JUDGMENT No. 020,89 2 CATCHWORDS INCOME TAX group tax payments - priority of Commissioner - whether administrator of insolvent company is a trustee under 8.221P(1) - whether administrator had "control" under 8.221P(1). CORPORATIONS - management and administration - administrator of insolvent company - nature of administrator's powers under s8.437A where chargee has enforced change prior to administrator's appointment. Income Tax Assessment Act 1936 s.221P Corporations Law 8s.437A Australian Securities Commission v MacLeod (1994) 120 ALR 351 Federal Commissioner of Taxation v Barnes (1975) 133 CLR 483 Re Obie Pty Ltd [1985] 1 Qd R 464 Sackville J. 6 October 1994 Sydney RECEIVED -6 OCT 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION BETWEEN: BETWEEN: CORAM: SACKVILLE J. PLACE: SYDNEY DATE: 6 OCTOBER 1994 ) No. NG 3372 of 1994 ) No. NG 3373 of 1994 COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant PRESCRIBING BIOCHEMISTS PTY "LIMITED (CONTROLLER APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (SUBJECT TO DEED OF COMPANY ARRANGEMENT ) ACN 002 525 519 First Respondent KENNETH JOHN RENNIE Second Respondent COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant MANUCOM PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (SUBJECT TO DEED OF COMPANY ARRANGEMENT ) ACN 001 450 228 First Respondent KENNETH JOHN RENNIE Second Respondent MINUTES OF ORDER THE COURT: 1. QRDERS that application No. 3372 of 1994 be dismissed. 2. ORDERS that application No. 3373 of 1994 be dismissed. 3. QRDERS that the applicant in applications Nos. 3372 and "3373 of 1994 pay the costs of the respondents. 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 ) No. NG 3372 of 1994 GENERAL DIVISION ) No. NG 3373 of 1994 BETWEEN: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant AND: PRESCRIBING BIOCHEMISTS PTY LIMITED (CONTROLLER APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (SUBJECT TO DEED OF COMPANY ARRANGEMENT ) ACN 002 525 519 First Respondent AND: KENNETH JOHN RENNIE Second Respondent BETWEEN: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant AND: MANUCOM PTY LTD (RECEIVERS & MANAGERS APPOINTED) (SUBJECT TO DEED OF COMPANY ARRANGEMENT ) ACN 001 450 228 First Respondent AND: KENNETH JOHN RENNIE Second Respondent CORAM: SACKVILLE J. PLACE: SYDNEY DATE: 6 OCTOBER, 1994. introduction In these two matters, the Commissioner of Taxation seeks relief based on the priority accorded to unremitted group tax payments by s.221P of the Income Tax Assessment Act 1936 (Cth) (the "Act"). That statutory priority does not apply to tax deducted after the commencement of the 1993-1994 year: 8.221P(1A). In the first matter (No. G3372 of 1994) relief is sought against the first respondent, Prescribing Biochemists Pty Ltd ("Biochemists") and Mr Rennie, the second respondent, who is the administrator of Biochemists under a Deed of Company Arrangement entered into on 19 April 1994. Earlier, on 2 February 1994, Mr Rennie was appointed administrator of Biochemists pursuant to Part 5.3A of the Corporations Law (the "Law"). Biochemists carried on the business of distributing natural health products. In the second matter (No. G3373 of 1994) the Commissioner seeks orders against the first respondent, Manucom Pty Ltd ("Manucom") and Mr Rennie, who is also the second respondent in those proceedings. Manucom is a company associated with Biochemists and appears to have manufactured natural health products distributed by Biochemists. Mr Rennie is also the administrator of Manucom under a deed of company arrangement, having previously been appointed administrator of the company pursuant to Part 5.3A of the Law. The documentation relating to the appointment of an administrator to each company was in substantially identical terms. Both matters were heard together and there was no oral evidence. The issues in both proceedings turned, at least in part upon the interaction between s.221P of the Act and Part 5.3A of the Law. It will be convenient to deal with the Biochemists matter first, since the parties were agreed that the same result should be reached in each case. However, it will be necessary to refer briefly to Manucom's position on one or two matters. I should note at the outset that Part 5.3A of the Law is headed "Administration of a Company's Affairs with a View to Executing a Deed of Arrangement". The Part was inserted into the Law by the Corporate Law Reform Act 1992 (Cth) and came into effect on 25 June 1993. The object of Part 5.3A is stated by s.435A of the Law as follows: "The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company." The administration of a company begins when an administrator is appointed: s.435C(1). The "normal outcome" of the administration of a company is one of three alternatives: the company and the administrator execute a deed of company arrangement; the company's creditors