Supreme Court New South Wales Medium Neutral Citation: In the matter of 4 Doonan Street Collinsville Pty Ltd (in liq) [2015] NSWSC 437 Hearing dates: 3 March 2015, supplementary written submissions 10 and 13 March 2015 Decision date: 17 April 2015 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Determination as to application of Part IIB Div 3 of Tax Administration Act 1953 (Cth) and s 500 of Corporations Act 2001 (Cth) in relevant circumstances. Company entitled to judgment in the sum of 4 debits made other than in accordance with the Taxation Administration Act 1953 (Cth). Parties to bring in short minutes of order to give effect to the judgment Catchwords: TAXES AND DUTIES – running balance accounts – where company in liquidation lodges tax returns relating to transactions prior to winding up – where Commissioner sought to set-off amounts in several tax accounts to determine net position – whether Commissioner's approach inconsistent with pari passu principle. TAXES AND DUTIES – running balance accounts – where the Commissioner applied tax credits against tax debits in running balance accounts – whether Commissioner was entitled to do so under s 8AAZLA of the Taxation Administration Act 1953 (Cth). CORPORATIONS – winding up – conduct and incidents of winding up – where Commissioner sought to determine net position within running balance accounts – whether Company had a chose in action as to tax credit prior to set-off – whether amounts in accounts were property under s 9 of the Corporations Act – whether set-off constituted attachment under s 500 of the Corporations Act 2001 (Cth). Legislation Cited: - A New Tax System (Tax Administration) Act 1999 (Cth) - Corporations Act 2001 (Cth) pt 5.5, ss 5A(2), 9, 436A, 439C, 471B, 500, 500(1), 500B, 501(1), 555 - Income Tax Assessment Act 1936 (Cth) - Income Tax Assessment Act 1997 (Cth) s 995-1(1) - Taxation Administration Act 1953 (Cth) pt IIB div 3, sch 1 div 260, ss 8AAZA, 8AAZC(1), 8AAZD, 8AAZL, 8AAZL(1), 8AAZLA, 8AAZLB, 8AAZLF, 8AAZLF(1), 8AAZLG, 8AAZLG(2),8AAZLGA - Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth) - Explanatory Memorandum to the Taxation Laws Amendment (No 8) 2000 Bill (Cth) Cases Cited: - Blacktown Concrete Services Pty Ltd v Ultra Refurbishings & Construction Pty Ltd (in liq) (1998) 43 NSWLR 484; 26 ACSR 759 - Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation [2009] HCA 32; (2009) 239 CLR 346 - Deputy Commissioner of Taxation v Soong [2013] FCCA 2106 - FCT v Official Receiver (1956) 95 CLR 300 - H'var Steel Services Pty Ltd v Deputy Commissioner of Taxation [2005] WASCA 71 - Health Insurance Commissions v Peverill (1994) 179 CLR 226 - Re Barrier Reef Finance & Land Pty Ltd [1989] 1 Qd R 252; (1988) 13 ACLR 708 - Re Overseas Aviation Engineering (GB) Ltd [1963] Ch 24; [1962] 3 All ER 12 - Re Lancashire Cotton Spinning Co (1887) 35 Ch D 656 Category: Principal judgment Parties: 4 Doonan Street Collinsville Pty Ltd (in liq) (First Plaintiff) Atle Crowe-Maxwell in his capacity as liquidator of 4 Doonan Street Collinsville Pty Ltd (in liq) (Second Plaintiff) Commissioner of Taxation of the Commonwealth of Australia (Defendant) Representation: Counsel: E A Collins SC (Plaintiffs) L T Livingston (Defendant) Solicitors: Dibbs Barker (Plaintiffs) ATO Dispute Resolution (Defendant) File Number(s): 2014/80749 Judgment 1. By Originating Process filed on 17 March 2014, 4 Doonan Street Collinsville Pty Ltd (in liq) ("Company") and its liquidator, Mr Atle Crowe-Maxwell, seek orders that the Defendant, the Commissioner of Taxation, pay amounts which they claim were received by the Commissioner as an "attachment, sequestration, distress or execution" against property of the Company after the passing of a resolution for winding up and are void under s 500 of the Corporations Act 2001 (Cth). The Plaintiffs originally also sought corresponding relief under s 471B of the Corporations Act but that relief was not pressed in final submissions (T53). Further and in the alternative, the Plaintiffs seek a declaration that those amounts are money had and received by the Commissioner and an order that the Commissioner pay the Company those amounts. That issue will not arise unless the deductions are avoided by s 500 of the Corporations Act or are otherwise outside the Commissioner's powers. Background facts 1. There is little dispute about the facts underlying the application, which primarily raises questions as to the scope of Pt IIB Div 3 of the Taxation Administration Act 1953 (Cth) ("TAA 1953") and s 500 of the Corporations Act. The Plaintiffs' application is supported by an affidavit of Mr Crowe-Maxwell dated 11 September 2014 which deals with the history of his appointment and the Company's dealings with the Commissioner. The Commissioner in turn relies on an affidavit of Ms Anna-Marie Scott dated 15 October 2014 which outlines the manner in which the Commissioner maintains computer records, including the various systems used to maintain records of tax payable. Ms Scott refers to several running balance accounts ("RBAs") maintained by the Commissioner in respect of the Company, including an Insolvency Integrated Client Account RBA and another Integrated Client Account RBA (Scott [11] – [12]). Ms Scott also refers to the Company's income tax account, which she does not treat as an RBA, contrary to the admission made by the Commissioner in its Defence to which I will refer below. Ms Scott was briefly cross-examined in respect of her affidavit. 2. The Company was the trustee of the 4 Doonan Street Collinsville Unit Trust and previously owned and operated a caravan park. Receivers and managers were appointed to the Company by a lender on 18 August 2010. Administrators, including Mr Crowe-Maxwell, were subsequently appointed to the Company by its directors under s 436A of the Corporations Act on 27 August 2010. On 31 March 2011, the Company was placed in voluntary winding-up and Mr Crowe-Maxwell was appointed as liquidator of the Company by resolution of its creditors under s 439C of the Corporations Act. 3. On 24 May 2011, the Commissioner submitted a proof of debt in the liquidation of the Company in the amount of $50,464.52, relating to an RBA deficit in respect of the Company's business activity statement accounts as at 31 March 2011. That proof of debt also included, in an attachment, a record of outstanding lodgements of the Company which referred to outstanding business activity statements for July and August 2010 and outstanding income tax returns for the years ended 30 June 2010 and 30 June 2011. 4. The receivers completed a sale of the Company's property and business assets on 29 December 2010. The receivers subsequently lodged a tax return for the period from their appointment to 30 June 2011 and recorded income of $1,543,691, which included a net capital gain of $1,400,733 (Ex P1, Tab 8), giving rise to a consequential tax liability. The receivers paid the resulting tax to the Commissioner about 21 February 2012 (Ex P1, Tab 11) and retired from office on 2 May 2012. 