FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v Linter Textiles Australia Ltd (in liquidation) [2003] FCAFC 63 INCOME TAX – deductions for prior year losses – taxpayer and shareholder both in liquidation – whether winding up order affected beneficial ownership of shares – meaning of "beneficial ownership" – whether continuity of rights to dividends and return of capital affected by winding up order. CORPORATIONS LAW – insolvency – effect of winding up on beneficial ownership of company's assets – whether making of a winding up order in relation to parent company has the result that parent company ceases to be the beneficial owner of its assets including the shares it holds in subsidiary company – meaning of "beneficial ownership" to be determined by context. WORDS & PHRASES– "beneficial ownership" Bankruptcy Act 1966 (Cth) Corporations Law 1992 (Cth) s 468(1), s 468(4), s 471(2), s 474(2), s 477(1), s 477(2)(c), s 482(1) Income Tax Assessment Act 1936 (Cth) s 36(1) s 79E, s 80(4), s 80(5), s 80(6), s 80A(1), s 80A(2), s 80A(3), s 80DA, s 80G, s 103(2)(b), s 103A(4) Federal Commissioner of Taxation v Casuarina Pty Ltd (1970-71) 127 CLR 62 – considered In re Oriental Inland Steam Co; Ex parte Scinde Railway Co [1873-1874] LR 9 Ch App 557 – considered Inland Revenue Commissioners v Olive Mill Ltd (in liquidation) [1963] 1 WLR 712 – considered Wood Preservation Ltd v Prior [1969] 1 WLR 1077 – considered KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 – considered Haque v Haque [No 2] (1965) 114 CLR 98 – considered Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167 – not followed Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 – considered J Sainsbury PLC v O'Connor (Inspector of Taxes) [1991] 1 WLR 963 - considered Re Frederick Inns [1993] IESC 1 – considered Re Yaohan Hongkong Corporation Ltd (in liquidation) [2000] HKCA 437 – considered Federal Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd (1971-1972) 128 CLR 28 – considered Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52 – followed Federal Commissioner of Taxation v St Hubert's Island Pty Ltd (1977-1978) 138 CLR 210 – considered O'Donovan McPherson The Law of Company Liquidation (4th Ed) 1999 Ford, Austin and Ramsay Ford's Principles of Corporations Law (10th Ed) 2001 Goode Principles of Corporate Insolvency Law (2nd Ed) 1997 Meagher, Heydon and Leeming Meagher, Gummow and Lehane Equity: Doctrines and Remedies (4th Ed) 2002 Callaway "The Ownership of the Assets of Companies in Liquidation" (1976) 5 ATR 61 Gummow "Equity: Too Successful"(2003) 77 ALJ 30 COMMISSIONER OF TAXATION v LINTER TEXTILES AUSTRALIA LTD (IN LIQUIDATION) (ACN 002 936 487) N 1017 OF 2002 HILL, GOLDBERG & CONTI JJ 14 APRIL 2003 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1017 OF 2002 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION APPELLANT AND: LINTER TEXTILES AUSTRALIA LTD (IN LIQUIDATION) (ACN 002 936 487) RESPONDENT JUDGE: HILL, GOLDBERG & CONTI JJ DATE OF ORDER: 14 APRIL 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1017 OF 2002 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION APPELLANT AND: LINTER TEXTILES AUSTRALIA LTD (IN LIQUIDATION) (ACN 002 936 487) RESPONDENT JUDGE: HILL, GOLDBERG & CONTI JJ DATE: 14 APRIL 2003 PLACE: SYDNEY REASONS FOR JUDGMENT THE COURT: 1 The Commissioner of Taxation appeals from the judgment of the Judge of this Court, (Hely J), upholding an objection of Linter Textiles Australia Ltd (in liquidation) (ACN 002 936 487) ("LTAL") against an assessment of income tax for the year of income entered 30 June 1992. 2 The relevant facts were not in dispute. 3 LTAL was at all material times a wholly owned subsidiary of Linter Group Ltd (in liquidation) ("LGL"). 4 LGL was ordered to be wound up under the Companies (New South Wales) Code ("the Companies Code") by the Supreme Court of NSW on 12 April 1991. LTAL was ordered to be wound up on 24 February 1992 under the Corporations Law 1992 (Cth) ("Corporations Law"). In each case a liquidator was appointed. 5 Before the hearing below, the issues between the parties had been substantially narrowed. It was no longer in dispute that in year of income LTAL had derived an amount of $10,163,773.00 being assessable income. However, LTAL had incurred losses in prior years of income totalling some $10,393,871.00 and further was deemed to have incurred losses of $9,929,676.00 under s 80G of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act") as a consequence of the transfer to it under s 80G of losses that had been incurred by LGL in the 1990 year. 6 It was common ground before his Honour, as it was also on appeal that, but for the winding up orders that were made with respect to LGL and LTAL, the requirements of ss 80A(1) or (3) and subs 80G(6) of the 1936 Act were met and accordingly the losses would have been available to LTAL to offset against the assessable income derived by it in the year of income. The main question in the appeal therefore was whether the winding up orders made with respect to both LGL and LTAL brought about the result that LTAL could not, in the year of income, comply with the requirements of ss 80A(1) or (3) so as to permit it to deduct against the assessable income of that year under s 79E of the 1936 Act the prior year losses it had incurred. There is also a question whether, in the year of income the provisions of s 80G(6) operated to permit the group losses to be transferred to LTAL or whether the liquidations had the consequence that the group losses were not available to LTAL as an allowable deduction. However, this second question raises the identical issue to that which arises concerning the allowance of direct carry forward losses and the parties agreed that it need not be considered separately. The Statutory Provisions 7 It can be said, generally speaking, that in the 1992 year of income a taxpayer which incurred a loss in preceding years was entitled to a deduction in the year of income for that loss which the taxpayer was able to carry forward. The relevant provisions differed depending upon whether the loss was incurred after the 1989 year of income where the provisions of s 79E applied or before that year of income where the provisions of s 80 applied. It seems that the losses which LTAL sought to carry forward as an allowable deduction in the year of income had been incurred after the 1989 year of income with the consequence that the relevant provision was s 79E. Nothing, however, turned upon that question. 8 In the case of companies, the ability to deduct prior year losses depended upon compliance with, inter alia, the provisions of ss 80A(1), (2) and (3) of the 1936 Act. These sections provided in the relevant year of income: "80A(1) [Beneficial ownership of shares test] Notwithstanding sections 79E, 79F, 80, 80AAA and 80AA but subject to this section and sections 80B, 80DA and 80E, a loss incurred by a company in a year before the year of income shall not be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA unless – (a) the company satisfies the Commissioner; or (b) in the case of a company that is not a private company in relation to the year of income, the Commissioner considers that it is reasonable to assume, that, at all times during the year of income, shares in the company carrying between them – (c) the right to exercise more than one-half of the voting power in the company; (d) the right to receive more than one-half of any dividends that may be paid by the company; and (e) the right to receive more than one-half of any distribution of capital of the company, were beneficially owned by persons who, at all times during the year in which the loss was incurred, beneficially owned shares in the company carrying between them rights of those kinds. 80A(2) [Circumstances for tracing interests] Where – (a) subsection (1) would, but for this subsection, apply for the purpose of determining whether a loss incurred by a company in a year before the year of income is to be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA; (b) during the whole or any part of the year in which the loss was incurred, or during the whole or any part of the year of income, another company or other companies beneficially owned all or any of the shares in the first-mentioned company or an interest or interests in all or any of those shares; and (c) the first-mentioned company requests the Commissioner at the time when it furnishes to him a return (or, if more than one return is furnished, the first return) of its income of the year of income, or within such further period as the Commissioner allows, that subsection (3) should apply for the purpose referred to in paragraph (a) or the Commissioner considers it reasonable that that subsection should apply for that purpose, then subsection (3) applies for that purpose in lieu of subsection (1). 