Australian Securities Commission v Marlborough Gold Mines Ltd

• Re DH International Pty Ltd (in liq); Challis v Hoffmann (2017) 121 ACSR 585; [2017] NSWSC 870 - Re Evans; Sweeney v Evans (1995) 61 FCR 556 - Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 - Re Langdon; Forge Group Ltd (recs and mgrs apptd) (in liq) (2017) ACSR 434; [2017] FCA 170 - Re Mondin; Ex parte Bradshaw (1985) 6 FCR 430 - Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 - Re RCR Tomlinson Ltd (admins apptd) [2020] NSWSC 735 - Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125 - Strategic Finance Ltd (in liq) v Bridgman [2013] NZLR 650; [2013] NZCA 357 - Sturesteps v McGrath [2010] NSWSC 169 - Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd [1998] FCA 1465 - Utah Construction and Engineering Pty Ltd (1996) 116 CLR 200 - WorkCover Corporation v Jakas (2003) 86 SASR 20 Category: Principal judgment Parties: Katherine Elizabeth Barnet and Damien Mark Hodgkinson in their capacity as joint and several liquidators of Spitfire Corporation Ltd (in liq) and Aspirio Pty Ltd (in liq) (First Plaintiffs) Spitfire Corporation Ltd (in liq) (Second Plaintiff) Aspirio Pty Ltd (in liq) (Third Plaintiff) Representation: Counsel: D Krochmalik (Plaintiffs) M Izzo SC/C Ernst (Interested Party) J Burnett (Interested Party)

Solicitors: Mills Oakley (Plaintiffs) Clayton Utz (Interested Party) Marque Lawyers Pty Ltd (Interested Party) File Number(s): 2021/296981

Nature of the application and background facts

1. By Amended Originating Process filed on 4 November 2021, the Plaintiffs, Ms Barnet and Mr Hodgkinson in their capacity as joint and several liquidators ("Liquidators") of Spitfire Corporation Ltd (in liq) ("Spitfire Corporation") and Aspirio Pty Ltd (in liq) ("Aspirio") seek directions under s 90-15 of the Insolvency Practice Schedule (Corporations) ("IPSC") and a declaration as to their claim to an equitable lien arising in the liquidations of those companies. Resilient Investment Group Pty Ltd ("Resilient") and the Commonwealth of Australia (represented by the Attorney General's Department) each appeared in the application and were heard under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW). Other interested parties have been notified of the application but have not appeared or sought to be heard on the application.
2. First, the Liquidators seek a direction under s 90-15 of the IPSC that they would be justified in treating amounts received by Spitfire Corporation by way of research and development tax incentive refunds while it was under administration ("R&D Refunds"), totalling $1,989,849.09, as subject to a circulating security interest and, subject to the Liquidators' claimed equitable lien, using the R&D Refunds to pay any debts or amounts falling within paragraphs (a) and (b) of s 561 of the Corporations Act 2001 (Cth) in priority to any claim of Resilient. Second, the Liquidators seek a declaration that they would be justified in treating Spitfire Corporation as an employer of all of the employees (within the meaning of s 556(2) of the Corporations Act) of the Spitfire Group of companies, with the exception of Mr Laurence Milne, and that those employees are creditors of Spitfire Corporation rather than of Aspirio. I address the scope of the Liquidators' claim to a declaration as to their lien below.
3. The Liquidators recognise, in their opening submissions that: "The application for directions concerns the proceeds of research and development tax refunds that are assets in the winding up of Spitfire Corporation and the proposed distribution of these assets to priority creditors. The outcome of this application will affect the priorities in the distribution of funds in the windings up of the Companies in particular as between, on the one hand, employees with outstanding priority entitlements including superannuation (or, at least, the Commonwealth of Australia standing in their place pursuant to its statutory right of subrogation) and, on the other hand, the secured creditor of the Company, Resilient …."