5. Mr Crowe-Maxwell submitted an amended tax return for the year ending 30 June 2011 on 16 November 2012 with the result that the Company's tax liability for that year was reduced by $651,340.85. Mr Crowe-Maxwell's affidavit dated 11 September 2014 indicates that the amendment involved reducing the amount of capital gains tax payable by the Company to correct an overpayment. On 7 February 2013 the Commissioner credited that amount ("Credit Amount") to the Company's income tax account. The Credit Amount was an incomplete reflection of the Company's tax position, where neither the Company nor the liquidator had then lodged business activity statements for July and August 2010 or a tax return for the period to 30 June 2010. 6. On 16 February 2013, the Commissioner debited $50,464.52 ("First Debit") against the Credit Amount contained in the Company's income tax account, described as "[c]redit offset to Integrated Client Account". On that date, a credit of $50,464.54 was also posted to the Insolvency Integrated Client Account RBA, described as "payment transferred in from another account" (Ex P1, Tab 12). The Commissioner's position is that it made an allocation of that amount from the Credit Amount contained in the Company's income tax account to income tax withholding and goods and services tax ("GST") for the quarters ending 31 December 2009 and 31 March 2010. The Commissioner withdrew its earlier proof of debt after the First Debit was made against the Credit Amount. 7. On 15 March 2013, the liquidator lodged business activity statements for July 2010 and August 2010 and debits arising from those business activity statements and interest were posted to the Insolvency Integrated Client Account RBA (Ex P1, Tabs 13, 14), resulting in a debit balance in that account of $52,238.48. 8. Mr Crowe-Maxwell lodged the Company's income tax return for the year ending 30 June 2010 under cover of a letter dated 2 April 2013 (Crowe-Maxwell [25], Ex P1, Tab 15). The Commissioner issued a notice of assessment in relation to income tax for that year on 6 May 2013 recording tax payable by the Company of $173,692.35 (Crowe-Maxwell [27], Ex P1 Tab 17). On 16 April 2013, the Commissioner offset that amount ("Second Debit") against the balance of the Credit Amount then remaining in the Company's income tax account. The Commissioner's position is that it made an allocation of that amount to income tax for the income tax year ending 30 June 2010. 9. On 29 April 2013, the Commissioner offset $2,176 against the balance of the Credit Amount then remaining in the Company's income tax account, described as "credit off-set to Integrated Client Account" ("Third Debit"); offset a further $52,238.48 against the Credit Amount, also described as "credit off-set to Integrated Client Account" ("Fourth Debit") referable to the debit balance to which I referred in paragraph 8 above; and offset a further amount of $35.45 from that account described as "credit off-set to superannuation guarantee account" ("Fifth Debit"). The Commissioner's position is that it made an allocation to income withholding for July and August 2010 in the amount of $2,176; to GST for the quarter ending 31 December 2010 in the amount of $52,238.48; and to a superannuation guarantee charge in the amount of $35.45. 10. Mr Crowe-Maxwell notes, in his affidavit dated 11 September 2014 that each of the five debits in issue (together "Debits") were "processed" after the date on which a winding up order was made, namely 31 March 2011. Nonetheless, the Debits arose from the calculation of amounts due as a result of the conduct of the Company's business prior to the winding up order, but not yet calculated by reason of the Company's previous failure to file, inter alia, its instalment activity statements for July 2010 and August 2010 and its 2010 tax return. 11. A notice of amended assessment for the period ended 30 June 2011 was issued on 14 May 2013 (Ex P1, Tab 18) and identified that the Credit Amount had been applied to the Company's income tax account. The Commissioner remitted the sum of $398,457.44 to the Company on 27 May 2013 (Crowe-Maxwell [28]), being the Credit Amount less the Debits made against it to which I have referred above. (I have disregarded a minor difference with the cheque found at Ex P1, tab 18, in the amount of $398,472.44. Nothing turns on the difference in this application.) The liquidator demanded repayment of the total of those Debits, $287,606.80, by letter dated 20 September 2013 (Crowe-Maxwell [29]). Whether Pt IIB Div 3 of the TAA 1953 applied after the Company was placed in liquidation 1. The Plaintiffs' first submission is that the powers that the Commissioner purported to exercise under Part IIB Div 3 of the TAA 1953 were not available once a liquidator had been appointed to the Company. By paragraph 17 of the Plaintiffs' Grounds of Application contained in the Originating Process, they contend that the Commissioner was not authorised to apply the Debits against the Credit Amount. In answer to paragraph 17 of the Grounds of Application and the claim that it was not authorised to deduct the relevant amounts from the Credit Amount, the Commissioner says that s 8AAZL of the TAA 1953 and either ss 8AAZLA or 8AAZLB of the TAA 1953 required it to apply each of the debits against the Credit Amount. 2. I should now set out the relevant provisions of the TAA 1953. Section 8AAZC(1) of the TAA 1953 permits the Commissioner to establish one or more systems of accounts for the primary tax debts of an entity, known as running balance accounts (which I have abbreviated above as "RBAs"). Under s 8AAZD of the TAA 1953, the Commissioner may allocate a primary tax debt to an RBA that has been established for that type of tax debt. Ms Collins, who appeared for the Plaintiffs, points out, and I accept, that the running balance provisions in Pt IIB Div 3 of the TAA 1953 are directed to the administration of dealing with tax debts which arise under substantive provisions of other tax legislation. 3. Section 8AAZL of the TAA 1953 in turn provides that: (1) This Division sets out how the Commissioner must treat the following kinds of amount: (a) a payment the Commissioner receives in respect of a current or anticipated tax debt or tax debts of an entity; (b) a credit (including an excess non‑RBA credit) that an entity is entitled to under a taxation law; (c) an RBA surplus of an entity. (2) The Commissioner must treat each such amount using the method set out in section 8AAZLA or 8AAZLB (but not both). Note: In either case, section 8AAZLC has some additional rules that apply to RBA surpluses and to certain excess non‑RBA credits. (3) However, the Commissioner does not have to treat an amount using either of those methods if doing so would require the Commissioner to apply the amount against a tax debt: (a) that is due but not yet payable; or (b) in respect of which the taxpayer has complied with an arrangement under section 255‑15 to pay the debt by instalments; or (c) in respect of which the Commissioner has agreed to defer recovery under section 255‑5. (4) Furthermore, the Commissioner does not have to treat an amount using either of those methods if: (a) doing so would require the Commissioner to apply the amount against a tax debt; and (b) the tax debt is a penalty that is due and payable under section 269‑20 in Schedule 1 (penalties for directors of non‑complying companies). 