resolve ' that the administration should end; or the creditors resolve that the company be wound up: s.435C(2). In the present case the administration of both Biochemists and Manucom ended when the respective deeds of company arrangement were executed on 19 April 1994. the inistrator On 21 January 1994 the State Bank of New South Wales ("the Bank") held a fixed and floating charge over the whole of the assets and undertaking of Biochemists, registered under the Law. On that date the Bank exercised its right to appoint receivers and managers of Biochemists, under the charge, of all assets of the company excluding fixed assets and goodwill. The Bank, on the same day, took possession of the fixed assets and was also said to have taken possession of the goodwill of Biochemists under the powers contained in the charge. The charge itself was not in evidence. On 2 February 1994 Biochemists, Mr Rennie, as administrator, the receivers and the Bank entered into a deed ("the Deed"). The Deed recited that the directors of Biochemists had resolved at a duly convened meeting that the company was insolvent and that an administrator should be appointed pursuant to s.436A of the Law. This section permits a company to appoint an administrator if the board resolves that the company is insolvent and that an administrator should be appointed. The Deed also recited that the Bank and Receivers had agreed to the appointment of Mr Rennie as_ the administrator and wished to facilitate an investigation by the administrator into the affairs of the company and an examination as to whether or not it is in the interests of the Biochemists' creditors for it to execute a deed of company arrangement. The Deed included the following provisions: "2. APPOINTMENT OF ADMINISTRATOR 2.1 The Company hereby appoints the Administrator as administrator of the Company under section 436A of the Law. 3. CONSENT TO ACT AS ADMINISTRATOR - 3.1 The Administrator hereby consents to act as administrator of the Company. 4. CONSENT OF BANK AND RECEIVERS 4.1 Each of the Bank and the Receivers hereby consent to the appointment by the Company of the Administrator as administrator of the Company and to the extent that there is any doubt as to the power of the Company to make that appointment the Bank and the Receivers join in the making of the same BUT nothing in this Deed shall either constitute or be construed as constituting the Administrator as_ the agent of the Bank or the Receivers. 5. EXERCISE OF ADMINISTRATOR'S POWERS 5.1 In consideration of the consents and agreements on the part of each of the Bank and the Receivers contained in this Deed the Administrator agrees with them not to exercise those powers conferred upon him by paragraph (c) of section 437A(1) of the Law without first having obtained their written consent. 6. CONDUCT OF COMPANY'S BUSINESS 6.2 6.5 For the purpose only of preserving the assets and undertaking of the Company the Bank and the Receivers consent to the Administrator both conducting the business and affairs of the Company and having occupation of its property but only so as to confer upon the Administrator such rights of occupation or possession thereof as would be enjoyed by a licensee under a licence terminable at will. Consistently with the purpose for which and the terms upon which the Administrator has been given the right to conduct the business of the Company and to occupy its assets, the Administrator agrees: (a) that he shall not sell, dispose of, encumber or otherwise deal with the property of the Company except in the normal course of its day-to-day business and consistently with the current pricing policy of the Company; (b) that in the circumstances stipulated in clause 8.5 he shal] forthwith and without it being necessary for the Bank and the Receivers to make any demand, execute the consent referred to in that clause; and (c) that the liability of any debtor to the Company shall not be compromised without the prior written consent of the Receivers. In the event that Kenneth John Rennie ceases to be the administrator of the Company the Bank and the Receivers (as the case may require) shall be entitled to retake occupation of the assets = and undertaking of the Company forthwith and the consents given by clause 6.1 shall no longer operate or apply. '8. REPORT OF ADMINISTRATOR 8.5 For the avoidance of doubt as to the power of the Bank thereafter to continue to enforce to the Charge and of the Bank and the Receivers (as the case may require) to re-enter occupation of the assets and undertaking of the Company, the Administrator shall execute a written consent under section 440B of the Law agreeing to the Bank enforcing the Charge and delivering the same to the Bank together with the copy of the Report to be delivered to it under clause 8.3. 