352 at 368-369, Barnes' case has stood since 1975 and s 221P has not been relevantly amended. I am bound to follow the majority decision in Barnes in relation to the above matter.

Why the term ``control'' was used in s 221P is by no means clear. As is pointed out by Mahoney J in
DFC of T v AGC (Advances) Ltd & Ors 84 ATC 4177 at 4180; (1984) 1 NSWLR 29 at 33 the term ``control'' can refer to actual physical control or it may mean the right to control.

In
Hanibridge Pty Ltd (in liq) v Toomey & Ors 92 ATC 4109, Bryson J came to the view that the term ``control'' refers to control which is actually exercised in fact over the relevant property being the whole of the employer's property. He agreed with the comments of Marks J in
Russell & Anor v AGC (Advances) Ltd & Ors 87 ATC 4392 at 4396; (1987) 12 ACLR 78 at 85-86.

On the other hand Drummond J in Macleod's case 94 ATC 4061 at 4064 referred to further requirement which must be satisfied before the trustee will have sufficient dominion over all of the employer's property to amount to control. He said:

``... as well as having power to realise the whole of the employer's property in his hands, the trustee must also have an authority to deal with the proceeds... of such a realisation that permits him to disburse all of those proceeds... to pay at least one of the debts of the employer. It is authority in the trustee to pay at least one of the employer's debts from the proceeds of realisation of the entirety of the employer's property... that turns actual control by the trustee of the entirety of the employer's property, in the sense of power to prevent others dealing with that property, into `control' within s. 221P.''

In the above passage his Honour emphasises the authority in the trustee to pay debts from the proceeds of realisation and he indicates that there is something more than actual or de facto control required.

I agree with this view. But in the present case I do not think it is necessary for me to determine which of the two approaches is correct.

Submissions

The submissions of the debtor were in substance as follows:

The petitioner's submissions in substance were:

The present case

In my opinion the debtor's submissions must fail for the following reasons.

First, s 221P(1) does not, in my view, have the effect of removing or extinguishing the liability of the debtor even in circumstances where the whole of the property of the employer passes under the control of the trustee.

The section does not on its wording express such a limitation. In my view the liability imposed on the trustees is an additional or further liability and does not effect a substitution or replacement of the liability of the debtor.

This is indicated by the use of the conjunction ``and'' in the phrase ``... and where his property has become vested in or where control of his property has passed...'' (emphasis added). The word ``and'' suggests an additional or further liability. Use of the word ``or'' in the second part of the phrase quoted is a reference to an alternative to the property becoming vested in circumstances where there has been no vesting of property namely where control of the property has passed. The word ``or'' where used in this phrase does not denote a substituted liability to that of that debtor under the first part of s 221P(1).

This is not a case where the section should be construed strictly against the Commissioner on the ground that it is a provision in taxing legislation. Section 221P(1) operates to impose in clear terms a liability on the employer. The question is whether subsequent wording has the effect of displacing that liability where a trustee to whom the sub-section applies is appointed and substituting a liability in the trustees therefor. In my opinion, the Court should seek to ascertain the legislative intention from the terms of the section as a whole having regard to its context in the legislation and to its legislative history without any predisposition to implying terms in favour of the employer.

The legislative history of s 221P, in my view, is consistent with the above construction. Prior to the Income Tax Assessment Act (No. 2) 1947 the corresponding provision was s 221KF. That section provided:

``221KF Where an employer, who is not registered as a group employer, makes a deduction for the purposes of this Division, or purporting to be for those purposes, from

ATC 4759

salary or wages paid to an employee and fails to deal with the amount so deducted in the manner required by this Division or by the regulations, he shall be liable to pay that amount to the Commissioner.''

In 1947 in accordance with the above mentioned Act the following new provision was substituted for s 221KF:

``221P(1) Where an employer makes a deduction for the purposes of this Division, or purporting to be for those purposes, from the salary or wages paid to an employee and 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 a trustee, the trustee shall be liable, to pay that amount to the Commissioner.

(2) Notwithstanding anything contained in any other Act or State Act, an amount payable to the Commissioner by a trustee in pursuance of this section shall have priority over all other debts, whether preferential, secured or unsecured.''

(Emphasis added)

The above changes introduced in 1947 are clearly designed to extend or broaden the reach of the section and not to narrow it or limit the powers and rights of the Commissioner.