1. The term "RBA surplus" is defined in s 8AAZA of the TAA 1953, in relation to an RBA of an entity, as a balance in favour of the entity, based on primary tax debts that have been allocated to the RBA, payments made in respect of current or anticipated primary tax debts of the entity, and credits to which the entity is entitled under a taxation law that had been allocated to the RBA. The term "excess non-RBA credit" is defined in s 8AAZA of the TAA 1953 as a credit that arises under s 8AAZLA or s 8AAZLB of the TAA 1953. The Commissioner accepts that the Credit Amount applied to the Company's income tax account on 7 February 2013 was "a credit … that an entity is entitled to under a taxation law" within the meaning of s 8AAZL(1)(b) of the TAA 1953. 2. Section 8AAZLA of the TAA 1953, under the hearing "Method 1—allocating the amount first to an RBA", provides as follows: (1) The Commissioner may, in the manner he or she determines, allocate the amount to an RBA of the entity or, if the entity is a member of an RBA group, to an RBA of another member of the group. (2) The Commissioner must then also apply the amount against the following kinds of debts (if there are any): (a) tax debts that have been allocated to that RBA; (b) general interest charge on such tax debts. (3) To the extent that the amount is not applied under subsection (2), it gives rise to an excess non‑RBA credit in favour of the entity that: (a) is equal to the part of the amount that is not applied; and (b) relates to the RBA to which the amount was allocated. This section follows immediately after s 8AAZL and the reference to "the amount" in it is plainly to the amount referred to s 8AAZL being, inter alia, the credit to which the entity was entitled under taxation law. 1. Section 8AAZLB of the TAA 1953 provides an alternative method ("Method 2") for applying an amount against a non-RBA tax debt. The term "non-RBA tax debt" is defined in s 8AAZA of the TAA 1953 as a tax debt other than a RBA deficit debt. It is not necessary to address that method, although the parties addressed it in submissions, because it was ultimately common ground between the parties that an admission by the Commissioner in its Defence, although likely made in error, that the Company's income tax account is an RBA account has the consequence that only "Method 1" under s 8AAZLA of the TAA 1953 would be available in the relevant circumstances. In paragraph 14 of their Grounds of Application, the Plaintiffs characterised the income tax account to which the Credit Amount was applied as an RBA, and the Commissioner admitted that allegation in paragraph 8 of its Defence. The proceedings were conducted on the basis of that admission, which the Commissioner did not seek leave to withdraw, although the Commissioner drew to the Court's attention in oral submissions and in additional written submissions, by leave, that that admission was not consistent with the evidence. 2. The operation of s 8AAZL of the TAA 1953 was described in the Explanatory Memorandum to the Taxation Laws Amendment (No 8) 2000 Bill (Cth), to which the Commissioner refers, as follows: "Section 8AAZL in Division 3 of Part IIB of the TAA 1953 requires the Commissioner to apply any payment, credit or RBA surplus to either an RBA or a non RBA tax debt. Any amount outstanding after its application is the reduced balance of the payment, credit or RBA surplus which is also required to be treated in the same manner. That is, there is a diminishing circular process of applying payments, credits or RBA surpluses and against tax debts until there are no tax debts remaining. This application process is mandatory. The Commissioner does not have a discretion to treat the amounts in another manner." 1. In H'var Steel Services Pty Ltd v Deputy Commissioner of Taxation [2005] WASCA 71, Wheeler JA noted that the regime established by Part IIB Div 3 of the TAA 1953 involved an "auxiliary obligation created to facilitate collection of the variety of taxes with which the TAA is concerned" and that there existed an identity of amount between the RBA deficit debt under that Division and a primary tax debt in respect of taxes and penalties imposed by other legislation, so that an amount will be allocated to an RBA when a primary tax debt had been quantified. Her Honour also noted (at [15]) that s 8AAZLA and 8AAZLB provide how secondary tax debts must be allocated and that: "In summary, the amount is to be allocated to the RBA of the entity, or may be applied against a non-RBA tax debt of the entity; if the non-RBA tax debt is a tax debt which has been allocated to an RBA, the Commissioner must also allocate that amount to that RBA." 1. In Deputy Commissioner of Taxation v Soong [2013] FCCA 2106 at [8], Raphael J in turn observed that the statutory regime under s 8AAZL of the TAA 1953 "permits the Commissioner to allocate funds paid to him amongst the various tax debts of a tax payer at his discretion" and referred (at [17]) to "the lawfulness, encapsulated in statute, of the Commissioner's ability to utilise the money for the purposes of satisfying in part some other debt". 2. Section 8AAZLF(1) of the TAA 1953 in turn requires the Commissioner to refund so much of the RBA surplus of an entity or a credit (including an excess non-RBA credit) in the entity's favour as the Commissioner does not allocate or apply under Pt IIB Div 3. However, s 8AAZLG of the TAA 1953 provides that the Commissioner may retain an amount that it otherwise would have to refund to an entity under s 8AAZLF, if that entity has not given the Commissioner a notification that affects or may affect the amount that it refunds to the entity, and that the entity is required to give to the Commissioner under any of the BAS provisions (as defined in s 995-1(1) of the Income Tax Assessment Act 1997 (Cth)). Section 8AAZLG(2) in turn provides that the Commissioner may retain that amount until the entity has given the Commissioner that notification or the Commissioner makes an assessment of that amount, whichever happens first. Section 8AAZLGA of the TAA 1953 in turn addresses the position where a notification has been provided to the Commissioner but it is reasonable to require verification of the information provided to the Commissioner. 