80A(3) [Tracing of interests] Where, by virtue of subsection (2), this subsection applies for the purpose of determining whether a loss incurred by a company (in this subsection referred to as the 'loss company') in a year before the year of income is to be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA, then, notwithstanding those sections but subject to subsection (5) and sections 80B, 80DA and 80E, that loss shall not be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA unless the Commissioner is satisfied, or considers that it is reasonable to assume, that – (a) at all times during the year of income the voting power in the loss company was, either directly or through one or more interposed companies, trustees or partnerships, controlled, or capable of being controlled, by a person not being a company, or by 2 or more persons not being companies, who, either directly or through one or more interposed companies, trustees or partnerships, controlled, or was or were capable of controlling, the voting power in the loss company at all times during the year in which the loss was incurred; (b) a person not being a company who had, or 2 or more persons not being companies who had between them, at all times during the year of income a right to receive, directly or indirectly, for his or their own benefit more than one-half of any dividends that might be paid by the loss company would, if the loss company had paid a dividend at any time during the year in which the loss was incurred, have had, or have had between them, as the case may be, a right to receive, directly or indirectly, for his or their own benefit more than one-half of that dividend; and (c) a person not being a company who had, or 2 or more persons not being companies who had between them, at all times during the year of income a right to receive, directly or indirectly, for his or their own benefit more than one-half of any distribution of capital of the loss company would, if the loss company had made a distribution of capital at any time during the year in which the loss was incurred, have had, or have had between them, as the case may be, a right to receive, directly or indirectly, for his or their own benefit more than one-half of that distribution of capital." The Issues on the Appeal 9 Two issues arise on the appeal. The first is whether, after the two liquidations, it could be said that LGL beneficially owned the shares it otherwise held in LTAL as that phrase is used in s 80A(1) of the 1936 Act. The second question, which arises only if the first question is answered in the affirmative is whether the shares held by LGL in LTAL after the liquidations carried the rights referred to in paragraphs (c), (d) and (e) of s 80A(1), that is to say, the right to exercise more than one half of the voting power in the company, the right to receive more than one-half of any dividends that may be paid by the company; and the right to receive more than one-half of any distribution of capital of the company. 10 Counsel for the Commissioner submitted that there was a third issue which arose for decision, that being whether the making of a winding up order in relation to LTAL had the consequence that the persons referred to in s 80A(3) of the 1936 Act ceased to have the control or rights of the kind identified in the section. However, it was common ground that if the other two questions were answered in favour of the respondent LTAL then this third question would likewise be answered in favour of LTAL and the appeal would accordingly be dismissed. For that reason we do not propose to consider separately this third issue. The Judgment Appealed From 11 In a very careful judgment the learned Primary Judge set out the relevant statutory provisions of the 1936 Act, the legislative history of those provisions and considered the general law consequences of the making of a winding up order. His Honour also discussed in detail the case law in the United Kingdom and Australia as to the meaning of the expression "beneficial owner" or cognate expressions as well as the comments of text book writers on the application of that expression to a company in the course of liquidation. His Honour also set out the submissions of the parties before him which were in substantially the same terms as made before us. 12 It was his Honour's view that the question for decision was the meaning of the expression in the particular context of the 1936 Act. His Honour placed particular emphasis upon the fact that the relevant statutory provisions were concerned with the protection of the revenue against the consequences of trafficking in losses. It was his Honour's view that s 80A(1) in particular was concerned with changes in the beneficial ownership of the shares in LTAL between two points of time and that, to the extent that it might be correct to say in some contexts, that there was a "suspension" of beneficial ownership and therefore no longer beneficial ownership by LGL of its shares in LTAL, such a view would not further the purpose which s 80A(1) was intended to achieve. His Honour said: "These factors suggest that "beneficial ownership" is used in s 80A(1) in the traditional sense which encompasses both equitable ownership, and legal ownership where nobody else would be regarded by a court as having a proprietary interest in the shares. They also suggest that it is a change in beneficial ownership by transmission from one person to another which enlivens s 80A(1). On that basis, LGL remained the beneficial owner of its shares in LTAL notwithstanding the liquidation of LGL as no one else acquired a proprietary interest in those shares." His Honour was also of the view that as and from the commencement of the respective windings up, the shareholders of LTAL and LGL did not cease to own beneficially shares carrying rights of the kind specified in s 80A(1) and s 80A(3) of the 1936 Act. In his Honour's view, although it was true that LGL became, after the winding up a contributory for the purposes of the relevant company law provisions, it did so because it was the holder of shares and those shares continued to carry the relevant rights. The question of continuity of rights attaching to shares was one which required a consideration whether if a meeting was held, a dividend paid or a distribution of capital made, the rights attaching to those shares would give rise to the relevant entitlements referred to in s 80A(1)(c), (d) and (e). Since those rights remained the same in the year of income as they had been in the year of loss, the losses were not rendered unavailable as a deduction. An Historical Discussion 13 At the time the 1936 Act was enacted, s 80 of that Act provided for a carry forward of losses over a four year period. The section was in simple terms and contained no provision comparable to s 80A. It was, however, provided in s 80(4) that if a taxpayer had, prior to the year of income been adjudicated bankrupt or had been released from any debts by the operation of the then Bankruptcy Act 1924-1933 (Cth), no loss incurred prior to that adjudication or release would be an allowable deduction. There was no comparable provision dealing with what was to happen to the carry forward of losses if a company which was a shareholder went into liquidation. 14 It may be said that three main factors relevant to the present question differentiated bankruptcy from corporate liquidations. The first was that consequent upon the making of a sequestration order, the property of the bankrupt vests in the trustee in bankruptcy. By contrast, however, the making of a sequestration order does not operate to vest the property of the company in the liquidator. The second was that income of the bankrupt derived after the bankruptcy did not form part of the bankrupt estate available for the benefit of creditors, whereas income earned by a company after liquidation did form part of the funds which the liquidator would, in due course, distribute to creditors or shareholders, as the case may be. The third factor was that bankruptcy can be said, generally, to involve insolvency and has the dual aims of providing relief to the bankrupt from his or her creditors, by the release of the bankrupt's debts, the conversion of them into a right to prove in the bankruptcy, and the rateable distribution of the bankrupt estate among those creditors. Liquidation, on the other hand, can arise either as a result of action taken by the creditors of an insolvent company or by virtue of a voluntary shareholders' liquidation of a company that was not necessarily insolvent. These differences, together with the lack of specific provision dealing with companies which have been the subject of a winding up, might tend to the conclusion that it has never been contemplated since the commencement of the 1936 Act that companies in liquidation would by virtue of that fact alone cease to be entitled to an allowable deduction for losses incurred in prior years of income. 