FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2011] FCA 524 Citation: Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2011] FCA 524 Parties: DEPUTY COMMISSIONER OF TAXATION v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION File number: VID 266 of 2011 Judge: GORDON J Date of judgment: 19 May 2011 Date of hearing: Heard on the papers Date of last submissions: 16 May 2011 Place: Melbourne Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 30 Counsel for the Plaintiff: S Linden Solicitor for the Plaintiff: ATO Legal Services Branch Counsel for the Defendant: P Paleologos Solicitor for the Defendant: Australian Securities and Investments Commission Counsel for the Paul Nicholas Rennie (interested party): NJ Clelland & AP Young Solicitor for the Paul Nicholas Rennie (interested party): Arnold Bloch Leibler IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 266 of 2011 IN THE MATTER OF RENNIE PRODUCE PTY LTD (DEREGISTERED) (ACN 006 185 824) BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Defendant JUDGE: GORDON J DATE OF ORDER: 19 MAY 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Defendant reinstate the registration of Rennie Produce Pty Ltd (ACN 006 185 824) (the Company) pursuant to s 601AH(2) of the Corporations Act 2001 (Cth). 2. Upon reinstatement of the Company, Giuseppe Michele Rambaldi and Andrew Reginald Yeo both of Pitcher Partners be appointed as joint and several liquidators (the Liquidators) of the Company. 3. A copy of this Order as authenticated be sent by ordinary prepaid post by the Plaintiff to the Liquidators, Paul Nicholas Rennie and Paul Vartelas of BK Taylor & Co. 4. Prior to a copy of this Order as authenticated being lodged with the Defendant together with a completed ASIC Form 105, the Plaintiff pay the Defendant's costs of this proceeding fixed in the sum of $1,000. 5. The Plaintiff's costs of the Application be costs in the winding up of the Company. 6. Otherwise, there be no order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 266 of 2011 IN THE MATTER OF RENNIE PRODUCE PTY LTD (DEREGISTERED) (ACN 006 185 824) BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Defendant JUDGE: GORDON J DATE: 19 MAY 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT Introduction – History and Application 1 On 5 August 1983, Rennie Produce Pty Ltd (ACN 006 185 824) (Rennie Produce) was incorporated. From 5 August 1983 until 25 January 2007, Paul Nicholas Rennie (Mr Rennie) was a director of Rennie Produce. His wife, Bridgit Rennie, was a director of Rennie Produce from 2 March 1992 until 3 August 1998. 2 On 6 May 2005, Mr Rennie, who was Rennie Produce's only shareholder, passed a resolution that Rennie Produce be wound up voluntarily and passed an ordinary resolution that Barry Keith Taylor be appointed liquidator of Rennie Produce. By reason of the definition of the relation-back day in s 9 of the Corporations Act 2001 (Cth) (the Act) and the effect of s 513B(e) in Div 1A of Pt 5.6 of the Act, the relation-back day in relation to the winding up of Rennie Produce is 6 May 2005. On the same day, 6 May 2005, the Commissioner of Taxation (the ATO) lodged a proof of debt in the winding up of Rennie Produce for the sum of $9,402,387.85. A revised proof of debt for $9,701,011.72 was lodged by the ATO on 19 August 2005. On 25 January 2007, Rennie Produce was deregistered. Mr Taylor died on 12 August 2010. 3 On or about 22 December 2010, the ATO filed an application pursuant to s 601AH of the Act for an order that the Australian Securities and Investments Commission (ASIC) reinstate the registration of Rennie Produce (the Application). On 25 March 2011, the Supreme Court of Victoria ordered that the Application be transferred to the Federal Court of Australia. The ATO, ASIC and Mr Rennie were directed to file written submissions in relation to the Application and agreed, subject to the views of the trial judge, that the Application should be determined on the papers. 4 The ATO seeks the reinstatement of Rennie Produce. ASIC does not oppose nor consent to the Application but submits that if Rennie Produce was reinstated, certain orders should be made by the Court. Mr Rennie opposed the Application on the grounds that any reinstatement would be futile and / or unjust. Section 601AH(2)(b) of the Act 5 Section 601AH(2) and (3) of the Act provides: (2) The Court may make an order that ASIC reinstate the registration of a company if: (a) an application for reinstatement is made to the Court by: (i) a person aggrieved by the deregistration; or (ii) a former liquidator of the company; and (b) the Court is satisfied that it is just that the company's registration be reinstated. (3) If the Court makes an order under subsection (2), it may: (a) validate anything done between the deregistration of the company and its reinstatement; and (b) make any other order it considers appropriate. 