3. In oral submissions, Ms Collins contended that the real question was whether the Commissioner could exercise set-off provisions in the running balance account system after a liquidator had been appointed and, on the Plaintiffs' case, the Commissioner could not do so after a liquidator's appointment (T36). Ms Collins accepted in oral submissions that, notwithstanding her cross-examination on Ms Scott had ranged more widely, the question raised by the Plaintiffs in this respect was whether the Debits to the Company's income tax account were outside the Commissioner's statutory powers and no question whether he had acted reasonably or unreasonably arose. 4. The Plaintiffs refer to Div 260 of Schedule 1 to the TAA, dealing with collection and recovery of tax-related liabilities and other accounts, and note that Subdiv 260-B, inserted by the A New Tax System (Tax Administration) Act 1999 (Cth) deals with, inter alia, a liquidator's obligations. The Plaintiffs submit that, on the proper construction of the TAA 1953, the powers conferred on the Commissioner by Part IIB Div 3 of the TAA 1953 in relation to payments received, creditors and RBA surpluses are not available if a liquidator has been appointed to a company, and the special rules in Subdiv 260-B of Schedule 1 to the TAA 1953 about collection and recovery of tax from a liquidator apply in that situation. The Plaintiffs particularly refer to s 260-45 of Schedule 1 to the TAA and to the High Court's observation in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation [2009] HCA 32; (2009) 239 CLR 346 at [16] (omitting footnotes) that s 260-45(6): "provides, in effect, that the liquidator is obliged to set aside from the assets of the company available to pay tax-related liabilities and other, non-priority, unsecured debts, the proportion of those available assets that would be applied in accordance with s 555 of the Corporations Act to meet the notified amount of tax-related liabilities. The liquidator is then further personally obliged to discharge the outstanding tax liabilities of the company to the extent of the value of the assets the liquidator is required to set aside under the proportionate formula. Failure by the liquidator to comply with these obligations is a criminal offence." 1. Ms Collins accepted that the Debit applied to the income tax account on 16 February 2013 of $50,464.52 was a debt of the Company owed to the Commissioner and recorded on another RBA as at the date on which it was applied to the income tax account (T25). Ms Collins submits, however, that the four subsequent Debits applied to the income tax account did not exist at the date of posting of the credit, because neither the Company or the liquidator had yet put in the business activity statements or tax return for the 2010 year (T25). Ms Collins accepted in oral submissions that the premise of the Plaintiffs' argument was that, in effect, the Company's chose in action was a right to repayment of the Credit Amount that arose, prior to any offset against it arising. Ms Collins also submits that the effect of the Commissioner's conduct is that, some two years after the Company was placed in voluntary winding up on 31 March 2011, and in the case of the Second through Fifth Debits, approximately two months after the Credit Amount was applied to the Company's income tax account, the Commissioner exercised powers under Part IIB Div 3 of the TAA 1953 with effect that "he has recovered in full the amount of tax debts allegedly owing by the Company". While that characterisation no doubt had an apparent forensic advantage to the liquidator, it seems to me that the proposition that the Commissioner had recovered its "tax debts" in full is the corollary of the proposition that the Commissioner has also paid the Company the credit arising from its activities, as calculated under Pt IIB Div 3 of the TAA 1953. The contrary proposition depends on a concealed premise that the amount of those debts is to be calculated by reference to particular accounts maintained by the Commissioner that are not aggregated together. 2. The Commissioner responded that there is no reason for the Court to read the provisions of Pt IIB Div 3 of the TAA 1953 as subject any limitation, not expressed in them, which would have the effect of denying their application where a credit or RBA surplus arises in respect of a company in liquidation. The Commissioner also submitted that Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation above concerned different provisions and is distinguishable. The Commissioner also submits that the issue of a notice under s 260-5 of Schedule 1 to the TAA is distinct from the legislative scheme in Pt IIB Div 3 of the TAA, so far as the former is in the nature of a statutory garnishee provision, and would allow the Commissioner to exercise positive rights for the recovery of what is owing against a third party to the exclusion of the liquidator and, indirectly, at the expense of other creditors who might prove in the winding up. In oral submissions, Mr Livingston, who appeared for the Commissioner, submitted that the Company had no chose in action for repayment of the Credit Amount without regard to the offsets against it. He relied on that submission not only to resist the Plaintiffs' claim under s 500 of the Corporations Act, which I address below, but also to submit that the Company had no proprietary right or chose in action which was appropriated or extinguished by the exercise of the Commissioner's powers under Pt IIB Div 3 and there is therefore no reason to read those down those powers in the manner for which the Plaintiffs contend, and no analogy with the position in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation above. 3. Mr Livingston also submitted that Pt IIB Div 3 of the TAA 1953 dealt with a different matter than Div 260 of Schedule 1 of the TAA 1953, concerning a liquidator's obligations, and that those Divisions operated independently and were not in conflict, so there was no reason to read one division as subject to the other. Mr Livingston also submitted that Div 260 of Schedule 1 of the TAA, and in particular s 260–45, is directed to a liquidator's obligation to set aside a portion of the company's assets to discharge a portion of outstanding tax–related liabilities and, by contrast, Pt IIB of the TAA 1953 is directed to the allocation or application of amounts, including credits or surpluses, which arise in the administration of the taxation legislation, and is a regime of general application to companies and non-corporate taxpayers whether or not they are in liquidation or in bankruptcy. Mr Livingston also points out that Pt IIB Div 3 is contained in the body of the TAA 1953, and not in Schedule 1 of the TAA, indicating that it deals with the Commissioner's powers and obligations in administering the tax laws, rather than with the topic of collection and recovery of tax liabilities which are found in Schedule 1 to the TAA. Mr Livingston also points out that, by contrast with the provisions at issue in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation, Pt IIB Div 3 of the TAA is not a debt recovery mechanism, but a set of procedures for treating credits, payments and surpluses arising on a running balance account. 