15 In 1944 the 1936 Act was amended to add a new subsection 80(5), which was the predecessor of s 80A. That section operated to restrict the carry forward of losses in the case of a private company unless, on the last day of the year of income, shares in the company carrying not less than 25 per cent of the voting power were "beneficially held" by persons who "beneficially held" not less than 25% of the voting power on the last day of the year in which the loss was incurred. At that time, the 1936 Act distinguished private and public companies. 16 As was later stated in the Explanatory Memorandum which accompanied the Income Tax and Social Services Contribution Assessment Bill (No 2) 1964, these amendments were enacted to "inhibit a practice under which shareholders in a private company with accumulated losses sold their shares in that 'loss' company to a successful company. The purchasing company then re-arranged its affairs so that part of its business was channelled through the 'loss' company." 17 In 1952 the High Court decided Dalgety Downs Pastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR 335. Their Honours held that shares were not "beneficially held" by a shareholder unless the name of the person had been entered in the register of members in respect of the shares and the person held the shares for his, her or its own exclusive benefit. The expression "beneficially held" did not equate with the beneficial ownership of the shares (see per Webb, Fullagar and Kitto JJ at 342). Subsection 80(6), introduced at the same time, dealt with the application of subsection (5) where a shareholder had died and is not relevant to the present discussion. 18 In 1961 the Commonwealth Committee on Taxation (the Ligertwood Committee) reported on the taxation law and recommended amendments. The Report of the Committee noted that subsections 80(5) and 80(6) operated to restrict the carry forward of losses for the benefit of the revenue. However, the Report noted that there had been a "hawking" of losses in companies in circumstances where "the most valuable asset they possessed was the debit balance in the Profit and Loss Account." The Committee recommended the repeal of subsections (5) and (6) on the basis that company losses should, since the company was a separate entity from its shareholders, be available to be carried forward independently of the identity of the shareholders of the company. The recommendation was not accepted. 19 Instead, ss 80A to 80D were inserted into the 1936 Act by Act No 110 of 1964 and the former subsections (5) and (6) were repealed. Section 80A(1) required a continuity of shareholding and rights throughout the year of income of not less than 2/5 and, as now, that the relevant shares be "beneficially owned" during the year of income and the year of loss. The 2/5 continuity test was subsequently changed to a test requiring continuity of ownership of more than one-half of the shares in the loss company by Act No 51 of 1973. It is important also to note that the required continuity of ownership and rights test could apply, notwithstanding that in the year of loss and the year of income the shares and right attaching to them were not owned by all the same people, so long as there was a person or group of persons who satisfied the statutory test. 20 It may be inferred that the change from "beneficially held" to "beneficially owned" was to overcome the problem that losses would be unavailable if the owner was not on the register both in the year of loss and the year of income. The Explanatory Memorandum accompanying the Income Tax and Social Services Contribution Assessment Bill (No 3) of 1964 noted that the provisions had operated with "undue severity." The change from requiring continuity of ownership to exist only as at the last day of the year of income, to the requirement that continuity of ownership exist throughout the year of income, was to overcome what the ExplanatoryMemorandum referred to as "weaknesses in the law" being it may be inferred, artificial arrangements which might bring about the result that the situation existing on the last day of the year of income with respect to continuity of share ownership and rights differed from that which prevailed during the whole or part of the remaining days of the year of income. 21 The Explanatory Memorandum to the 1964 Bill, however, gave no explanation for the adoption of the expression "beneficial ownership" in place of the previous expression "beneficially held." 22 There were further substantial amendments in 1965. One amendment was the enactment of s 80E which permitted a continuity of business test to be adopted where the continuity of ownership test was not satisfied. Other amendments were concerned with conferring discretions upon the Commissioner (for example, s 80B(5)) to treat shares which were actually beneficially owned as not being beneficially owned, where, for example, there was an arrangement of the kind described in that section. There is a discussion of the legislative history of these provisions in the judgment of Mason J in Federal Commissioner of Taxation v Students World (Aust) Pty Ltd (1977-78) 138 CLR 251 at 263-4, a case which concerned the interpretation and operation of s 80B(5). 23 Other amendments directed at practices circumventing the restrictions on the availability of past losses as a deduction, and particularly s 80DA, were enacted in 1973. It is not necessary to consider the terms of that section or indeed other sections here. 24 As the learned Primary Judge pointed out in his careful judgment, the expression "beneficial ownership" appears to have been first used in the Australian income tax context in s 31A of the Income Tax Assessment Act 1922-1934 (Cth), which was concerned with the distinction between public and private companies relevant to provisions which were concerned to ensure that private companies made what were referred to as "sufficient distributions." The successor to s 31A was s 103(2)(b) of the 1936 Act, which treated as a subsidiary of a public company (and thus itself a public company) a company where, inter alia, beneficial ownership of the shares was to be found in the hands of one company or more than one company, and where none of such companies was a public company (cf the later s 103A(4) which replaced s 103(2)(b) and retained the test that the shares be "beneficially owned"). 25 Because it is relevant to one of the arguments of the respondent, it may be noted that s 103A(4) prior to its substitution in 1972 also contained a continuity of rights test, which looked at the entitlement of the public company shareholder at the end of the year of income to shares having voting, dividend and rights to capital distributions in terms somewhat similar to the test contained in s 80A(1). The subsection was considered by the High Court in Federal Commissioner of Taxation v Casuarina Pty Ltd (1970-71) 127 CLR 62 ("Casuarina") to which we will later return. The Company Law Consequences of the Making of a Winding Up Order 26 The relevant consequences of the making of a winding up order are not in dispute, although the legal characterisation of them is. They are conveniently summarised in the judgment appealed from [at paragraphs 11-16] as follows: "The making of a winding up order has no immediate impact on the legal personality of a company, which remains in existence until it is dissolved: Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592, 606; McPherson The Law of Company Liquidation 4th Ed 1999 at p 218. Legal title to the assets of the company remains in the company notwithstanding the making of a winding up order. Unlike the position in bankruptcy, the company's assets do not vest in the liquidator unless a court makes an order to that effect (CL s 474(2)). The Company Law Review Act 1998 (Cth) introduced the concept of deregistration in the place of dissolution. Deregistration, like dissolution destroys the corporate existence of the company. On the making of a winding up order control of the company's affairs is taken from the directors and vested in the liquidator, who may carry on the business of the company so far as is necessary for the beneficial disposal or winding up of that business: CL s 477(1)(a). The liquidator is given various powers, including the power to sell or otherwise dispose of the property of the company: CL s 477(2)(c); but the powers given to the liquidator are to do acts on behalf of the company: In re Farrow's Bank Ltd [1921] 2 Ch 164, 173, 174; McPherson (supra) at p 332. On liquidation the company holds its property subject to the statutory scheme of liquidation, under which the liquidator is to realise assets, to pay creditors out of the proceeds of realisation of those assets and to distribute any surplus amongst