Affidavit evidence

1. The Liquidators rely on the affidavit dated 19 October 2021 of Ms Barnet, one of the Liquidators. Ms Barnet refers to the Liquidators' appointment as joint and several administrators of Spitfire Corporation and other companies on 7 August 2020, and to the entry of the Deed of Company Arrangement ("DOCA") in relation to Spitfire Corporation and other companies on 4 November 2020. As I noted above, that DOCA was subsequently terminated and Mr Hodgkinson and Ms Barnet were appointed as liquidators of Spitfire Corporation and other companies on 19 February 2021.
2. Ms Barnet in turn refers to the history of the Spitfire Group, and notes that Spitfire Corporation was the holding company for the Spitfire Group and its main purpose was to invest in its subsidiaries, and its subsidiaries were established for the purpose of developing and acquiring wealth management and share analysis technology platforms, with the aim of building a global financial platform that simplified transacting in global financial markets for its users, and that customers of the business were primarily wealth management and financial planning companies (Barnet 19.10.21 [29]-[30]). Ms Barnet in turn refers to the acquisition, by a subsidiary of Spitfire Corporation, of a share analysis platform in March 2019 and to the functions of that platform. She also identifies the circumstances in which Resilient became a secured creditor of Spitfire, by the entry into the Convertible Note Trust Deed ("CNTD"), and Spitfire and Resilient also entered into the General Security Deed ("GSD") which secured Spitfire's obligations under the CNTD. Ms Barnet noted that Resilient registered a financing statement on the Personal Property Securities Register on 2 May 2019, describing the collateral as all present and after-acquired property (Barnet 19.10.21 [37]ff) and there is no dispute as to the validity of that registration.
3. Ms Barnet also addresses Spitfire Corporation's engagement in research and development activities and its entitlement to receive a research and development tax offset from the Australian Taxation Office ("ATO") at the end of each financial year, and she identifies the nature of the research and development activities which gave rise to that entitlement. She refers to the administrators' lodging Spitfire Corporation's income tax return for the financial year ended 30 June 2019, after their appointment, after which Spitfire Corporation received a refund from the ATO in the amount of $1,061,731.91. She also refers to the Liquidators' lodgement of Spitfire Corporation's income tax return for the financial year ended 30 June 2020, after which Spitfire Corporation received a further refund from the ATO in the amount of $963,080.99.

Whether this is an appropriate case for directions

1. As I noted above, the Liquidators seek directions in this application under s 90-15 of the IPSC and refer to the applicable principles as summarised, inter alia, in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 and Re RCR Tomlinson Ltd (admins apptd) [2020] NSWSC 735 ("RCR Tomlinson") at [6] as follows: "The Court's power to give a direction under s 90-15 of the ISPC at least allows the Court to give a liquidator advice as to the proper course of action for him or her to take in a liquidation, and may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion, although it typically will not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision. The power to give directions under this section is wider than its power to give such directions under former s 479(3) of the Act … ."
2. These principles are not controversial. The Liquidators submit that this is a proper case for directions where the issues do not involve business decisions or matters of commercial judgment; the directions sought would provide guidance on complex matters of law arising in a winding up; and the principal creditors of the companies, the Commonwealth and Resilient, have expressed opposing views as to which of them should be afforded priority. I am satisfied that directions may properly be given on that basis.

Whether the R&D Refunds were an asset available for distribution under s 561 of the Corporations Act

1. In dealing with this aspect of the application, I have drawn on a helpful summary of the issues and the parties' positions which they provided at my request and on their more detailed submissions. It is common ground that there is a dispute between the Commonwealth and Resilient as to whether, as at the date of the Liquidators' appointment as voluntary administrators of Spitfire Corporation, the R&D Refunds were an asset subject to a circulating security interest available for distribution in accordance with s 561 of the Corporations Act.
2. I now set out the applicable statutory provisions and principles before turning to the parties' submissions. Section 561 of the Corporations Act relevantly provides: "561 Priority of employees' claims over circulating security interests So far as the property of a company available for payment of creditors other than secured creditors is insufficient to meet payment of: (a) any debt referred to in paragraph 556(1)(e), (g) or (h); (b) any amount that pursuant to subsection 558(3) or (4) is a cost of the winding up, being an amount that, if it had been payable on or before the relevant date, would have been a debt referred to in paragraph 556(1)(e), (g) or (h); and (c) any amount in respect of which a right of priority is given by section 560; payment of that debt or amount must be made in priority over the claims of a secured party in relation to a circulating security interest created by the company and may be made accordingly out of any property comprised in or subject to the circulating security interest."
3. It is uncontroversial that the construction of s 561 of the Corporations Act is to be determined by its text read in the relevant context, and that the object of the provision is to limit the proprietary rights of a secured creditor holding a floating charge, so that preferential debts of employees (whose work had contributed to its assets) are paid out of the property subject to that floating charge in priority to those of the chargee, to the extent that non-charged assets were insufficient to meet those debts. In Kirman v RWE Robinson & Sons Pty Ltd (in liq), in the matter of RWE Robinson and Sons Pty Ltd (in liq) [2019] FCA 372 at [45], Banks-Smith J observed that: "Ordinarily, unsecured creditors have no claim to assets otherwise the subject of a valid and undischarged security until the secured debt is extinguished. Where it applies, s 561 therefore elevates the claim of a priority creditor above the secured creditor so that the priority creditor's claim may be paid out of property the subject of a circulating security interest. Section 561 does not elevate all claims that are accorded priority under s 556(1): the elevation is limited to the claims listed in s 561(a) to (c). Those claims include, relevantly, employee claims."