6 In Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 at [27] – [28], Austin J described s 601AH(2) as follows: 27 The wording of the section is very broad, and the cases confirm that it gives the Court a wide discretion. The Court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v ASC (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494. 28 These matters are only factors to be weighed in the exercise of the Court's discretion. They are not limits on the Court's power. Here, the reinstatement is likely to lead to the company being joined in proceedings in which the ACCC will seek orders for pecuniary penalties against it. The company may therefore be prejudiced. The Court may nevertheless conclude that it is just that the company's registration be reinstated, having regard (for example) to the strong public interest which is involved. It is appropriate for the Court to take into account questions of public interest in exercising its discretion under s 601AH: Re Immunosearch Pty Ltd (1990) 2 ACSR 455. Issues 7 In determining the present application, two issues are to be addressed: 1. is the ATO a person aggrieved within the meaning of s 601AH(2)(a)(i) of the Act? 2. if yes to (1), is the reinstatement of Rennie Produce just or is it unjust and / or futile? Is ATO a Person Aggrieved? 8 It is common ground that the ATO is a person aggrieved within the meaning of s 601AH(2)(a)(i) of the Act. The ATO was the largest creditor in the winding up of Rennie Produce. According to the Report as to Affairs, the ATO was owed $9,358,169 out of total liabilities of $9,362,269. The former liquidator, Mr Taylor, did not realise any assets or pay any dividend to creditors. His final statement of accounts stated that he received no money and paid no money in the course of winding up Rennie Produce. 9 The ATO did not become aware of significant matters relevant to Rennie Produce until after a related entity, Rennie Produce (Aust) Pty Ltd (RPA) went into liquidation on 16 July 2010 including the fact that the liquidator of RPA identified potential claims of a liquidator of Rennie Produce as well as the possibility that Mr Rennie may have been involved in divesting assets of both Rennie Produce and RPA for the purpose of defeating creditors. 10 If Rennie Produce is reinstated, the ATO intends to indemnify the new liquidators of Rennie Produce to investigate Rennie Produce's affairs with a view to obtaining a dividend for creditors. To that end, the proposed liquidators (who are also the liquidators of RPA) have identified potential equitable claims which they assert would be available to a liquidator of Rennie Produce. 11 As Counsel for the ATO submitted the question of whether or not a person is aggrieved is to be determined at the date of the hearing: Piliarinos v Australian Securities and Investments Commission (2006) 24 ACLC 775 at [49]. Here, the ATO is aggrieved at the date of the hearing. Is the Reinstatement Just or Is It Unjust or Futile? 12 That brings me to the second issue. Is the reinstatement just? 13 The ATO submitted that it was just to enable the new liquidators to be appointed to fully investigate the affairs of Rennie Produce and take action on behalf of Rennie Produce in respect of transactions identified by Mr Yeo in an affidavit he filed in these proceedings. The transactions were described by Mr Yeo as follows: From the records in my possession and my investigations of RPA, I have identified potential equitable claims which would be available to a liquidator of [Rennie Produce] relating to the transfer of [Rennie Produce's]: (a) business to RPA; (b) plant and equipment to the P Rennie Equipment Trust; and (c) land to the P Rennie Land Trust. My investigations reveal that the consideration received by [Rennie Produce] for these assets was a parcel of redeemable income units in the Rennie Investment Trust (RIT). My investigations indicate that the transfer and trading of units in the RIT may have been a part of a sham arrangement whereby the assets of [Rennie Produce] were intended to be transferred to related entities for no consideration, to defeat creditors of [Rennie Produce]. In this regard, I note the following: (a) An unregistered charged was initially given by [Rennie Produce] to FTA Finance Ltd, a company incorporated in the British Virgin Islands (BVI). It appears that no consideration was received in respect of this charge. Accordingly, my investigations to date indicate that this charge may not be valid. (b) In 1998, FTA Finance Ltd then assigned this charge to MEV Finance Ltd (MEV), a company also incorporated in the BVI. MEV proceeded to register its charge over the assets and undertakings of [Rennie Produce]. (c) MEV subsequently purportedly assigned this charge to Trudington Limited (Trudington), a company also incorporated in the BVI. (d) In 2003, at a time when Trudington had not registered its charge, it purported to enforce its charge over the assets of [Rennie Produce]. (e) Trudington subsequently transferred the units in the