members. Unsecured creditors and contributories have the benefit of the liquidator's administration of the company's estate, but they do not acquire any legal or equitable interest in any of the assets of the company: see Ford, Austin and Ramsay Ford's Principles of Corporations Law at [27.120]. The principle that a company's assets are to be distributed according to the statutory order laid down in the applicable company legislation is reinforced by the provision found in that legislation that, in general, a disposition of the property of the company made after the commencement of the winding up (other than a distribution by the liquidator) is void, unless the Court otherwise orders: CL s 468(1). Section 468(4) avoids any attachment, sequestration, distress or execution put in force against the property of the company after the commencement of the winding up. Nor can there be any transfer of shares, or change in the status of members, unless the Court otherwise orders: CL s 468(1). The principle is also reinforced by a provision that where a winding up order is made, civil proceedings against the company may not be instituted or proceeded with, except with the leave of the Court: CL s 471(2). Liquidation has been described as a form of collective enforcement of debts to the benefit of the general body of creditors: In re Lines Bros Ltd [1983] 1 Ch 1 at 14. The rights of creditors cease to be rights in personam (although their debts are not released prior to dissolution or deregistration); they are exchanged for rights against a fund which is administered by the liquidator for the benefit of the creditors who are entitled to prove against the fund: Federal Commissioner of Taxation v Macquarie Health Corporation Ltd (1999) 17 ACLC 171 at 188. It is not an inevitable consequence of the making of a winding up order that the company will be dissolved, or, since 1998, deregistered. The Court may at any time during the winding up make an order staying the winding up either indefinitely or for a limited time, or terminating the winding up on a specified day: CL s 482(1). Where an order is made terminating the winding up, directions may be given with a view to restoring management and control of the company to its officers. It was accepted by counsel for the Commissioner that if an order staying or terminating the winding up were made, the company would thereupon resume beneficial ownership of its assets." Did LGL Cease on the Making of the Winding Up Order to be the Beneficial Owner of the Shares in LTAL? 27 In support of an affirmative answer to this question the Commissioner relied upon a number of English authorities. 28 The starting point of the submission is the decision of the Court of Appeal in In re Oriental Inland Steam Co; Ex parte Scinde Railway Co [1873-1874] LR 9 Ch App 557 ("Re Oriental Inland Steam Co"). There it was held that upon the making of the winding up order the property of the company became, to use the language of Sir WM James LJ, "clearly trust property." That property was thereafter "affected" by the relevant statute with the obligation that the assets were to be collected and applied in discharge of the company's liabilities. The company's property was "fixed by the Act of Parliament with a trust for equal distribution amongst the creditors." Mellish LJ, accepted that winding up differed from bankruptcy in that in the winding up the legal estate remained in the company. However, his Lordship said at 560 that the "beneficial interest" was "clearly taken out of the company." Indeed, his Lordship said that there was "in strictness" a trust "for the benefit of all the creditors," so that a creditor who sought to attach property of the company situated out of the jurisdiction with notice of the winding up was obliged to give the property up for the benefit of the creditors who were, at least in the words of James LJ, the cestui que trust. 29 In Inland Revenue Commissioners v Olive Mill Ltd (in liquidation) [1963] 1 WLR 712 ("Olive Mill") a question arose in a revenue context whether after the making of a winding up order a holding company continued to have the "beneficial ownership" of the shares in its subsidiary. Buckley J regarded the question concluded by the decision of the Court of Appeal in Re Oriental Inland Steam Co. His Lordship said at 727: It has not been suggested to me that there has been any subsequent decision indicating that the views of the Lords Justices are not still good law, and it therefore appears to me to be established by the authority of that case that, on the winding up resolution being passed, the beneficial interest in the Spinners' shares held by the holding company ceased to reside in the holding company. Consequently Spinners ceased to be a subsidiary of the holding company within the meaning of these statutory provisions." 30 The Court of Appeal in Wood Preservation Ltd v Prior [1969] 1 WLR 1077 also considered, this time in the context of a provision which permitted a taxpayer in certain circumstances to take advantage of losses incurred by another taxpayer, the meaning of "beneficial ownership." The case raised the question whether the vendor under a conditional contract for the sale of shares ceased to have the beneficial ownership of the shares. If it did, then the losses were unavailable to the vendor as a deduction. It was held that the vendor on execution of the contract ceased to have the beneficial ownership of the property, even though the purchaser, as a result of the condition, did not itself become the beneficial owner of it. Lord Donovan accepted that a person could cease to be the beneficial owner of property notwithstanding that no other person had become the beneficial owner of it. In the context, "beneficial ownership" involved the ability to appropriate to oneself the benefits of ownership (per Lord Donovan at 1096) or the right to deal with the property as your own (per Harman LJ at 1097). By way of digression it may be remarked that the majority of the High Court of Australia in KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288, in the context of a stamp duty exemption for inter-group transfers, was of the view that a purchaser under an unconditional contract of sale of land, which was specifically enforceable, became the beneficial owner of the land upon entering into the contract. Brennan J, who dissented, referred to Haque v Haque [No 2] (1965) 114 CLR 98 at 124, where it was said that the unconditional contract merely transferred "to an extent" the beneficial ownership. Brennan J expressed the view in KLDE at 301 that it could be right to describe the vendor as a "trustee sub modo" of the property. But it is hard to see that the High Court would have treated a conditional contract as having brought about the result that the purchaser had a beneficial interest, at least until the condition was fulfilled. 31 Later the question of the meaning of "beneficial ownership," again in an income tax context, came to be considered by the House of Lords in Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167 ("Ayerst"). The question was whether a company, which owned 99 out of 100 shares in another company, still beneficially owned the shares in the other company after a winding up order was made against it. It was held that the effect of the winding up order was to divest the company of the beneficial ownership of the shares which it held, and that the company in liquidation could no longer use the shares for its own benefit. In consequence the taxpayer (the subsidiary) was not entitled to use the losses of its parent in liquidation. Lord Diplock, with whom Viscount Dilhorne, Lord Kilbrandon and Lord Edmund-Davies agreed, while recognising the difference between the case of a trustee in bankruptcy on the one hand and the company in liquidation on the other, noted that the company in liquidation, while retaining the legal ownership of its property, was deprived of the possibility of enjoying the fruits of that property or disposing of it for its own benefit. After referring to authorities his Lordship said at 180-181: "The authority of this case [Re Oriental Inland Steam Co] for the proposition that the property of the company ceases upon the winding up to belong beneficially to the company has now stood unchallenged for a hundred years. It has been repeated in successive editions of Buckley on the Companies Acts from 1897 to the present day. Nevertheless your Lordships are invited by the appellant company to say that it was wrong because it was founded on the false premise that the property is subject to a 'trust' in the strict sense of that expression as it was used in equity before 1862. My Lords, it is not to be supposed that in using the expression 'trust' and 'trust property' in reference to the assets of a company in liquidation the distinguished Chancery judges whose judgments