Whether the R&D Refunds are personal property within the scope of the PPSA

1. The Liquidators identify a preliminary question whether the R&D Refunds are personal property within the scope of the PPSA. They submit that Spitfire Corporation's entitlement to receive the R&D Refunds is a chose in action and that it is trite law that choses in action are personal property. They recognise that, for the chose in action comprising the R&D Refunds to become money, one or more contingencies also needed to be satisfied, including the lodgement of a tax return claiming those refunds. They also recognise the possibility that a further contingency, the making of an assessment by the Commissioner of Taxation, needed to be satisfied and adopt a neutral view as to that matter. They submit that the fact that there are contingencies before a chose in action becomes money does not prevent that asset constituting a form of "property" and that Spitfire Corporation had a right to claim the R&D Refunds, which existed at the Appointment Date, although it was only realised in the form of money at a later date.
2. The Commonwealth supports the proposition that Spitfire Corporation's interest in the R&D Refunds was personal property at the Appointment Date, at least on the basis that Spitfire Corporation's right to the R&D Refunds for the 2018-19 and 2019-20 financial years arose at the conclusion of each relevant income year, when, it contends, the qualifying conditions for the refunds were met. Mr Izzo, with whom Ms Ernst appeared for the Commonwealth, draws attention to the relevant provisions of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997") that deal with tax offsets, including tax offsets to which an entity conducting research and development is entitled. He points out that there is no controversy that Spitfire Corporation conducted relevant research and development activities, through its subsidiaries, and was entitled to and received tax refunds arising from the tax offsets for research and development in respect of the 2018-19 and 2019-20 financial years. He submits, and I accept, that Spitfire Corporation had a legal entitlement to the research and development tax offsets at the Appointment Date derived from the ITAA 1997, although the tax returns by which it should claim those offsets had not yet been lodged.
3. Resilient responds that the R&D Refunds were not property of Spitfire Corporation at the Appointment Date and not "personal property" to which s 340(1) of the PPSA should apply. Mr Burnett, who appears for Resilient, also outlines the statutory structure which gives rise to an entitlement to a "tax offset" under the ITAA 1997. Mr Burnett contends that Spitfire Corporation's claim to the R&D Refunds was at most a right to require the Commissioner of Taxation to perform his duties under taxation legislation, enforceable by public law remedies, which does not create a debt or proprietary right in favour of Spitfire Corporation. He relied on Health Insurance Commission v Peverill (1994) 179 CLR 226 at 242-243 and Commissioner of Taxation of the Commonwealth of Australia v 4 Doonan Street Collinsville Pty Ltd (in liq) (2016) 332 ALR 349; [2016] NSWCA 69 ("4 Doonan Street") at [75] for that proposition.