9. ~ "MEETING OF CREDITORS TO DECIDE COMPANY'S FUTURE 9.1 In the event that in the Report the Administrator expresses the opinion that it would be in the interests of the Company's creditors for the Company to execute a deed of company arrangement but the meeting of creditors of the Company convened under section 439A of the Law: (a) resolves that the administration end; or (b) resolves that the Company be wound up; or (c) concludes without a resolution having been passed, or in the event that the Company fails to execute a deed of company arrangement by which the Bank is prepared to be bound within the time required by the Law, the Administrator's right to conduct' the business and affairs of the Company and to occupy its property shall forthwith terminate and the Administrator (whether in his capacity as such or as liquidator of the Company) and the Company shall deliver up the assets and undertaking of the Company to which ever of them the Bank or the Receivers is entitled thereto. 11. GENERAL 11.4 Severability Any provision in this Deed which is invalid or unenforceable in any jurisdiction is to be read down for the purposes of that jurisdiction, if possible, 80 as to be valid and enforceable, and is otherwise capable of being severed to the extent of the invalidity or unenforceability, without affecting the remaining provisions of this Deed or affecting the validity or enforceability of that provision in any other jurisdiction." No reference was made in cl.4.1 of the Deed to any power in the Bank and receivers to appoint an administrator. However, 8.436C(1) of the Law permits a person entitled to enforce a charge on the whole or substantially the whole of a company's property to appoint an administrator if the charge has become and is still enforceable. Section 437A(1) of the Law, referred to in cl.5.1 of the Deed, reads as follows: "437A(1) [Powers of administrator] While a company is under administration, the administrator: (ay has control of the company's business, property and affairs; and (Db) may carry on that business and manage that property and those affairs; and (c) may terminate or dispose of all or part of that business, and may dispose of any of that property; and (d) may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration." Section 440B of the Law referred to in cl.8.5 of the Deed, provides that, during the administration of a company, a person cannot enforce a charge on the property of the company except with the administrator's written consent or the leave of the court. There are other provisions in Part 5.3A that refer to the enforcement of charges and I refer to some of these later in the judgment. The Administrati On 2 February 1994 the director of Biochemists provided to the administrator a report as to the affairs of the company, under 8.438B(2) of the Law (which requires such a statement to be provided within seven days after the administration of a company begins). The report disclosed that the estimated realisable value of Biochemists' assets, after priority creditors (other than tax) was $1.16m (including $13,967 for plant and equipment), while the amounts due under the charge to the Bank were $1.233m. In this connection it is relevant to note that the report as to the affairs of Manucom estimated realisable assets of $0.706m, after priority creditors (other than tax), against the same amounts due under the charge. I was informed by counsel that the amounts due to the Commissioner of Taxation in respect of tax withheld from salaries and wages of employees of Biochemists was $88,528.55. The equivalent amounts in respect of Manucom_ totalled $30,244.11. Following his appointment, the administrator continued to conduct the business of Biochemists. The administrator prepared a report dated 22 February 1994, pursuant to 8.439A(4)(a) of the Law. The report pointed out that the creditors had three options available to them: (1) that the company execute a Deed of Company Arrangement; (ii) that the administration end; or (iii) that the company be wound up. These options correspond to the "normal outcome" of administration provided for in s8.435C(2) of the Jaw. The administrator recommended that the creditors' meeting scheduled for 1 March 1994 be adjourned to allow him to put forward a detailed proposal for a deed of company arrangement, estimated to return 25 cents in the dollar to unsecured creditors over three years. By a report dated 22 March 1994 the administrator recommended to the adjourned meeting that a deed of company arrangement be entered into. The creditors' meeting of 29 March 1994 approved the execution of a deed. Ultimately a deed was executed on 29 April 1994, to which Biochemists and the administrator were parties. Among other things the deed (cl.11) acknowledged that the Deputy Commissioner of Taxation had made a claim to priority under s.221P of the Act and that the Deputy Commissioner had reserved such rights as may be