I have cited and those who followed them were oblivious to the fact that the statutory scheme for dealing with the assets of a company in the course of winding up its affairs differed in several aspects from a trust of specific property created by the voluntary act of the settlor. Some respects in which it differed were similar to those which distinguished the administration of estates of deceased persons and of bankrupts from an ordinary trust; another peculiar to the winding up of a company is that the actual custody, control, realisation and distribution of the proceeds of the property which is subject to the statutory scheme are taken out of the hands of the legal owner of the property, the company, and vested in a third party, the liquidator, over whom the company has no control. His status, as was held by Romer J in Knowles v Scott [1891] 1 Ch 717 differs from that of a trustee 'in the strict sense' for the individual creditors and members of the company who are entitled to share in the proceeds of realisation. He does not owe to them all the duties that a trustee in equity owes to his cestui que trust. All that was intended to be conveyed by the use of the expression 'trust property' and 'trust' in these and subsequent cases … was that the effect of the statute was to give the property of a company in liquidation that essential characteristic which distinguished trust property from other property, viz. that it could not be used or disposed of by the legal owner for his own benefit, but must be used or disposed of for the benefit of other persons. My Lords, the expression 'beneficial owner' in relation to the proprietary interest of a company in its assets was first used in a taxing statute in 1927… So when those words were repeated in the Finance Act 1954 not only was there a consistent line of judicial authority that upon going into liquidation a company ceases to be 'beneficial owner' of its assets as that expression has been used as a term of legal art since 1874, but also there has been a consistent use in taxing statutes of the expressions 'beneficial owner' and 'beneficial ownership' in relation to the proprietary interest of a company in its assets which started with the Finance Act 1927, where the context makes it clear that a company upon going into liquidation ceases to be 'beneficial owner' of its assets as that expression is used in a taxing statute."(emphasis added). 32 There is a real question as to what Ayerst stands for. Certainly, as Lord Diplock demonstrates, the decision in Re Oriental Inland Steam Co is taken by the learned authors of Buckley on the Companies Acts as authority for the proposition that upon a winding up the assets of a company cease to belong beneficially to the company. Perhaps, in saying this, the learned authors were using the expression "beneficial ownership" in the sense which the words would be understood by equity lawyers in the United Kingdom. On the other hand Ayerst can be seen as authority for a somewhat narrower proposition, namely that the expression "beneficial ownership" had come to have a specific meaning in English revenue law which might or might not differ from the ordinary meaning of the expression as understood by equity lawyers. 33 As Lord Diplock noted in Ayerst the expression "beneficial owner", was first used in revenue statutes in 1927 in the context of provisions relating to relief from capital and transfer stamp duty in cases of reconstruction or amalgamation. Those provisions contained an exception in the case of a company ceasing "'otherwise than in consequence of … liquidation' to be the beneficial owner of the shares." As his Lordship observed, this provision implied that when a company was in liquidation it ceased to be the beneficial owner of its assets. Put in another way, the 1927 provision through its context gave a particular meaning to the phrase "beneficial ownership." His Lordship was of the view that as later revenue statutes adopted the phrase "beneficial ownership", they did so intending to incorporate the meaning which had been attached to the phrase in 1927. It might be said that the 1927 legislation provided, at least for revenue purposes, a dictionary of the meaning of the phrase, and that later cases had used the phrase and thereby adopted this dictionary definition of it. In other words, while Ayerst and the cases which preceded it have been taken, at least by some commentators, as authority for the general law meaning of the phrase "beneficial ownership", the case is not necessarily authority for the general law meaning of the phrase at all. 34 The conclusion that Ayerst is not authority as to the ordinary legal meaning of the phrase "beneficial owner" proceeds necessarily from the proposition that ordinarily the phrase "beneficial ownership" is used, at least by equity lawyers, only to describe a situation where there is what equity would regard as a trust in the strict sense. Where a trust exists, there will ordinarily be a division of the legal and equitable ownership, so that the legal ownership is in one person, and the equitable ownership is in another. However, it may be accepted that there are some anomalous cases, other than charitable trusts, where at least for a time there is no person entitled in equity but the person with the legal ownership is not to be regarded as the equitable owner of the property. Examples of cases where there is no person regarded in equity as the equitable owner, but where the legal owner does not have beneficial ownership, are the case of the unadministered estate until administration is completed where the executor holds the estate under the obligation to pay the funeral and testamentary expenses: Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694; (1964) 112 CLR 12, Barns v Barns [2003] HCA 9 at paragraph 50 per Gummow and Hayne JJ; the case of the trustee in bankruptcy who holds the assets vested in him or her subject to an obligation to realise the assets and distribute them pro rata among creditors and to the extent of any surplus to thereafter hold the assets for the bankrupt after payment of the costs of administration; and perhaps certain kinds of discretionary trusts where there is no beneficiary with an interest in the trust property: cf Gartside v Inland Revenue Commissioners [1968] AC 553. 35 It may be noted here that in Livingston at 707, the executor was said to hold the property which came to him by virtue of his office "without distinction between legal and equitable interests" and was only in some respects treated as a trustee. At 708 the Privy Council indeed noted that as at the date of death of the deceased there was "no trust fund." Nevertheless there were some analogies to trust in that, for example, the executor might be personally liable in equity for all breaches of the "ordinary trusts" which in courts of equity might be considered to arise from the office. The same is true of the trustee in bankruptcy, who can be said also to hold the assets of the bankrupt without distinction between the legal and equitable interests in those assets, but subject to the statutory scheme for the administration of an estate in bankruptcy. However, for some purposes it will be convenient to regard the trustee in bankruptcy as being a trustee, in that he too would be personally liable in equity for breaches of the "ordinary trusts" to which the Privy Council referred in Livingston. 36 However, as is clear from the judgment of Lord Diplock, there is no trust in the strict sense which arises in the case where a winding up order is made against a company, unless, at least, steps are taken to vest the assets in the liquidator and perhaps even then not so. Nevertheless, there can be said to be a situation which is analogous to a trust in that the company, which has the legal ownership of its assets, holds those assets subject to their being dealt with at the direction of the liquidator and in accordance with the statutory scheme for distribution as found in company law. It is certainly debateable, whether the Court of Appeal in Re Oriental Inland Steam Co used the word "trust" in a strict sense or was merely applying by analogy some principles of equity applicable to trusts, such as the effect on a person (a creditor) not being a bona fide purchaser for value without notice, who came into possession of assets of the company in liquidation. It may be said to have been a long practice indeed for Courts of Chancery to apply trust principles by way of analogy to situations where strictly no trust existed at all. Another way of putting this is to say, as Viscount Radcliffe said in Livingston at 712 "Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines." See too Barns v Barns (2003) HCA 9 at paragraphs 78 – 82. 