Whether the R&D Refunds are circulating assets under s 340(1)(b) of the PPSA

1. I now turn to the question whether the R&D Refunds are circulating assets under s 340(1)(b) of the PPSA. As I noted above, s 51 of the Corporations Act defines a "PPSA security interest" as a security interest within the meaning of the PPSA. The Liquidators submit that, in order to establish the existence of a circulating security interest over the R&D Refunds, they must fall within either the first category of "circulating asset" as set out in s 340(1)(a) or the second category in s 340(1)(b) of the PPSA. They point out that s 340(1)(a) specifies assets of the type listed in s 340(5) (subject to the exclusions in ss 340(2)-(3), which do not apply in this case) with the result that the two relevant categories of assets here are those described in either s 340(1)(b) of the PPSA (which I address here) or s 340(5) of the PPSA (which I address below). All parties accept that this definition focuses on the nature of the relevant property, rather than the nature of the security interest, although Resilient emphasisers the terms creating the security interest are relevant to the analysis.
2. Both the Liquidators and Resilient accept that, as I noted above, that s 340(1)(b) of the PPSA is directed to assets that the secured creditor has given authority to the grantor to transfer in the ordinary course of business, free of the security interest. The Liquidators accept that this would ordinarily be understood as the type of assets of that would traditionally have been the subject of a floating charge such as book debts and stock in trade. The Commonwealth does not accept this proposition to the extent that it implies any limitation upon the words of s 340(1)(b) of the PPSA, but it is not necessary to address that question. The Liquidators next submit (and the Commonwealth agrees) that s 340(1)(b) of the PPSA requires attention to the contractual provisions governing the security interest, relevantly the GSD, and whether Spitfire Corporation could transfer the R&D Refunds in the ordinary course of business turns on the construction of the GSD. Resilient also accepts that whether personal property is a security interest within the meaning of s 340(1)(b) requires reference to the GSD, and that issue requires consideration to be given to the nature of the property, the nature of the grantor's business and any other restrictions (contractual or otherwise) on the disposition of the property.

Whether the R&D Refunds are circulating assets under s 340(1)(a) of the PPSA

1. I next turn to the question identified by the Liquidators and pursued by the Commonwealth whether the R&D Refunds are circulating assets under s 340(1)(a) and s 340(5) of the PPSA. Mr Izzo rightly points out and I accept that the analysis for the purposes of s 340(1)(b) (which I addressed above) and s 340(5) of the PPSA (which I address here) is not the same, because the definition of Circulating Asset in cl 1.1 of the GSD includes a requirement that the asset be "proceeds in the form of money or other consideration" and that is not required by s 340(5) of the PPSA.
2. The Liquidators recognise (and the Commonwealth and Resilient agree) that only the assets of Spitfire Corporation of a type that could fall within s 340(5)(a) of the PPSA are relevant to this application. The term "account" is defined in s 10 of the PPSA as (i) a monetary obligation that (ii) arises from (iii) either (A) disposing of property or (B) granting a right or providing services (iv) in the ordinary course of a business of granting rights or providing services of that kind. The term "monetary obligation" is not defined in the PPSA and the Liquidators submit that phrase is satisfied where there is an "existing legal obligation" to pay "an identifiable monetary sum to the company on an ascertainable date" but not where there is a "potential claim … which might or might not arise depending on the actions of a third party". The Liquidators take a neutral position on whether the entitlement to receipt of the R&D Refunds satisfies that test.
3. The first question is whether the R&D Refunds constitute a "monetary obligation" for the purposes of the definition of account in s 10 of the PPSA. Resilient refers to in Strategic Finance Ltd (in liq) v Bridgman [2013] 3 NZLR 650; [2013] NZCA 357 ("Strategic Finance"), where the New Zealand Court of Appeal considered the concept of a "monetary obligation" as it appears in the definition of "account receivable" in s 16 of the Personal Property Securities Act 1999 (NZ) ("PPSA NZ"), which refers to "a monetary obligation that is not evidenced by chattel paper, an investment security, or by a negotiable instrument, whether or not that obligation has been earned by performance". White J (delivering the judgment of the Court) there observed (at [54]) that a monetary obligation: "means an existing obligation imposed on, or assumed by, one party to pay a certain amount of money to the other party on a specific or ascertainable future date. An obligation of this nature will involve an existing liability on the part of the first party which is legally enforceable by the second party."

