Apostolou v VA Corporation of Australia Pty Ltd

Facts 7 The second and third plaintiffs ("principals") operated a mining plant hire business in the Mt Isa region called "Huddy's Plant Hire" ("business"). The business was sold in 2008 to Industrea Limited ACN 010 720 117 ("Industrea") for $250 million. 8 A number of entities controlled by the principals were involved in the business, namely: (a) Maneroo - incorporated on 2 April 1982, whose members are and always have been the principals and who each hold 12 fully paid A class shares and 12 fully paid B class shares; (b) Norbre Pty Ltd ("Norbre"); and (c) Industrea Mining Services Pty Ltd (one of two companies formerly known as Huddy's Plant Hire Pty Ltd) ("HPH2"). 9 Industrea acquired the business through the acquisition of all of the issued shares in Norbre and HPH2 (to the extent not held by Norbre) on 9 February 2008 from the members of Norbre and HPH2 ("share sale"). Maneroo, as a member of Norbre and HPH2, received a total of $184,450,000 in cash and $62,500,000 worth of Industrea shares from Industrea in consideration for the share sale. 10 Following the completion of the share sale, the principals sought a mechanism to access the proceeds of the share sale and decided that Maneroo would be wound up in order to enable a tax-free liquidation distribution of pre-CGT reserves of Maneroo to be made to the principals, as the members of Maneroo. 11 On 14 December 2010, a resolution of members of Maneroo was passed to, inter alia, voluntarily wind up Maneroo in accordance with s 491 of the Act, and appoint the liquidator for the purpose of winding up the affairs and distributing the property of Maneroo in accordance with s 495 of the Act. 12 Maneroo lodged its 2008 income tax return with the ATO on 21 January 2011 which disclosed that the consideration Maneroo received in respect of the share sale was a non-taxable pre-CGT gain. The Commissioner subsequently commenced a review of the taxation affairs of Maneroo and its related entities, having identified concerns including in respect of the tax treatment of the share sale. 13 Following the Commissioner's review, the Commissioner formed the view that as the majority of the assets of Norbre were post-CGT assets (being shares in HPH2), and that the application of CGT Event K6 under the Income Tax Assessment Act 1997 (Cth) resulted in Maneroo deriving a taxable gain. 14 Following negotiations, the Commissioner and Maneroo entered into a deed of settlement on 12 December 2014. The deed of settlement acknowledged the Commissioner's receipt of monies from or on behalf of Maneroo and required the principals to make an application to a court of competent jurisdiction to terminate the winding up of Maneroo pursuant to s 482 of the Act. 15 On 8 January 2015, the Commissioner issued: (a) notices of amended assessments increasing the total tax and interest payable by Maneroo to $43,580,077.47; and (b) following payment of the notices of amended assessments in full by Maneroo, a clearance certificate pursuant to s 260-45(3) of Schedule 1 in the Taxation Administration Act 1953 (Cth) providing notice to the liquidator that there was no debt owing by Maneroo to the Commissioner. 16 As a result of the issue and payment of the notices of amended assessments, Maneroo now has a franking credit account balance of $31,148,088.00 which is of significant value to the principals, as the members of Maneroo. 17 In addition, the payment of $12,431,989.47 in interest by Maneroo is deductible in the 2015 income year and can be utilised by Maneroo to either reduce its assessable income in the 2015 income year or, to the extent possible, carry forward a loss as a deferred tax asset that may be used to reduce the assessable income of Maneroo in future income years. On the basis that this deduction decreases tax payable by Maneroo, it is of significant value to the principals if it can be deducted against income derived in the 2015 income year or future income years. 18 In the event that Maneroo was wound up, as opposed to being reinstated, it would be unlikely that Maneroo would be able to utilise the deduction in the ways outlined above. 19 The liquidator has sought and considered potential creditors of Maneroo. No creditors have presented themselves. 20 The liquidator has deposed that he has not observed any conduct that may constitute a breach of directors' duties by Maneroo's directors or any other conduct which may constitute an offence by officers of Maneroo or by Maneroo itself.

Legal principles 21 The jurisdiction to terminate a winding up under s 482 is discretionary. The court ordinarily has regard to a range of factors which were set out in the judgment of Master Lee QC in Re Warbler Pty Limited (1982) 6 ACLR 526: Benedict v Olde; in the matter of ATS (Asia Pacific) Pty Ltd [2011] FCA 1008 ("Benedict v Olde") at [5]. Those factors are not to be rigidly applied but it is well accepted that the eight factors listed by Master Lee provide useful guidance: Benedict v Olde at [5], citing Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723. See also In the matter of 311 Hume Highway Liverpool Fund Pty Ltd (in liquidation) [2013] NSWSC 465; (2013) 93 ACSR 683 ("311 Hume Highway") at [4] and the cases there cited. 22 The Warbler factors are as follows: (1) The grant of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary & Edmonton Land Co Ltd (in liq) (1975) 1 WLR 355 ("Re Calgary") at 358-359 per Megarry J. (2) There must be service of notice of the application for a stay on all creditors and contributories, and proof of this: Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113. (3) The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged: Krextile Holdings Pty Ltd v Widdows [1974] VR 689 ("Krextile") ; Re Data Homes Pty Ltd [1972] 2 NSWLR 22. (4) The attitude of creditors, contributories and the liquidator is a relevant consideration: Re Calgary. (5) The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: In Re a Private Company [1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VR 593 at 598. (6) If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd [1963] 2 Ch 174. (7) The general background and circumstances which led to the winding-up order should be explained: Krextile. (8) The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to "commercial morality" or the "public interest": Krextile. 23 In Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84 at [58], Finkelstein J noted that there may be cases, which he characterised as exceptional, where a stay of a company's winding up would not be granted when the company was solvent, but noted that such an order would usually be made if all the creditors are paid out, the liquidator's costs and expenses are covered and the members agree. 24 In this case, the liquidator gave evidence that the company is solvent and that he is not aware of any non-compliance by directors with their statutory duties. There are no relevant creditors apart from the liquidator, whose fees will be paid from funds deposited in an account for that purpose. The second and third plaintiffs agreed to indemnify the liquidator against any fees charged by the plaintiffs' solicitors. 25 I was satisfied that the relevant factors were sufficiently complied with in the present case to make an order. The order was plainly in the interests of the members of Maneroo and the liquidator supported the application. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.