4. In Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation above, the High Court held that the Commissioner's general power to issue a notice under s 260-5 of Schedule 1 to the TAA 1953 was not available where a liquidator had been appointed to a company, because s 260-45 of the TAA 1953 dealt specifically with the collection and recovery of tax liabilities of companies from liquidators, and the application of s 260-5 in that situation would disrupt the proportionate system established by s 260-45 for a liquidation (at [20]). The Plaintiffs submit that the position in the present case is analogous, and that the Commissioner cannot exercise his powers under the TAA 1953 to "appropriate for his own benefit a credit otherwise payable to the taxpayer". It seems to me that the analogy with Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation above, and any apparent attraction of that submission, turn upon a misdescription of what occurred. As I noted above, the proposition that the Commissioner has appropriated a credit otherwise payable to the Company depends upon a premise that the amount owing by the Commissioner to the Company, or by the Company to the Commissioner, is to be determined by reference only to the Company's Income Tax account at the time the Credit Amount was entered in it, without regard to the position as it emerges from other accounts maintained by the Commissioner when other aspects of the Company's tax position emerged from returns belatedly submitted by it. There seems to me to be no "disruption", whether to the proportionate system established by s 260-45 of Schedule 1 of the TAA 1953 for liquidation or to any wider pari passu principle, by either the liquidator or the Commissioner having regard to the position between them, as determined by reference to all of the tax accounts maintained by the Commissioner, aggregated together and reflecting all relevant information, rather than only by reference to one such account at a point that it reflected incomplete information, provided the TAA 1953 otherwise permits that course on its proper construction. 5. To put that proposition another way, it is clear enough why the exercise of rights under s 260-5 of Schedule 1 to the TAA 1953 at issue in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation above, by which the Commissioner appropriated a debt owing to the Company which would not then be available to creditors generally, was inconsistent with the proportionate system established by s 260-45 for liquidation. It does not seem to me, by contrast, that the determination of the net position as between the Commissioner and the Company, having regard to all of the various tax accounts maintained by the Commissioner in the light of the returns lodged by the Company and the liquidator, involves any such disruption to that proportionate system or any inconsistency with a pari passu approach, where the result would be that the net amount owing to the Commissioner would be proved in the liquidation, or (as in this case) the total balance owing to the Company would be paid to it. I am reinforced in that view by the fact that the set-off of different accounts maintained by a party dealing with an entity in liquidation has long been recognised as consistent, rather than inconsistent, with the policy underlying a winding up. It seems to me that the inconsistency or disruption on which the liquidator relies is illusory and that there is no reason to read down Part IIB Div 3 of the TAA 1953 in an attempt to avoid it. 6. The position does not alter in this case, it seems to me, because the last four Debits were applied after the appointment of the liquidator, since those entries reflect events that had occurred prior to the liquidation and would have been reflected in the tax accounts maintained by the Commissioner prior to the liquidation if the Company had lodged its business activity statements and 2010 tax return in a timely fashion. It does not seem to me that any of the relevant provisions of the TAA 1953 reflect any wider public policy, not reflected in their terms, that a liquidator or a company's creditors should be able to take advantage of a company's delay in lodgement of tax returns, or in an extreme case, a decision to defer the lodgement of tax returns in anticipation of a winding up. 7. The Plaintiffs also placed some weight on the passage of the Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth) which repealed a former requirement in the Income Tax Assessment Act 1936 (Cth) ("ITAA") that a liquidator apply a company's assets in payment of tax in priority to all other unsecured debts. The liquidator sought to characterise the conduct of the Commissioner in this matter as allowing priority to the Commissioner's claim over other debts. As I have noted above, it does not seem to me that that characterisation is well-founded, where what the Commissioner did was to determine the amount owing to it as at the date of the winding up, after aggregating amounts in several accounts, although that amount could not be quantified until after the liquidator had lodged its business activity statements and the 2010 tax return. If the separate accounts maintained by the Commissioner are properly aggregated, including amounts that were disclosed by the subsequent lodgement of business activity statements and that tax return, then the Commissioner did not seek or achieve priority in the winding up, but only the recognition of the entirety of its debt, by way of set-off, in determining the balance due to the Company. Whether the Debits were void under s 500 of the Corporations Act 1. The Plaintiffs also claim a declaration that the Debits were an attachment, sequestration, distress or execution put in force against the property of the Company within the meaning of s 500 of the Corporations Act, and that each of the Debits is void within the meaning of Part 5.5 of the Corporations Act, and an order that the Commissioner of Taxation pay the Company the sum of $278,606.80 being the amount of the Debits. 