37 Ayerst was followed by the Court of Appeal in J Sainsbury PLC v O'Connor (Inspector of Taxes) [1991] 1 WLR 963 in the context of group relief from the Corporations Tax. The question was whether the holder of shares (not a company in liquidation) over which there was a put and a call option was the beneficial owner of those shares. It was held that it was. Lloyd LJ noted that the phrase was a term of art and described Ayerst as a case where a person or company being the legal owner was deprived of the beneficial ownership of assets by operation of law as a consequence of supervening events. Curiously his Lordship seems to accept that "beneficial ownership" meant no more than "equitable ownership", as indeed was conceded before him.Nourse LJ was not prepared to go so far as to say the phrase was a term of art but said rather that it had a "very well recognised meaning amongst property lawyers." In his Lordship's view the phrase meant "ownership for your own benefit" as opposed to ownership as trustee for another. His Lordship appeared to equate "beneficial ownership" with the holding of an equitable interest in the property. 38 The Supreme Court of Ireland in Re Frederick Inns [1993] IESC 1, however, took Ayerst as having decided that on liquidation an insolvent company ceased to be, in the ordinary sense, the beneficial owner of its assets. It must be said, however, that its comments were dicta as in that case the insolvent company was not in liquidation. 39 In the quite recent case of Re Yaohan Hongkong Corporation Ltd (in liquidation) [2000] HKCA 437, and on one view of the decision, the Hong Kong Court of Appeal can be thought to have treated Ayerst as deciding that the assets of a company in liquidation (there said to be the listing status of the company) were trust property. However, that proposition was not necessary for the decision of the case, which required only the conclusion that the liquidator stood in a fiduciary position and should not be permitted to profit from a scheme of arrangement where the interest and duty of the liquidator were in conflict. The Australian Cases 40 No appellate court in Australia has considered as part of its ratio the decision in Ayerst or the cases leading up to it. However there have been a number of single Judge decisions which have commented upon them. 41 In Federal Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd (1971-1972) 128 CLR 28 Walsh J at first instance noted his Honour's reservation to Wood Preservation Ltd v Prior so far as Lord Donovan in that case had suggested that it was possible for property to lack a beneficial owner for a time. The case was not, however, a case involving a company in liquidation and his Honour's judgment was later overturned on appeal, although not on any matter related to the present dispute. 42 In Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52 ("Franklin's Selfserve"), Menzies J was called upon to consider whether a company which was in liquidation continued to hold "beneficially" the shares which it had beneficially owned in the year of loss, and prior to the liquidation, so as to permit the losses to be an allowable deduction. The Commissioner in seeking to have the losses disallowed relied upon Olive Mill and Re Oriental Inland Steam Co. His Honour had regard to the context of the provisions as they then stood and noted that in s 80(6) there was a reference to shares being "beneficially held by the trustee." His Honour was of the view that the legislation was concerned with a continuing identity of interest in the year of loss and the year of income and that such identity of interest could not be said to cease, just because a company went into liquidation. His Honour said at 69-70: "Even if a company, being insolvent, goes into liquidation, I find difficulty in regarding the company itself as trustee for anybody, notwithstanding that it can no longer employ its assets in its business, nor dispose of them. The assets must be held for the purpose of its own liquidation in accordance with statute. …The matter is not left to the application of general law relating to trustees and cestuis que trust. … To regard a company in liquidation as, in any strict sense, a trustee for creditors and contributories, would I think be inconsistent with Commissioner of Stamp Duties (Q) v Livingston [1965] AC 694 … I have not been persuaded, however, that liquidation of itself, deprives the company in liquidation of the beneficial holding of its shares." 43 It is explicit in the judgment of Menzies J that the mere fact that the corporation law imposed upon a company in liquidation an obligation to carry out the statutory scheme of liquidation did not constitute the company a trustee of its assets to hold upon trusts which are the same as the statutory obligations. Further, his Honour saw no distinction to be drawn between an insolvent company in liquidation and a solvent company in liquidation. There were, his Honour said at 70 "grave difficulties in accepting the Olive Mill decision." His Honour concluded (at 71): "Having examined the authorities cited, not to control the language of s 80(5) but to inform myself of the principles to be applied, I have come to the conclusion that I would be going further than the statute warrants were I to hold that for the purposes of s 80(5), a company which owns shares beneficially in another company ceases, upon its liquidation, to own those shares beneficially. These shares remains the property of the company and the beneficial interest is not, by virtue of the liquidation, vested in any other person or persons." 44 There is a short discussion of the question to be found in the judgments of Mason J (at 232-233) and of Aickin J (at 249-250) in Federal Commissioner of Taxation v St Hubert's Island Pty Ltd (1977-1978) 138 CLR 210 where the issue was whether a disposition by a company in liquidation fell within the then s 36(1) of the 1936 Act. It was argued that where a disposition was made by the liquidator of a company in liquidation, the winding up order deprived the disposition of the necessary character to fall within s 36(1) because the company was trustee of its assets, and being solvent, therefore held the property upon trust for its shareholders, so that there was merely a disposition of a bare legal estate in the asset, rather than of the asset itself. Ayerst was relied upon for this proposition. Mason J, after referring to Franklin's Selfserve, commented that it was "unnecessary to examine this apparent conflict of opinion" (emphasis added) because the language of s 36(1) was wide enough to encompass the transaction under consideration, even upon the assumption that the company was not the beneficial owner of its assets. It might be thought that the reference to "apparent conflict" may reflect the view that Ayerst should be seen as an authority confined to the particular statutory provision and context with which it was concerned, and not necessarily standing for the proposition that a company in liquidation was not in the strict meaning of the expression the beneficial owner of its assets. Likewise Aickin J contented himself by saying "in so far as there is a conflict between the views expressed by Menzies J and those expressed by Lord Diplock, it must be resolved in other proceedings." 45 The so called conflict and the issues relevant to it have been referred to, but not resolved in Deputy Commissioner of Taxation v AGC (Advances) Ltd [1984] 1 NSWLR 29 at 36-37 per Mahoney J, Mineral & Chemical Traders Pty Ltd v Tymczyszyn Pty Ltd (1994) 15 ACSR 398 at 416-417 per Santow J, Federal Commissioner of Taxation v Macquarie Health Corporation Ltd (1998) 98 ATC 5214 at 5227 per Emmett J and CPH Property Pty Ltd v Commissioner of Taxation (1998) 88 FCR 21 at 50-51 per Hill J. In so far as opinions are expressed, those opinions would seem to prefer the view that a company in liquidation remained the equitable owner of its assets, free from any trust, albeit bound by the statutory scheme for distribution in company law legislation. The Text Book Writings 46 As already noted the learned authors of Buckley on the Companies Act have taken the law in England to be that upon liquidation of a company the company ceased to have the beneficial ownership of its assets. 47 Professor Good, in his Principles of Corporate Insolvency Law (2nd Ed) 1997 at 58, appears to accept that Re Oriental Inland Steam Co holds that the company in liquidation holds its assets upon trust, with the consequence that it loses the beneficial ownership of its assets. It is clear that the learned authors use the expression "beneficial ownership" as meaning the right to use or realise the assets for the benefit of the company, and not necessarily in its ordinary meaning. 