RIT (which it had acquired by enforcing its charge over [Rennie Produce's] assets) to Lexington Provident Limited (Lexington), a company incorporated in Guernsey with its sole director and shareholders being entities registered in the BVI. (f) Shortly before receiving these units in the RIT (previously held by [Rennie Produce]), Lexington had also recently acquired units in the RIT from RPA via a similar arrangement. (g) The units were redeemed by Lexington. (h) Rather than receiving a cash payment following this redemption, Lexington was granted a charge and power of attorney over [Rennie Produce], RPA and other entities related to [Rennie Produce] and RPA. Further details of these transactions had previously been set out in an affidavit sworn by Mr Yeo in December 2010, a copy of which was in evidence. 14 As noted, Mr Rennie opposes the application on the basis any reinstatement would be unjust or futile. 15 The ATO submitted that as a possible defendant to potential legal action by Rennie Produce, Mr Rennie has a limited right to be heard on the application. The ATO submits that Mr Rennie's right is limited to contesting the ATO's standing to make the application (whether the ATO is an aggrieved person). The ATO submitted that Mr Rennie was not entitled to oppose on the basis that he would have a good defence to any potential legal action or because for some other reason Rennie Produce is likely to fail in such a proceeding. In support of this last proposition, it referred to the decision in Piliarinos at [25] – [26] as well as the decision in AMP General Insurance Ltd v Victorian Workcover Authority (2006) 15 VR 175 at [45] and 46]. [Re Peter Conyers Holdings Pty Ltd (1996) 14 ACLC 1,837 at 1,849.] 16 In the end, the question of Mr Rennie's standing to raise issues of futility may be put to one side. As Gillard J went on to say in Piliarinos at [29]: I think it would be appropriate, also, as a general guideline, that if a judge formed the view on the material that it was proposed to sue the company, and the cause of action was hopeless, it may be appropriate to require notice to be given to the potential litigant. Examples of this would be where there is a clear defence, such as a limitation defence or some statutory defence. However, it would only be in the clearest of clear cases that that should happen. I reiterate that the proper venue for the cause of action to be heard and determined is a court or statutory tribunal. The parties will then have every opportunity to fight the case in a proper setting, to have the advantage of discovery, to test the other party's case, and to properly present their cases. See also Chalker v Clark [2006] VSC 457 at [34] and, on appeal in Chalker v Clark [2008] VSCA 92 at [33]. 17 The question which therefore arises is whether this is one of the "clearest of clear cases" that the causes of action are hopeless? Mr Rennie contends that it is. The ATO says that it is not. What then are the competing contentions? 18 It is common ground that any proceeding seeking relief pursuant to the Act (whether under s 588FF or ss 1317H and 1317J(2)) would be statute barred because more than six years has passed since the time of any alleged contravention of the Act: see ss 588F(3) and 1317K of the Act. 19 But as noted above, the potential proceedings are not limited to actions under or involving alleged contraventions of the Act. First, the new liquidators have foreshadowed proceedings seeking equitable remedies. Mr Rennie contends that those actions would also be futile because for limitation purposes, equity acts by analogy to statute: see Knox v Gye (1872) LR 5 HL 656 at 674-5. That is not a complete statement of the relevant principles. Where as here the Limitations Acts does not apply to equitable claims (see the Limitations of Actions Act 1958 (Vic)), equity may act by analogy to statute: see Knox. However, a Court of equity will not apply a statutory period of limitation by analogy if in the circumstances of the case it would be unjust to do so: Barker v Duke Group Ltd (in liq) (2005) 91 SASR 167 at [84]. Consistent with that principle, equity has regard to the time when the plaintiff became aware of the rights, particularly in cases of concealed fraud: see Barker at [105] – [106]. 