available under that section. There was no dispute between the parties that, if the Deputy Commissioner had acquired priority in respect of group tax before the date of the deed of company arrangement, that priority had not been disturbed by the deed of company arrangement. The uncontradicted evidence of the administrator was that he had not dealt with the property of Biochemists except in the normal course of its day to day business. Nor had he attempted to reduce the assets to a fund for the payment of creditors. Rather, he had used his powers under 'the Deed to preserve the company's assets and conduct its day-to-day business. As events transpired, in May 1994 an outside investor purchased a majority share-holding in Biochemists and lent moneys to the company for the purpose of paying unsecured creditors according to the terms of the deed of arrangement. Subject to resolution of the Commissioner's claim, the administrator planned to begin payment of claims of creditors admitted under the terms of the deed of arrangement. The Competing Contentions Section 221P(1) and 2(a) of the Act provide as follows: "221P(1) [Liability of employer or trustee] 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 refuses or fails to deal with the amount so deducted in the manner required by this Division, or to affix tax stamps of a face value equal to the amount of the deduction as required by this Division, as the case may be, he shall be liable, and where his property has become vested in, or where the control of his property has passed to, a trustee, the trustee shall be liable, to pay that amount to the Commissioner. 221P(2) [Priority over other debts of trustee] Notwithstanding anything contained in any other law of the Commonwealth, or in any law of a State or of the Northern Territory - (a) an amount payable to the Commissioner by a trustee in pursuance of this section has priority over all other debts..., whether preferential, secured or unsecured...". Section 6(1) of the Act provides that "trustee": "in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, includes- (a) (b) an executor or administrator, guardian, committee, receiver, or liquidator, and every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability;" In summary, the submissions made by Mr McMillan, on behalf of the Commissioner, were as follows: (i) (it) By virtue of the Deed the administrator became a "trustee" within the definition in s.6(1) of the Act. This was either because he was an "administrator", for the purposes of para.(a) of the definition of "trustee", or because he was a person "acting in any fiduciary capacity" within para. (b) of the definition. The control of Biochemists' property had passed to the administrator as trustee upon his appointment under the Deed. In this respect "control" did not mean de facto control of the company's assets, but rather the legal entitlement of the administrator to dispose of those assets and distribute the proceeds to some or all of the company's creditors. For this proposition Mr McMillan relied on Oldfield v Tilley [1988] VR 77 and contended that Hanibridge Pty Ltd {in Liquidation) v Toomey (1992) 92 ATC 4110, to the extent it supported the de facto control test, was wrongly decided. I was informed that Hanibridge had been the subject of an appeal to the New South Wales Court of Appeal, but that this had not been finalised. (iii) Mr McMillan recognised that the terms of the Deed purported to impose limitations on the power of the administrator to deal with the assets and undertaking of Biochemists. However, he relied on 8.437A of the Law, as giving the administrator power not only to control the company's business property and affairs, but to terminate or dispose of the -- company's business and dispose of its property. The fact that an administrator chose to limit the extent of his powers, by agreement or otherwise, was irrelevant. The statute conferred on the administrator the requisite degree of control of the company's property for the purposes of s.221P. (iv) As an alternative to (iii), although it may be a slightly different way of putting the same point, Mr McMillan submitted that the terms of the Deed were inconsistent with the Law, specifically, s.437A. To the extent of the inconsistency the terms of the Deed were invalid, and should be disregarded. Mr Thomson, who appeared with Ms Otteson for the respondents, took issue at a number of points. In summary his submissions were as follows: (i) (ii) Mr Thomson contended that the administrator was not a "trustee" within the definition in the Act. The word "administrator", as used in the definition, meant, in context, the administrator of an estate and not the administrator of a company under Part 5.3A of the Law. Further, it could not be said that the administrator was acting "in any fiduciary capacity", within the definition, at