48 The learned authors of Meagher, Gummow and Lehane Equity: Doctrines and Remedies (4th Ed) 2002 comment at [411]: "Lord Diplock treated the issue as one of whether the companies legislation deprived the company 'of all possibility of enjoying the fruits of [the property] or of disposing of it for its own benefit'. Menzies J had (it is submitted correctly) held that there was no automatic loss of such possibilities. Lord Diplock held to the contrary. Previous decisions which spoke of the company's assets as 'trust property' did no more than to direct attention to the truism that they could not be used or disposed of by the legal owner for his own benefit. The position thus is reached that both Lord Diplock and Menzies J agree that the company in liquidation is not a trustee of its assets, in the ordinary sense, but they differ as to the next step. To Menzies J, this is that the company has not been deprived of its beneficial interest; to Lord Diplock, the company has by force of the legislation been so deprived but not so as to vest beneficial interests in any other group or individual and Livingston's case indicates that the result is not an anomalous 'gap' or lacuna in the title to the assets in question. Of Lord Diplock's judgment, Sir Robert Megarry V-C has observed (in Tito v Waddell (No 2) [1977] Ch 106 at 227) that it shows the use of 'trust' to describe a relationship which is not a trust 'in the full sense of the word'; the first question on seeing that protean term used is to ask the sense in which it is employed." 49 Mr Callaway (as he then was) in "The Ownership of the Assets of Companies in Liquidation" (1976) 5 ATR 61, to which the authors of Meagher, Gummow and Lehane refer, disputes the view that the company is not the beneficial owner of its assets and relies upon the argument that a company is really no more than the aggregation of its members, albeit given legal personality. The learned author argues that considered from this point of view it is not unrealistic to say that the company benefits from its assets being applied in the course of its own liquidation, so that it can be said to be the beneficial owner of its assets. 50 The learned author of McPherson The Law of Company Liquidation (4th Ed) 1999, says at 219: "First and foremost, it is important to note that it has traditionally been held that winding up divests the company of the beneficial interest in its property. Recently in FCT v Macquarie Health Corporation Limited Emmett J of the Federal Court appeared to disagree with this view, although without discussing the issue in any great depth. His Honour said that on liquidation the beneficial ownership of the property of the company remains in the company. With respect this is against the authorities on the subject and appears to be wrong. While the beneficial interest is divested, the legal title remains in the company." The Conclusion 51 Counsel for the Commissioner before us conceded that if the statutory question posed by s 80A(1) was whether LGL was the equitable owner of the shares in the strict sense of that expression, then there was no trust with the consequence that he would not succeed. As already noted it is also conceded that if "beneficial owner" had the meaning of "owner in equity" he would not succeed. Rather, he submitted that in the context of s 80A(1) the phrase "beneficial owner" had a special meaning, just as it was said to have in the revenue cases in the United Kingdom which culminated in Ayerst. This special meaning was the ability to enjoy the property for the shareholder's own benefit and not the benefit of others as the shareholder saw fit. It was submitted that upon the making of the winding up order (and subject to that order not being stayed or terminated) the assets of the company in liquidation were held not for the benefit of the company itself, but rather constituted a fund held by the liquidator for the benefit of those entitled to prove in the liquidation or, in the event of a surplus, for the benefit of the shareholders. The beneficial ownership was in suspense. Because the company in liquidation had lost the ability to enjoy its assets and to dispose of them for its own benefit rather than for the benefit of others, it was said that it was not the beneficial owner of its assets. 52 With respect we do not accept this submission. 53 As is already evident we do not agree that a trust in the strict sense of that expression is imposed upon a company in liquidation, although we accept that some principles of trust law will be relevant. It is possible that the provisions of a statute might operate to impose upon a person a statutory trust. Whether it does so will be a matter of construction of the statute. It will also depend upon the sense in which the word "trust" is used. There was, for example, a difference of views among members of the High Court whether the provisions of the Superannuation Act 1976 (Cth), which regulated the terms of the then Commonwealth Public Service Superannuation Scheme, operated to impose upon the statutory body, the Superannuation Fund Investment Trust,a trust, and if so, who the beneficiaries of that trust were: cf Superannuation Fund Investment Trust v Commissioner of Stamps (SA) (1979) 145 CLR 330. 54 It can be said, as the case law indicates, that there is a question whether in the strict sense a trust to hold property, which is to be applied subject to an obligation but not for the benefit of persons who are beneficiaries (other than a charitable trust), will properly be called a trust. Whether in the strict sense a trust is created does not usually matter as the obligation will be enforced and often doctrines of trust law will be applied (for example the doctrine of notice binding a person other than a purchaser for value applied in Re Oriental Inland Steam Co). The provisions of the Bankruptcy Act 1966 (Cth) clearly enough operate not merely to vest in the trustee in bankruptcy the assets of the bankrupt, but also to impose upon that trustee a statutory obligation. That statutory obligation can be said to be in the nature of a trust, notwithstanding that there may be no cestui que trust, and to impose upon the trustee in bankruptcy obligations such as would be imposed upon a trustee. Yet it might not be correct to call it a trust. One difficulty with the concept which might be argued to arise from the terms of a statute, is that the statutory obligation which is imposed upon the person who may or may not be a trustee would not ordinarily in pre Judiciary Act 1903 (Cth) times have been enforced by a Court of law rather than equity. It is not necessary in the present case to consider whether the so-called merger of doctrines of law and equity, whatever that may mean, alleviates the problem: cf the criticism of Gummow J, writing extrajudicially in "Equity: Too Successful?"(2003) 77 ALJ 30 at 32ff. Another difficulty which exists in the present case is that the obligation is not one directly imposed upon the company in liquidation, it is imposed upon the liquidator. But the liquidator does not have title to the assets. The notion of a trust where the title to the asset is vested in the trustee, but not the control and disposition of the asset, is strange and made stranger because the performance of the obligation is imposed upon a person not being the trustee. No analogy comes to mind. 55 Fortunately it is not, in our opinion, necessary to reach any concluded view on these difficulties which beset the view that the company in liquidation holds its assets upon a trust, properly so called, in accordance with the statutory order of distribution. Likewise it is not necessary to decide whether the attachment of the label "trustee" to the position of the company in liquidation means no more than that the company in liquidation, while not a trustee in the strict sense, nevertheless stands in an analogous position to a trustee, as may have been the view of Lord Diplock in Ayerst. The present case is to be decided not by a resolution of the question set out in the last paragraph but rather as a question of construction of the provisions of ss 80A to 80C of the 1936 Act. That question, like other issues of statutory interpretation must necessarily be decided having regard to the context in which the issue arises. We need only refer to the now oft cited passage from the judgment of Brennan CJ, Dawson, Toohey and Gummow JJ in CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 187 CLR 384 at 408: "It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1902 (Cth) the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses context in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned one may discern the statute was intended too remedy." (See also Fox v Commissioner for Superannuation (No 2) (1998) 88 FCR 416 at 419-420) 56 In our view the fact that the company in liquidation is bound through its liquidator to deal with its assets in accordance with the statutory regime in company law legislation does not mean that the company has ceased to "beneficially own" its assets for the purposes of s 80A(1) of the 1936 Act. It is clear enough that the formula of beneficial ownership was adopted by Parliament to replace the previous formula of "beneficially held", and so as to rectify the difficulty that losses might cease to be available to a company where the person who otherwise was the owner of the shares, was not entered on the register of members so that it could not be said that the person "held" the shares in both the year of income and the year of loss. The substituted requirement of beneficial ownership looked to see not whether the relevant person claiming to hold beneficially was a person whose name had been entered on the register of members but rather who was the real owner of the shares and, in a case where the legal and equitable ownership was divided, who owned the shares in equity. The fact that Parliament saw fit from the time of enactment of the 1936 Act to deal specifically with the case of a bankrupt and to deny to the bankrupt the right to deduct losses which arose in a prior year, even where the assets by statute vested in the trustee in bankruptcy, is not irrelevant either. 