The words ``... or where the control of his property has passed to,...'' were first introduced to s 221P(1) in 1951 by Act No. 44 of 1951. These additional words had the effect of adding further to the circumstances in which a trustee became liable with the consequent result or effect that the priority of the Commissioner conferred by s 221P(2) was extended to cover receivers. This further amendment in 1951 was clearly intended to augment the rights of the Commissioner and not to diminish them in respect of group tax which had been deducted by the employer.

The Explanatory Note to the 1951 amendment referred to above reads as follows:

``The present provisions have been found to be defective, owing to the limited technical meaning of the term `vested'. The priority given to the Commissioner does not apply, as originally intended, where the employer is a company in voluntary liquidation or a company whose assets are under the control of a receiver. In such cases the Commissioner has no priority whatever, but ranks pari passu with other unsecured creditors after the debts of preferential and secured creditors have been met.

In order to ensure an effective right of recovery of moneys held in trust for the Commissioner, it is proposed in this clause to amend section 221P. The amendment will extend the priority, now granted by the section in cases where an employer's properly has been vested in a trustee, to cases where the control of that property has passed to a trustee, as, for example, on the voluntary liquidation of a company.''

See Taxation Laws of Australia, Legislation and Official Explanations, Volume 2, 1944-1951, Butterworths, 1991, at pp 822-823.

It is difficult in principle to see why an employer should cease to be liable because a liability has arisen in the receivers in the circumstances set out in s 221P. If it had been intended to extinguish the liability of the debtor employer in the event that the property passed under the control of the receivers one would have expected such an intention to have been clearly spelt out. No such provision is made in the section. On the construction suggested by the debtor in the present case it would be necessary to read the words as if they read ``... the trustee alone shall be liable...'' or the ``... trustee shall be solely liable...'' or words to a similar effect. There is no justification or basis for the implication of such a form of wording. Accordingly, I consider that the debtor's argument fails on this initial basis.

Second, I am not satisfied that the whole of the debtor's property has passed under the control of the receivers. The debtor asserts that this has occurred but it is clear that the debtor's interest in the Meurants Lane property and his interest in the Junee property have not so passed. The debtor has not established that these assets are de minimis in the sense that commercially or practically they are of no significance or value and I consider therefore that the debtor has not made out a case to support the submission that the receivers are liable. In contrast, I do not think that the debtor's interest in the bus depot land was of any practical or commercial value. The debtor's interest in the bus depot land comprised only the equity of redemption in relation to that land since the bus depot was the subject of a specific

ATC 4760

real property mortgage. It appears clear that this mortgage was to secure the sum of $1.895 million and that the price achieved on sale of the bus depot land on 3 June 1993 by the CBFC was only an amount of $507,000. An equity of redemption which is substantially worthless or of no practical or commercial value does not have to be taken into account in considering whether the whole of the property of the debtor has become vested in or passed under the control of the trustees. See Barnes' case 75 ATC at 4269; 133 CLR at 499 per Gibbs J Russell & Anor v AGC (Advances) Limited & Ors 87 ATC 4392 at 4396 per Marks J, and
FC of T v B & G Plant Hire Pty Limited & Ors 94 ATC 4692 at 4698; (1994) 123 ALR 699 at 707.

Finally, I do not consider there is any substance at all in the argument put forward on behalf of the debtor that the Deed of Appointment and the arrangements made for the sale of the depot land and the business were in any sense a ``sham'' or a mere artificial device designed to avoid the payment of group tax. No attempt was made to adduce any oral evidence on behalf of the debtor to support this contention. The debtor's case on this aspect is a purely documentary one from which it was sought to draw broad general inferences. The documents and correspondence referred to earlier in these reasons for decision do not in my view provide any support for such a submission and the evidence goes nowhere near indicating that the exclusion of the bus depot land from the Deed of Appointment of the receivers and the subsequent sale of the depot land and the bus business by separate agreements, with different solicitors acting in respect of each sale, were other than genuine transactions entered into bona fide for the purpose of achieving the legal results which they expressed on their face. In no sense can it be said in my opinion that they were not really what they purported to be or that they were in any way false or deceptive. See
Sharrment Pty Ltd & Ors v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 454 per Lockhart J.

Conclusion

For the above reasons my conclusion is that there is no substance in the ground relied on in the Notice of Opposition. I therefore consider that the debtor is indebted to the petitioner.

I consider that the petitioner should have its costs of these proceedings. I direct the parties to bring in short minutes of proposed orders having regard to the above reasons for decision.

 

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