least for all purposes. "Control" for the purposes of s.221P(1) means de facto control, as had been decided in Hanibridge. On the evidence, having regard to the limitations on the administrator's powers and his uncontradicted evidence, he had undertaken a caretaking and investigative role for the purpose of ascertaining which of the outcomes contemplated by 8s.435C(2) of the Law was appropriate. It was never contemplated, as a matter of fact, that the administrator would reduce the assets of the company to a fund out of which some or all of the company's debts might be paid. On the principles formulated in Federal Commissioner of Taxation v Barnes (1975) 133 CLR 483, at 491-493 the test for "control" within the meaning of s.221P had not been satisfied. (iii) (iv) Even if the test of control was to be determined by reference only to the powers of the administrator, the terms of the Deed meant that the administrator simply had no power to realise any of the company's assets for the purpose of meeting payments' to creditors. Both legally and commercially, the administrator had access to the company's assets only at the sufferance of the secured creditor. The administrator's position was analogous to that of a provisional liquidator, which has been held not to satisfy the "control" test in 8.221P(1): Re Obie Ltd [1985] 1 Qd R 464. There was nothing in the Corporations Law to render invalid or inoperative the terms of the Deed. Independently of the terms of the Deed, an administrator under Part 5.3A of the Jaw will rarely, if at all, acquire the requisite degree of control to attract the operation of s.221P. The administrator is merely expected to maintain a form of interim control until the appropriate outcome is determined. In particular, an administrator is not required to reduce the company's property to a single fund from which debts of the company are to be discharged: O'Donovan, "Voluntary Administration and Deeds of Company Arrangement under Part 5.3A of the Corporations Law" (1994) 12 Company. _and Securities Law Journal 71, at 93-94. The Contro] Issue In the circumstances of the present case it is convenient to address at the outset the question of whether the control of Biochemists' property had passed to the administrator, as Mr McMillan submitted. For this purpose it is necessary to refer to the major authorities that have construed 8.221P of the Act. The operation of the section has been described as "in many circumstances either obscure or anomalous": Re Wallyn Industries and the Companies Act 1961 (1983) 7 ACLR 661, at 664 (1983); 1 ACLC 712, at 714. As Kirby P. observed in Deputy Commissioner of Taxation v Chant (1991) 103 ALR 387, at 389-394;- the authorities do not necessarily adopt a construction of the section that is immediately obvious from the language. In Federal Commissioner of Taxation v Barnes, a company gave a charge over all of its assets and undertaking. Upon default, a receiver and manager of the company was appointed. The company continued to trade for a time, but ultimately the assets were sold on a going concern basis. After payment out of mortgages of specific assets, the receiver retained the balance of the net proceeds. He was empowered to deal with this fund. The Commissioner claimed to be entitled to unremitted tax in priority to other creditors under s.221P(1) and (2) of the Act. The constitutional validity of the section was attacked, on the ground, inter alia, that it was not a law with respect to taxation. It was in this context that the High Court was required to construe the section. A number of propositions emerge from Barnes. Two were summarised by McPherson J. in Re Qbie Pty Ltd [1985] 1 Qd R 464, at 468-469. "[I]t is only where all of the property of the employer passes into control of the trustee that the section can operate.... The second [proposition] is that it excludes particular items of property that are separately mortgaged or charged". As McPherson J. notes at 468, "the fundamental conception underlying s8.221P is that, the group tax deductions having been made by the employer but not accounted for to the Commissioner, they are regarded as having remained under the control of the employer as an identifiable fund; or, if not identifiable as a fund, they are represented in the form of other property "which the employer would have had to realize 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": Federal Commissioner of Taxation v Barnes (1975) 133 CLR 483, 494." In Barnes the majority held that the "control" of the company's property had passed to the receiver. The joint judgment of Barwick CJ, Mason and Jacobs JJ addressed the question of "control": Federa) Commissioner of Taxation v Barnes, at 492): "The control which is referred to is that control which enables the receiver to reduce the assets and undertaking of a company into a