57 The mischief to which the provisions of s 80A – 80C are directed is to ensure that losses will not be available to a company where there has not been a continuity of ownership of shares during the year or income and the year of loss. Obviously, if in the year of income there has been a change of the necessary percentage in the real ownership of shares then the losses in that company will cease to be available to the company by way of an allowable deduction. The emphasis is, as counsel for LTAL submitted, upon change of real ownership. A disqualifying change may well arise as a result of an attempt to traffick in losses, although it is not a necessary precondition to the losses being unavailable that there has been consideration passing to an existing shareholder. Continuity of beneficial ownership would be lost in a case where a shareholder having the relevant percentage of shares declared a trust of those shares for another or for others, while remaining on the register. 58 The change may, for the purposes of s 80A(1), be in the ownership of the relevant percentage of the share capital or it may involve allotment of new shares with or without changes in rights attaching to shares. The expression "beneficially owned" looks thus merely at equitable ownership. It does not, as counsel for the Commissioner would have it, encompass the case where, as a result of statute, the owner of the shares is subject to the control of another so that it can be said that there is a restraint upon the shareholder as to the disposition of the shares, such that the shareholder cannot dispose of them as it sees fit for its own benefit but no trust in the strict sense is created. 59 It is difficult to see what policy reason there would be for Parliament to disallow as a deduction to a company which had losses available to be carried forward, those losses in a case where there was no change of ownership of the shares at all, but simply because the necessary percentage of shares have been held by a company which, while still on the register of members, has gone into liquidation. And liquidation might be voluntary or involuntary. The fact that in liquidation creditors receive payments in priority to, or as usually occurs to the exclusion of, shareholders does not provide a policy reason for disallowance of carry forward losses for a company in liquidation. In so far as the English cases turn upon the particular context of the revenue legislation there being discussed, they may be distinguished. The present context is quite different from that discussed in the English cases. In our view there is no warrant for giving the phrase "beneficial ownership" some special meaning in the present context. 60 It follows that we agree with the learned Primary Judge that in the present circumstances there has not been a change in beneficial ownership of the shares held by LGL in LTAL by virtue of the fact that the companies became the subject of orders that they be wound up. We agree that the context of ss 80A (1) to (3), and other sections related to them, is concerned with cases where there has been a change in the ownership of shares or in the equitable ownership of them between two points of time. We would agree also that there is an implicit assumption in s 80A(1) that there is a need in identifying beneficial ownership to find, both in the year of loss and in the year of income, some person who is or some persons who are collectively the beneficial owners, and that this identification is not prevented by virtue that in consequence of the liquidation of the shareholder an obligation is imposed upon the shareholder which might prevent the shareholder from dealing with the shares for its own use or benefit. However, in so far as his Honour suggested at paragraph 61 of his reasons, as set out in paragraph 12 above, that a relevant change in beneficial ownership required there to be a "transmission" from one person to another we would, with respect, disagree if by that language his Honour intended to exclude the case where the shareholder, while remaining on the register, declared a trust of the beneficial ownership in favour of another or others. However, we do not think that this is what his Honour intended. The Continuity of Share Rights 61 Once the construction of the phrase "beneficial ownership" is resolved the remaining issue can be disposed of quite simply. 62 The submission on behalf of the Commissioner is that because, following the making of a winding up order, (and subject to there being no stay of the winding up or termination of the winding up order) there can be no scope for a meeting of shareholders, no scope for the payment of dividends and no scope for distributions of capital, it is simply incorrect to say that the shares held by LGL in LTAL carried rights to vote, rights to dividends or rights to distributions of capital in the year of income. 63 On behalf of LTAL it is submitted that s 80A(1), like the somewhat comparable provisions of s 103 of the Act, should be construed upon the basis that it is to be assumed that the company could hold a meeting at which the shareholders might cast their votes, and the only issue was whether at such a hypothetical meeting the shareholder could cast the requisite number of votes. Similarly with dividends. It is submitted that it is to be assumed that a dividend could and would be declared and the question is simply whether the shares in question carried the requisite percentage of rights, such that the holder would be entitled to more than one half of the dividends which would flow. Similarly with the rights to capital distributions. 64 Counsel for LTAL relied upon the decision of the High Court in Casuarina to which reference has already been made in support of his submission. In that case at page 96 Walsh J pointed out that the question whether the relevant shares carried rights to dividends or capital distributions had to be looked at the relevant time but upon the hypothesis that a dividend would be paid out or a distribution of capital made. In other words the provision required the setting up of a hypothetical situation and asking then what the entitlements would be in that situation. It is true that in Casuarina the relevant legislation used the words "would be beneficially entitled" and did not speak of shares which carried particular rights. However, there is some indication in s 80A(3), in the reference to "capable of being controlled", that the issue under s 80A(1) is not whether there can be general meetings, dividends or reductions of capital, but rather whether there would be the capacity to vote, to receive dividends or distributions of capital should the occasion arise. There is no change in the rights attaching to the shares merely because the company has gone into liquidation. The shares continue to carry the same rights. In our view the question can only be answered by looking at the rights which, in accordance with the articles of association of LTAL attach to the relevant shares. Those rights are such that at all times in the year of income there was the necessary continuity of rights as existed in the year of loss. In our view, therefore, the tests of s 80A(1) do not operate to disqualify the losses otherwise available to LTAL from being an allowable deduction to it in the year of income. 65 We would accordingly dismiss the appeal with costs. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Hill, Goldberg & Conti. Associate: Dated: 14 April 2003 Counsel for the Applicant: M Aldridge SC with S McMillan Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: D Bloom QC with J Davies Solicitor for the Respondent: Phillips Fox Date of Hearing: 4 March 2003 Date of Judgment: 14 April 2003