Whether relevant employees are employees of Spitfire Corporation

1. There is also an issue as between the Commonwealth and Resilient as to which of Spitfire Corporation and Aspirio was the "true employer" of employees with contracts with employment with Aspirio. There is a preliminary question as to the proper approach to this issue as a matter of law. All parties acknowledge the significance of the relevant employment agreements in a controversy as to which entity in a corporate group is the "true employer" in respect of any particular employee. Mr Krochmalik submits and I accept (subject to any change in approach required by three recent High Court decisions that I address below) that whether the employer of the employees was Aspirio or Spitfire Corporation, for the purposes of Pt 5.6 of the Corporations Act, is to be determined as a matter of substance and the totality of the relationship between the parties should be considered: Pitcher v Langford (1991) 23 NSWLR 142 at 161 ("Pitcher v Langford"); Golden Plains Fodder Australia Pty Ltd v Millard (2007) 99 SASR 461; [2007] SASC 391 at [33]; Sturesteps v McGrath [2010] NSWSC 169 at [14]-[19] ("Sturesteps"). Mr Krochmalik also refers to Gleeson JA's observation in Re DH International Pty Ltd (in liq); Challis v Hoffmann (2017) 121 ACSR 585; [2017] NSWSC 870 at [79] (citations omitted) that: "The terms of the employment contract may not be determinative as to the identity of the employer and it is permissible to look beyond the employment contract to decide as a matter of fact who the real employer is and to whom obligations are owed".
2. Mr Izzo in turn points out that courts have held that, in determining the priority of employee entitlements under Pt 5.6 of the Corporations Act, a person may be an employee of a company even where he or she has an employment contract with a different company in the same corporate group. He refers to Edmonds J's summary of the authorities in Gothard (recs & mgrs of AFG Pty Ltd) (in liq) v Davey (2018) 80 ACSR 56; [2010] FCA 1163 ("Gothard") at [52]‑[64], and his Honour's observation at [52] that in: "identifying an employer of a person or group of persons from two or more possibilities ... The courts ... are entitled to take a wide view of the putative relationship, beyond the terms of the contractual documentation, to examine how the parties conducted themselves in practice and whether, where there is contractual documentation, the reality of the situation accords with the terms of that documentation or whether it points to another entity being the employer."

The Liquidators' claim to a declaration as to an equitable lien

1. Third, the Liquidators seek a declaration that they hold an equitable lien over the proceeds of the R&D Refunds with respect to their costs, expenses and remuneration (as approved) in connection with the care, preservation, realisation and subsequent distribution of the proceeds of the R&D Refunds or alternatively a direction that they would be justified in distributing the proceeds of the R&D Refund in a specified manner, which would give first priority to certain costs and expenses for these proceedings and second priority to their costs, expenses and remuneration (as approved) with respect to the care, preservation, realisation and subsequent distribution of the proceeds of the R&D Refunds. In their opening submissions. the Liquidators submit that it is not apparent whether there is any real dispute as to this matter. They refer to the principles applicable to an external administrator's lien for remuneration, costs and expenses reasonably incurred in the care, preservation and realisation of property and submit that they have incurred remuneration referable to the R&D Refunds and general administration expenses in the administration, deed administration and liquidation. While they seek a declaration that they have a lien over the R&D Refunds in respect of those costs, expenses and remuneration, they do not seek a further determination as to the scope of that lien or the amount of those costs, expenses and remuneration, and submit that the parties can approach the Court if disputes emerge.
2. Mr Burnett, for Resilient, accepts as a matter of principle that the Liquidators are entitled to a lien over the proceeds of property for remuneration, costs and expenses reasonably incurred in the care, preservation and realisation of property, and identifies a factual question as to the extent to which such steps have been taken for that purpose, which has not been addressed in this application. He submits, and I accept, that it is premature to grant the relief sought by the Liquidators in respect of that lien, where there is an open question as to the extent of costs, expenses and remuneration that would properly be the subject of that lien and evidence has not been led as to those matters.
3. It seems to me that all questions in respect of the existence of the lien claimed by the Liquidators are preferably determined at the one time, and there is no utility in determining whether it exists "in principle" in the abstract and without identification by the Liquidators of the costs, expenses and remuneration which they contend falls within the scope of that lien. I do not determine this issue.

Orders and costs

1. For these reasons, I will make orders in accordance with paragraphs 2 and 3A of the Amended Originating Process. I will also order that the Plaintiffs' costs of these proceedings be costs in the liquidation of Spitfire Corporation. I reserve the question whether they are payable out of the proceeds of the R&D Refunds which, as the Commonwealth points out, would raise similar issues to those arising from the Liquidators' claim to a lien. I will, as Resilient requested, also reserve the question of the Commonwealth and Resilient's costs of the proceedings. I also note that the Commonwealth and Resilient were given leave to be heard in the proceedings under r 2.13 of the Supreme Court (Corporations) Rules and were not joined as parties to them, and persons heard in that capacity will ordinarily neither obtain the costs of its involvement in the proceedings or have costs ordered against it. On the other hand, it seems to me that this matter has substantially proceeded as contested litigation and there may be a case for an order that Resilient pay the Liquidators' and the Commonwealth's costs of the matter.
2. I direct the parties to bring in agreed short minutes of order to give effect to this judgment including as to costs within five business days, or otherwise their respective short minutes of order and submissions not exceeding six pages in one and a half spacing as to the differences between them.

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: 05 April 2022