2. The Plaintiffs contend that the Credit Amount was "property" of the Company under s 8AAZLF of the TAA 1953 and the Commissioner had an obligation to refund that amount to the Company. By paragraph 9 of its Defence, the Commissioner denies that the Credit Amount was the Company's property and contends that the Commissioner must refund only so much of a surplus or credit as it did not allocate or apply under Pt IIB Div 3 of the TAA 1953 and that the Commissioner made specified allocations under Pt IIB Div 3 of the TAA 1953. The Plaintiffs contend, in paragraph 18 of the Grounds of Application contained in the Originating Process, that the Debits constituted attaching and/or sequestrating and/or raising a distress and/or executing against that property of the Company and were avoided by s 500 of the Corporations Act. By paragraph 12 of its Defence, the Commissioner denies that contention and contends that the deductions were at no time the property of the Company and that allocations required to be made by it under s 8AAZL of the TAA 1953 do not fall within the concept of an attachment, sequestration, distress or execution for the purposes of s 500 of the Corporations Act. 3. Section 500(1) of the Corporations Act provides that any: "Attachment, sequestration, distress or execution put in force against the property of the Company after the passing of the resolution for voluntary winding up is void." The term "property" is defined in s 9 of the Corporations Act as "any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action". Section 501(1) of the Corporations Act in turn provides that a Company's property must, on its winding up, be applied in satisfaction of its liabilities equally. Section 555 of the Corporations Act provides that all debts and claims proved in a winding up rank equally and, if the Company's property is insufficient to meet them in full, they must be paid proportionately. Those sections bind the Crown in right of the Commonwealth, by reason of s 5A(2) of the Corporations Act. 1. The Plaintiffs submit that, if the Debits made against the Credit Amount are not void as beyond power, the broad interpretation given to the concept of "attachment" under s 500(1) of the Corporations Act in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation above supports a finding that the Debits amounted to an "attachment, sequestration, distress or execution" against property of the Company. In oral submissions, Ms Collins placed primary emphasis on the proposition that the Debits posted against the income tax account were an attachment against property within the meaning of s 500 of the Corporations Act. Ms Collins submitted (T23) that the Company had a chose in action to recover the money paid by way of overpayment of its income tax liability, and that chose in action was property of the Company. I do not accept that submission, if it is intended to suggest that the Company's chose in action amounted to property with a value of the amount of the Credit Amount without reference to the statutory scheme established by Pt IIB Div 3 of the TAA 1953. Any chose in action of the Company could be for no more than the amount derived by the proper application of the statutory scheme, having regard to any amounts owed by the Company to the Commissioner, not least because the Commissioner could raise that matter in defence of any proceedings brought or the Company in respect of the claimed chose in action. Ms Collins also put an alternative version of that argument in oral submissions, that the question was to be determined at the date at which the Credit Amount was posted to the relevant account. I also do not accept that submission, because the statutory regime did not require the Commissioner to repay that amount in full to the Company on that date, by reason of the qualification in s 8AAZLG of the TAA 1953, to which I referred above. 2. The Commissioner responds to the Plaintiffs' claim that the making of the relevant allocations amounted to an attachment or sequestration or distress or execution against the Company's property, for the purposes of s 500 of the Corporations Act, that the Credit Amount was not the Company's "property"; the process of allocating or applying that credit under the TAA 1953 was not an "attachment, sequestration, distress or execution" against that property; and the specific regime in Pt IIB Div 3 of the TAA 1953 prevails over any inconsistent operation of the general provision in s 500 of the Corporations Act. 3. The Commissioner submits, and I accept, that the Credit Amount was not "property of the company" for the purposes of s 9 of the Corporations Act until the Commissioner had made the allocations or applications it was required (or at least entitled) to make under s 8AAZL of the TAA 1953, and the "property of the company" for the purposes of s 500 of the Corporations Act was only any excess or residue which remained after those allocations or applications. Mr Livingston pointed out, in oral submissions, that it was a fundamental premise of the Plaintiffs' case, in respect to the claim that it had a chose in action in the amount of the Credit Amount, that they could have come to Court on or shortly after 7 February 2013 and obtained an order compelling the Commissioner to pay the Company that amount. Mr Livingston submitted that no such chose in action existed (T53). Mr Livingston also submitted that, although the liquidator put its chose in action as a claim to recover a mistaken payment, Pt IIB Div 3 of the TAA 1953 nonetheless regulated the rights and remedies of a taxpayer who has overpaid, so far that overpayment would be (and in this case, was) reflected, in the first instance, by the making of a credit in the income tax account. Mr Livingston points out that, on Mr Crowe–Maxwell's evidence, the Commissioner was entitled to retain an amount which he would otherwise have had to refund under s8AAZLG of the TAA 1953, where business activity statements of the Company were outstanding and not lodged until 15 March 2013 and the Commissioner would then have a reasonable time to proceeded to make such a refund under s 8AAZLF of the TAA 1953. 4. The Commissioner submits, rightly in my view, that, under s 8AAZLF(1)(b) of the TAA 1953, the only amount which was required to be refunded to the Company by the Commissioner was the excess non-RBA credit in the Company's favour which existed after the process of allocation or application of the Credit under Pt IIB Div 3 of the TAA 1953, if that allocation were undertaken in accordance with that Division. The Commissioner also submits, and I also accept, that the Company had no more than a right to seek relief to require the Commissioner to perform his duties under Pt IIB of the TAA, prior to the point at which the relevant allocations had been made so as to determine an amount payable to it. The Commissioner points out, by reference to authority, that a claim to such relief, requiring the Commissioner to perform his duties, does not create a debt or proprietary right in favour of the Company in the amount that it would derive from the performance of those duties: FCT v Official Receiver (1956) 95 CLR 300 at 311, 324; Health Insurance Commission v Peverill (1994) 179 CLR 226 at 242–243. The Commissioner submits that, a fortiori, the Company's ability to seek an order requiring the Commissioner to comply with the requirements of Pt IIB Div 3 of the TAA 1953 did not allow the Company a proprietary interest in the Credit Amount for the balance of the RBA as it stood from time to time, prior to the making of such allocations or applications by the Commissioner under s 8AAZL of the TAA 1953. 