fund out of which a particular debt or in some cases all the debts of the company, secured and unsecured, are able to be paid if the fund so far extends... Control is directed to possession and realization of the company's property..." It is clear from the judgment that it is not necessary, independently of s.221P, for the receiver to have the authority to make the payment which s.221P requires. The section provides the authority for the payment. However, again as McPherson J. in Qbie put it, control of an asset cannot pass if the trustee has no power to realise the asset to pay the amount of the liability under s.221P: Re ie Pt Ltd at 472. In Barnes there was no question that the receiver had authority to sell the assets and pay creditors from the proceeds. In Qbie, by contrast, the Queensland Full Court held that a provisional liquidator of a company did not have control, "in the special sense required by s.221P", of the company's assets. The primary function of the provisional liquidation was to preserve the status quo with least harm to all concerned. Except in unusual circumstances or where he was expressly authorised to do so, it was no part of the provisional liquidator's function to realise or dispose of the assets of the company: see Re Obie Pty Ltd at 472-473. In Australian Securities Commission v Macleod (1994) 120 ALR 351, Drummond J. of this Court held that a court appointed receiver did not have control of the property of the company to which he had been appointed. His Honour identified the "critical question" as being, at 356: "what kind of dominion over the whole of the employer's property must the trustee have before he can be said to have control of that property sufficient for the purposes of s.221P?" In this respect Drummond J. considered that, at the very least, the trustee had to have power to realise, by converting into money all the property in his or her hands before having sufficient control for the purposes of s.221P. That power was not, however, of itself sufficient to establish control: Australian Securities Commission v Macleod at 356-357: ",..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 (if that be necessary) 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 (if it should in the circumstances of the particular case, be necessary to turn the whole of the employer's property into cash to do that) 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. Provided the trustee has this sort of dominion over the whole of the employer's property it does not matter, as this passage in Barnes recognises, that the trustee does not have authority independent of s.221P to pay the amount of the group tax deductions to the Commissioner: if the trustee otherwise lacks that specific authority, 8.221P itself invests the trustee with it...". This led Drummond J. to conclude that, if the power of realisation is exercisable for a limited purpose only - a purpose other than paying a debt or debts of the employer - there is no control sufficient to attract the operation of 8.221P: Australian Securities Commission v MacLeod at 357. Since the court appointed the receiver's power to convert the company's property into money was only for the purpose of better preserving the property of the company, pending termination of the receivership, there was no control for the purposes of s.221P. j inis to ave nt. 2 In my opinion the administrator had neither a general power to realise the whole of the property of Biochemists in his hands, nor authority to disburse the proceeds to pay one or more of the debts of the company. The administrator was appointed because -the board of the company had resolved, pursuant to 8.436A(1) of the Law, that the company was insolvent and that an administrator should indeed be appointed. The Bank and the receivers consented to the appointment and, to the extent that there was any doubt about the power of the company (the doubt presumably arising because the company' was in receivership) joined in the appointment under s.436A of the Law. The appointment was made by Biochemists subject to the terms of the Deed. Moreover, at that time, on the uncontested facts, the Bank had appointed receivers to the assets of the company (other than fixed assets) and had taken possession of the fixed assets. These factors must be taken into account in considering the powers of the administrator. It is possible to leave to one side the question of the extent to which the administrator actually dealt with the property of the company. During the period of administration a person cannot enforce a charge except with the administrator's consent or the leave of the court: s.440B. However, if substantially the whole of the company's property is subject to a charge and the chargee enforced the charge prior to the "decision period" (a period ending ten days from the beginning of the