20 In the present case, the evidence disclosed a basis for raising serious questions about the circumstances surrounding the winding up of Rennie Produce, circumstances which have only recently come to the attention of the ATO. Those circumstances include, but are not limited to, the following facts and matters: 1. Rennie Produce was put into voluntary liquidation with the ATO representing 99.5% of the value of its creditors; 2. Rennie Produce transferred its business to a related entity which carried on the business and then subsequently went into voluntary liquidation again with the ATO representing 99.5% of the value of its creditors; 3. The consideration received by Rennie Produce for the following transactions was a parcel of redeemable income units in the RIT, which may have been part of a sham arrangement to defeat the creditors of Rennie Produce, namely the ATO: 3.1 The transfer of Rennie Produce's business and standing stock to RPA in the year ended 30 June 1997; 3.2 The transfer of Rennie Produce's plant and equipment to Agren Pty Ltd as trustee for the P Rennie Trust in the year ended 30 June 1997; and 3.3 The transfer of the Hillston farmland from Rennie Produce to Moora Farming Pty Ltd as trustee for the P Rennie Land Trust registered on 29 March 1999; 4. A charge over Rennie Produce's assets being granted to a BVI vehicle for a tax avoidance scheme. 21 In those circumstances, it cannot be said the proposed causes of action are hopeless or that this is one of the clearest of clear cases that a limitation defence would apply. 22 In addition, another potential action open to the new liquidators is an action to recover the Hillston farmland (see [20](3)(3.3) above) under s 172 of the Property Law Act 1958 (Vic) or the equivalent provision in New South Wales. The limitation period for such actions is 15 years from the accrual of the cause of action in the case of Victoria (see s 8 of the Limitation of Actions Act 1958 (Vic)) and 12 years in New South Wales (see s 27 of the Limitation Act 1969 (NSW)). Both limitation periods are extended in the case of fraud: s 27 of the Limitation of Actions Act 1958 (Vic) and s 55 of the Limitation Act 1969 (NSW). 23 Finally, Mr Rennie referred to the decision in Herbert v Nozala [2006] NSWSC 1,437. In that case, the application for reinstatement was dismissed. White J stated: 40 That foreshadowed claim faces significant difficulties. The first is that it is now almost six and a half years since the transfer of the property occurred. Mr Sexton has foreshadowed, as one would expect, that if any such claim were made, a defence based on the Limitation Act 1969 (NSW), or on the principle that equity would apply the Limitation Act by analogy, would be raised. Prima facie, such a defence would be available to the directors. The same facts as would be alleged in a claim for equitable compensation for breach of the directors' duties as fiduciaries would sustain a cause of action by the company against the directors in tort. That is to say, the claim against the directors, as I apprehend it, is not only that they transferred the property at an undervalue, but that they did not take reasonable steps to obtain a proper price for the property. 41 That directors owe a duty of care to a company is now established (Daniels v Anderson (1995) 37 NSWLR 438). Accordingly, equity would, at least prima facie, apply the Limitation Act by analogy to a claim for equitable compensation arising from the same facts (see Belan v Casey (2003) 57 NSWLR 670 at [149], 712-713). However, I cannot say that this is clearly an absolute bar to any such proceeding as equity retains a discretion as to whether or not to apply the statute by analogy (see Brightwell v RFB Holdings (2003) 171 FLR 464; (2003) 44 ACSR 186). 48 … I am nonetheless not satisfied that it would be just to reinstate the company's registration. … 50 Moreover, even if a claim by the company against the directors would not be barred on the principle of the application of the Limitations Act by analogy, the passage of time since May 2000 is likely to have affected, adversely, the ability for there to be as fair a trial of any action against the directors as could have been available if any such claim had been brought promptly. As McHugh J said in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551: "... The enactment of time limitations has been driven by the general perception that '[w]here there is delay the whole quality of justice deteriorates'. Sometimes the deterioration in quality is palpable, as in the case where a crucial witness is dead or an important document has been destroyed. But sometimes, perhaps more often than we realise, the deterioration in quality is not recognisable even by the parties. Prejudice may exist without the parties or anybody else realising that it exists. As the United States Supreme Court pointed out in Barker v Wingo, 'what has been forgotten can rarely be shown'. So, it must often happen that important, perhaps decisive, evidence has disappeared without anybody now 'knowing' that it ever existed." 51 In my view, after the long period of delay which this present application exhibits, it would not be just that the company's registration be reinstated in order for there to be the inquiries or claims brought which have been foreshadowed. 24 As Mr Rennie put it, the grounds for the present application principally concern conduct that resulted in the disposition of the property of Rennie Produce in the 1997 financial year – events more than 14 years ago. In addition, the liquidator of Rennie Produce has died and given the passage of time, relevant documents may reasonably be expected to have been lost or destroyed. So much may be accepted. 