5. At general law, the concept of attachment includes taking, apprehending or seizing property capable of sale to meet the entitlement of a judgment creditor, and includes a garnishee order in respect of a debt owing to a company by another party: Blacktown Concrete Services Pty Ltd v Ultra Refurbishings & Construction Pty Ltd (in liq) (1998) 43 NSWLR 484; 26 ACSR 759. The reference to "attachment" in this section extends to both curial and non-curial attachments, including those effected by a notice given by the Australian Tax Office issued under s 260-5 of Schedule 1 to the TAA 1953: Bruton Holdings Pty Ltd (in liq) v Cmr of Taxation above. It seems to me that, in order to establish an attachment in the relevant sense, the Plaintiffs would need to establish that the Credit Amount, prior to the Debits against it, was the Company's property, against which an attachment or other relevant step was taken. I do not accept that proposition. It does not seem to me that a credit existing at a point in time in a single account maintained by the Commissioner is the proper measure of any property of the Company, which must have regard to the amount due to the Company as determined in accordance with Part IIB Div 3 of the TAA. If the Commissioner properly determined that amount, that determination cannot amount to an "attachment" of the Company's property, because the Company had no property other than that which was derived from that determination. 6. For completeness, I should note that Commissioner also points out, by reference to authority, that "sequestration" is the detention of property by a court to answer a demand. Execution is the process of enforcing or giving effect to a court's judgment: Re Overseas Aviation Engineering (GB) Ltd [1963] Ch 24; [1962] 3 All ER 12; Re Barrier Reef Finance & Land Pty Ltd [1989] 1 Qd R 252; (1988) 13 ACLR 708. Distress is an extrajudicial process, arising, for example, under a lease or mortgage debenture: Re Lancashire Cotton Spinning Co (1887) 35 Ch D 656. The Commissioner submits, and I accept, that the power to allocate or apply a credit or RBA surplus under s 8AAZL of the TAA does not bear any of the characteristics of, and is not analogous to, the enforcement of a debt, whether by way of garnishee, seizure, sequestration or otherwise. It seems to me that the steps taken by the Commissioner do not amount to either sequestration, execution, where no judgment of the Court was involved, or distress. 7. Given the findings which I have reached as to this issue on that basis, it is not necessary to deal with the Commissioner's further submission that the specific provisions in Pt IIB Div 3 of the TAA prevail over any inconsistent cooperation of the general provisions in s 500(1) of the Corporations Act. The method of allocation of the Debits to the RBA 1. The Plaintiffs also advanced a narrower attack on the method of allocation of the Debits to the income tax account, contending that it was not undertaken in compliance with s 8AAZLA of the TAA. The Plaintiffs submitted that: "The obligation in s 8AAZLA(2) to next apply [the Credit Amount] to 'tax debts that have been undertaken to that RBA' (emphasis added) was incapable of being fulfilled, as there were no other tax debts allocated to 'that RBA' at that time. The subsequent posting of five debits to the income tax RBA was not in compliance with the method set out in section 8AAZLA(2)." In oral submissions, Ms Collins submitted that, if the Commissioner was permitted to exercise the powers in Pt IIB Div 3 of the TAA 1953 in the course of a liquidation, he had not done so in accordance with the requirements of the statute (T37) and that if, at the date the liquidator was appointed, an RBA records a credit in favour of a company, the Commissioner cannot apply that credit against other debts which subsequently arise. I also do not accept that submission, because I do not accept its premise that s 8AAZLA(2) applies only to permit the application of a credit in the RBA to a tax debt allocated to the RBA at a point in time. That reading of the section would, among other things, deprive those provisions that authorise the Commissioner to defer paying out a credit of practical effect because, on that reading of the section, if further inquiries indicated that a further debit should be allocated to the RBA, the credit which existed at a point in time could nonetheless not be applied against that further debit. 1. The Plaintiffs also submit that ss 8AAZLG and 8AAZLGA of the TAA 1953 do not purport to qualify the Commissioner's obligation to refund an RBA surplus or credit that he does not allocate or apply under Pt IIB Div 3, arising under s 8AAZLF(1) of the TAA 1953. Even if that proposition were correct, it does not seem to me to have the consequence that, having obtained further information under those sections, the Commissioner cannot then take further steps under Pt IIB Div 3 which would reduce the RBA surplus or credit which existed at a particular point in time, and comply with the obligation under s 8AAZLF(1) of the TAA 1953 by refunding the amount of the RBA surplus or credit as properly calculated after taking those further steps. 2. However, other difficulties arose with the application of Method 1 in the relevant circumstances, at least so far as I am required to approach the matter on a somewhat artificial basis, arising from the admission made by the Commissioner that the income tax account was an RBA. The application of Method 1 under s 8AAZLA of the TAA 1953 to each of the Debits was also addressed by additional written submissions made, by leave, by the Commissioner on 10 March 2015 and by the Plaintiffs, in reply, on 12 March 2015. 3. The Plaintiffs submit that the first relevant allocation, for the purposes of s 8AAZL, was an allocation of the amount of the Credit Amount to the Company's income tax account on 7 February 2013, which required the Commissioner to treat that amount by the method specified in s 8AAZLA (Method 1). I accept that the liquidator's amendment of the tax return gave rise to a credit to which the Company was entitled under a taxation law (subject, of course, to the terms of Pt IIB Div 3), and that credit could have been allocated to the income tax account which is to be treated as an RBA, by reason of the admission made in the Commissioner's Defence. By reason of that admission, and the fact that the Credit Amount was applied to that account, it seems to me that I must infer that the Commissioner undertook an allocation of the Credit Amount to that account for the purposes of Pt IIB Div 3, absent evidence to the contrary. I am conscious that there is a degree of artificiality in that result where, but for that admission, that matter may have involved no more than a credit arising from the payment of income tax being recorded, as an accounting matter, to the Company's income tax account. 