administration), 8.440B does not prevent the chargee or a receiver enforcing the charge: s.441A(3). If, before the administration of a company, a chargee has entered possession or assumed control of property of the company, or exercised any other power in relation to such property for the purpose of enforcing a charge, s.440B does not prevent the chargee or receiver from enforcing the charge. Furthermore, the administrator of a company under administration must not dispose of property of the company that is subject to a charge, except in the ordinary course of business or with the consent of the chargee on leave of the court: s.442C(1),(2). The court can grant leave only if satisfied that arrangements have been made to protect the interests of the chargee: s.442C(3). Where s.441A applies (that is, where the charge has been enforced in relation to the company's property before the decision period), the administrator's functions and powers are subject to the powers of the chargee or receiver: 8.442D(1). In the present case, whatever might be the position in other circumstances, I do not think that the administrator, even apart from the terms of the Deed, had a general power of realisation of Biochemists' assets. The Bank as chargee had enforced its charge prior to the decision period and thus 8.441A was enlivened. Under the provisions of Part 5.3A of the Law the Bank as chargee was not prevented from enforcing its charge during the period of administration and the administrator's statutory powers were subject to those of the chargee. Thus the administrator's powers under s.437A, including the power to dispose of the company's property, were subject to the powers of the Bank as chargee and those of the receiver. In particular the administrator was not empowered to dispose of such of Biochemists' property that was subject to a charge except in the ordinary course of the business or with the chargee's consent. I put to one side the contention that the administrator's powers are in any event, like those of the provisional liquidator discussed in Qbie, - that is, merely exercisable for the purpose of maintaining the status quo. The limitations on the statutory powers in the circumstances of this case are such that the administrator here did not have a power that enabled him to reduce the assets and undertaking of the company to a fund. At all times he was subject to the overriding power of the chargee and was limited to disposing of the property subject to the charge in the ordinary course of the company's business, save with consent or the leave of the court. A fortiori it seems to me that in the circumstances of this case, the provisions of the Law do not contemplate that the administrator would realise the assets of the company and disburse the proceeds to one or more of the company's creditors. It may be, as Professor O'Donovan suggests in his valuable article and as Mr Thomson submitted, that an administrator under Part 5.3A of the Law will rarely have the degree of control necessary to attract s.221P because he or she is simply not required to reduce all the company's property to a single fund from which debts and liabilities of the company can be paid: O'Donovan, (1994) 12 Companies and Securities Law Journal 71, at 94. Like Gummow J. in Commissioner of Taxation v_ B_& G Plant Hire Pty Ltd, 12 August 1994, unreported, at 14-15, I do not find it necessary to deal with this issue. In this case the administrator was specifically prevented from disposing of property subject to the Bank's charge except in the ordinary course of business. Furthermore his powers were subject to those of the Bank as chargee. In other words, the interim character of the Management that ordinarily might be associated with a period of administration is further coloured by the limitations on the administrator's powers flowing from the Bank's position as chargee and the steps taken by it to enforce its charge. Thus far I have considered the position independently of the terms of the Deed. However, the Deed reinforces the conclusion that the administrator had neither a general power of realisation of Biochemists' assets, nor authority to disburse the proceeds to pay one or more creditors. The administrator specifically agreed with the company and chargee not to dispose of the company's property except in the normal course of its day-to-day business (cl.6.2(1)). He could only exercise the power under s.437A(1)(c) of the Law (to dispose of the company's property) with the written consent of the Bank and the receivers (cl.5.1). The Bank and the receivers consented to the administrator conducting the business and affairs of the company, and occupying its property under a licence terminable at will, for the purpose only of preserving the assets and undertaking of the company (cl.6.1). The Deed expressly preserved the Bank's power to