25 But on the other side of the ledger sits the following facts. In Nozala, the applicant did not have standing to bring the action. White J found that he was not a person aggrieved. Here the ATO has standing: see Nozala at [47]. Secondly, in Nozala (unlike the present case) there was no material that suggested fraud or the concealment of fraud: see Nozala at [36]. Thirdly, in Nozala the foreshadowed claim was "speculative at best" (see Nozala at [46]). That is not the present case. Finally, in Nozala, there were lengthy delays of 11 years and then a further four years for which the applicant provided no satisfactory explanation of the delay: see Nozala at [48]. Here, the delay as been explained: see [9] above. 26 In all the circumstances, it cannot be said that the reinstatement of Rennie Produce is unjust or futile. On the contrary, it is just that the company is reinstated. As the ATO submitted, the new liquidators should be given an opportunity to investigate and pursue the necessary and appropriate legal actions on behalf of Rennie Produce. 27 That leaves the "additional reason" relied upon by Mr Rennie as to why reinstatement of Rennie Produce would be unjust. In general terms, Mr Rennie's solicitor has sworn an affidavit in which he states that he considers a criminal prosecution of Mr Rennie is "on the cards" and is likely to relate to the same alleged conduct of Mr Rennie – his alleged involvement in the various transactions in and after 1997: Australian Securities and Investments Commission v HLP Financial Planning (Aust) Pty Ltd (2007) 164 FCR 487 at [59]. In short, Mr Rennie submitted that because there was a real prospect that the prospective action by Rennie Produce against Mr Rennie would be stayed before the criminal proceedings could be heard and determined, the reinstatement would be futile. In support of the latter contention, Mr Rennie referred to the decision of Whelan J in AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSC 312 at [29]. I reject this contention. First, AMP was concerned with a permanent stay on the basis that the proceeding was an abuse of process. That is not this case. AMP was not concerned with a temporary stay on the basis of concurrent criminal proceedings. This latter category was considered most recently in Re AWB Ltd (No 1); Australian Securities and Investments Commission v Flugge (2008) 21 VR 252. 28 In the present case, it is premature to consider this latter category. No civil proceedings have been commenced – it is therefore not possible to consider a stay of potential civil proceedings. And no criminal proceedings have been commenced or are certain. As the ATO submitted, if a stay of the civil proceedings pending any criminal proceedings is to be considered, then such an application can be made once the proceedings have commenced. That preserves the parties' rights and, equally importantly, does not prejudice any party's rights. Costs and Orders 29 The ATO sought an order that Mr Rennie pay the costs incurred since the hearing in the Supreme Court on 25 March on the basis that the matters raised now in relation to futility should have been raised in the Supreme Court on 25 March 2011 and that the arguments about a stay (see [27] and [28] above) are untenable. In the circumstances of this case, Mr Rennie is a non-party but a party from whom it was appropriate to receive submissions: cf Chalker v Clark [2006] VSC 457 at [34]. The Supreme Court could have heard and determined the matter on 25 March 2011. It did not. When the matter came before the Federal Court, Mr Rennie sought leave to file and serve further submissions which the ATO has now answered. The matter was heard on the papers. In those circumstances, I consider that the appropriate costs orders are that the ATO's costs be costs in the winding up and that Mr Rennie should bear his own costs of and incidental to the application. 30 For those reasons, I will make the following orders: 1. The Defendant reinstate the registration of Rennie Produce Pty Ltd (ACN 006 185 824) (the Company) pursuant to s 601AH(2) of the Corporations Act 2001 (Cth). 2. Upon reinstatement of the Company, Giuseppe Michele Rambaldi and Andrew Reginald Yeo both of Pitcher Partners be appointed as joint and several liquidators (the Liquidators) of the Company. 3. A copy of this Order as authenticated be sent by ordinary prepaid post by the Plaintiff to the Liquidators, Paul Nicholas Rennie and Paul Vartelas of BK Taylor & Co. 4. Prior to a copy of this Order as authenticated being lodged with the Defendant together with a completed ASIC Form 105, the Plaintiff pay the Defendant's costs of this proceeding fixed in the sum of $1,000. 5. The Plaintiff's costs of the Application be costs in the winding up of the Company. 6. Otherwise, there be no order as to costs. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 19 May 2011