4. The Commissioner in turn submits, and I accept, that the First Debit involved an allocation, using Method 1, of the Credit Amount contained in the income tax account to discharge an RBA deficit debt of $50,464.52 in the Insolvency Integrated Client Account RBA. However, Method 1 under s 8AAZLA of the TAA 1953 only permitted an allocation of the Credit Amount to a tax debt allocated to the income tax account (once it was treated, by reason of the Commissioner's admission, as an RBA) and the tax debt that was extinguished by the First Debit was allocated to the Company's Insolvency Integrated Client Account rather than the income tax account. For that reason, the First Debit was not authorised by Pt IIB Div 3 of the TAA 1953. 5. In their supplementary written submissions, the Plaintiffs also submit that the Commissioner was not authorised to make a "partial" allocation of the Credit Amount to the Company's Insolvency Integrated Client Account on the basis that s 8AAZLA of the TAA 1953 does not permit a "partial" allocation. It is not strictly necessary to determine that question given the finding that I have reached above. However, I should indicate that it seems to me that ss 8AAZL and 8AAZLA of the TAA 1953 permit an allocation that meets the description of an allocation of the specified kinds of amount (referred to in s 8AAZL(2) as "such amount" and in s 8AAZLA as "the amount") even if the allocation is not of the whole of the relevant amount. It seems to me that s 8AAZLA(1) supports that reading of the sections so far as it contemplates that "the amount" may be allocated to more than one debt, and the first such allocation would necessarily amount to a partial allocation of that amount. The Plaintiffs also submit that the Commissioner's claim that it "partially" allocated the Credit Amount to the Insolvency Integrated Client Account RBA is not supported by evidence. It seems to me that no evidence is required to support the Commissioner's characterisation of what occurred, beyond the documentary evidence of an allocation of less than the full amount of the Credit Amount to the Insolvency Integrated Client Account RBA to extinguish the debt then recorded in that account. However, I have held above that the allocation was not authorised under Method 1 in s 8AAZLA of the TAA 1953. 6. On the basis that the allocation of part of the Credit Amount in respect of the First Debit was not properly made, the Commissioner was then entitled, under s 8AAZL of the TAA 1953, to allocate the Credit Amount (which had not been validly applied to the Insolvency Integrated Client Account RBA) using Method 1, since it was an excess non-RBA credit for the purposes of s 8AAZLA(3) of the TAA 1953. 7. The Commissioner submits that the Second Debit made on 16 April 2013 involved an allocation of the excess non-RBA credit in the Company's income tax account, remaining after the First Debit had been allocated to the Insolvency Integrated Client Account RBA, to discharge unpaid income tax for the year ending 30 June 2010. The Commissioner points out that the Company's unpaid income tax debt was simply debited against the existing credit balance in the income tax account and, as I noted above, the Commissioner draws to the Court's attention that its position is that the income tax account is not, in fact, an RBA but accepts, for the purposes of these proceedings, that it is bound by its admission in its Defence that that account was an RBA. An allocation of the Credit Amount against the Second Debit in that manner is authorised by s 8AAZLA of the TAA 1953 where the debt for income tax was reflected in the income tax account, on the basis that it is treated as an RBA. The Commissioner submits, and I accept, that after the Credit Amount was applied against the Second Debit in the income tax account, s 8AAZLA(2) of the TAA 1953 had no operation as at 16 April 2013, because there was then no other tax debt that had been allocated to the income tax account. The remaining balance of the Credit Amount was then an excess non-RBA credit for the purposes of s 8AAZLA(3) which the Commissioner was authorised by s 8AAZL of the TAA 1953 to allocate or apply using Method 1. 8. The Commissioner submits that the Third, Fourth and Fifth Debits, each made on 29 April 2013, respectively amount to the allocation of the balance of the Credit Amount, being an excess non-RBA credit in the income tax account in the amount of $2,176 to the Insolvency Integrated Client Account RBA, $52,238.48 to the Integrated Client Account RBA and $35.45 to the Superannuation Guarantee Charge Integrated Client Account RBA. The Commissioner submits that, after those allocations, there were no further tax debts against which the Credit Amount was to be applied and the refund of the balance of the Credit Amount to the Company was made under s 8AAZLF of the TAA 1953. In their supplementary written submissions, the Plaintiffs submit that it was not open to the Commissioner to apply the Method 1 process to the Third – Fifth Debits, two months after the Credit Amount was applied to the Company's income tax account. I accept that submission, although the delay is not necessary to that result. As I noted above, Method 1 under s 8AAZLA of the TAA 1953 only permitted an allocation of the Credit Amount to a tax debt allocated to the income tax account (once it was treated, by reason of the Commissioner's admission, as an RBA) and the tax debts that were extinguished by the Third –- Fifth Debits were allocated to accounts other than the income tax account. For that reason, the Third –- Fifth Debits were not authorised by Pt IIB Div 3 of the TAA 1953. For completeness, I note that the Plaintiffs also submit that the recording of the Debits to the income tax account does not establish, as a matter of evidence, that the Debits had been allocated to (presumably, as distinct from recorded against) the income tax account. It seems to me that that inference can readily be drawn from the recording of the Debits against that account. Restitution 1. I have held that the First and Third - Fifth Debits were not authorised by Pt IIB Div 3 of the TAA 1953, on a narrow basis that largely results from the Commissioner's admission that the income tax account was an RBA account. I do not understand the Commissioner to resist the Plaintiffs' claim in restitution in that situation. Accordingly, there should be judgment for the Plaintiffs in the amount of $113,914.45, being the total of the debits ($287,606.80) less the amount of the Second Debit ($173,692.35) which was properly made. Orders and costs 1. The parties should bring in agreed short minutes of order to give effect to this judgment, including as to costs, within 14 days. ********** Amendments 15 May 2015 - Paragraph 20 - line 8 - "His Honour" to "Her Honour" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 May 2015