continue to enforce the charge and the receivers' power to retake possession of the assets (c1.8.5). In my opinion these provisions make it clear that the administrator was not intended to have a general power of realisation of assets such as is a necessary precondition for the existence of "control" within 8.221P: Australian Securities Commission v Macleod at 356. A fortiori the terms of the Deed make it clear that it was not intended that the administrator should pay out some or all creditors during the period of administration. The object of the appointment, as cl.6.1 and cl.6.2 make clear, was to preserve the assets and undertaking of Biochemists pending a determination as to which of the "normal outcomes" contemplated in 8.435C(2) would be adopted. In short, the position of the administrator in the present case is clearer than that of the provisional liquidator in Qbie. In that case it was no part of the provisional liquidator's functions to dispose of the assets of the company and he was certainly not intended to do so for the purpose of paying out one or more creditors of the company. There seems to me no reason either in principle or as a matter of statutory construction why the powers of the administrator should not be limited by the terms of the Deed, at least if the limitations are confined to the matter dealt with in the Deed. Mr McMillan, in argument, referred to Caltex Qil (Australia) Pty Ltd v Best (1990) 170 CLR 516. But the very basis of that case was a statutory provision (s.7(1) of the Petroleum Retail Marketing Franchise Act 1980 (Cth)) providing that the Act applied notwithstanding any contrary agreement and that a term of an agreement was void to the extent that it purported to exclude, limit or modify a provision of the Act. Part 5.3A of the Law contains no such provision. Moreover, it does not seem to me that the limitations on the administrator's powers, contained in the Deed, are inconsistent with the scheme of Part 5.3A of the Law. The limitations, in my view, are consistent with the object of the Part, stated in 6.435A and with the special position of a chargee who has moved to enforce the charge prior to the commencement of the administration. Mr McMillan in argument did not point to any specific inconsistency between the terms of the Deed and the provisions of Part 5.3A, other than the requirement of consent before the administrator exercised his powers under s8.437A(1)(c) of the Law. However, the requirement no more than echoes the terms of s8.441A(3), 8.442C and s.442D of the Law. I should record that Mr McMillan argued that Drummond J. in Macleod had not correctly interpreted the majority judgment in Barnes. As I understood Mr McMillan, he suggested that the requirement that the trustee should have power to pay at least one of the company's debts was not warranted by Barnes. I do not think that Mr McMillan put any convincing reason to justify a departure from the analysis in Macleod and I propose to follow the decision. However, it is apparent from my reasons that even a narrower view of the reasoning in Barnes would not assist the Commissioner on the facts of this case. In my opinion, therefore, the control of Biochemists' property never passed to the administrator, within the meaning of g.221P(1) of the Act. Thus the Commissioner is not entitled to priority over other creditors in respect of unremitted deductions of tax. Other Issues It follows from what I have said that I do not have to resolve the apparent conflict between cases advocating a test of de facto control for the purposes of s.221P (Hanikbridge Pty Ltd (In Lig) v Toomey (1992) 92 ATC 4110) and those advocating a test of entitlement to deal with property (Qldfield v Tilley {1988] VR 77, at 82-83). I have been prepared to assume, in favour of the applicant, that the test is entitlement, rather than de facto control. If it were the latter, the evidence Clearly does not support a conclusion that the administrator exercised de facto control over the whole of Biochemists' property in a relevant sense for the purposes of 8.221P(1) of the Act. It also follows that I need express no view as to whether the administrator was a "trustee" within the definition of 8.6(1) of the Act. Conclusion In the Biochemists proceedings the conclusion I have reached is that the application should be dismissed. As the parties are agreed that the same result should follow in the Manucom proceedings, I consider that the application in that matter should also be dismissed. In each proceedings the applicant should pay the costs of the respondents. I certify that this and the preceding 26 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: Ve fe.) Dated: 6 October, 1994 Heard: 26 September 1994 Place: Sydney Decision: 6 October 1994 Appearances: Mr S McMillan for the applicant. Mr J Thomson and Miss K Ottesen for the respondents.