Bank of New South Wales v Federal Commissioner of Taxation

Bank of New South Wales v Federal Commissioner of Taxation - [1979] HCA 64 - HCA 1979 case summary — Zoe

[29]

So far as concerned the proceeds of the sale of the assets subject to the fixed charge, this difficulty did not arise, for s. 196 did not apply to them and the bank's entitlement was not affected. With regard to the proceeds of the assets subject to the floating charge, to which s. 196 did apply, the learned primary judge found a solution to the problem by commencing with the proposition that the Crown in right of the Commonwealth was not bound by s. 196 of the Companies Act. His reasoning then proceeded as follows. The effect of s. 196 was to give priority to the employees over the bank, and the employees were entitled only to so much of the assets as would have been necessary to meet the balance of the bank's debt. If, after payment of the employees, the bank was still entitled to rank for the balance of its claim as a secured creditor, the State Parliament would have indirectly destroyed the priority of the Crown in right of the Commonwealth over the claims of the employees, whereas if, on the other hand, the Crown was subrogated to the rights of the employees, the provisions of s. 196 (1) would have been entirely nullified. Both these consequences should be avoided by holding that once the security of the bank had been discharged by payment to it and the employees, s. 196 (3) gave the bank the right to be treated as a general creditor and that, as such, it had no priority over the Crown. He accordingly made an order whose effect was that the receivers should deal with the sum under their control as follows: (1) the bank should be paid that part of that sum which represents the net proceeds of the sale of the assets subject to the fixed charge (i.e., $5,505); (2) the employees should be paid out of the proceeds of the assets subject to the floating charge (which had of course crystallized) but only to the extent to which the bank would, apart from s. 196, have had a claim against those assets (i.e., $7,973.12); (3) the remainder ($21,900.85) should be paid to the Deputy Commissioner on account of income tax and sales tax. He made a further order directing the liquidator to apply the funds available to him, first, by making certain payments to employees under the proviso to s. 221 (1) (b) (ii) of the Income Tax Assessment Act, next, by paying in full the income tax debt and, finally, by paying the balance towards the discharge of the sales tax debt.

[34]

The receivers in the present case were not required or empowered to undertake an administration of assets. In Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. [9] , Dixon J. said that an administration of assets "may take place when the estate of a deceased debtor is administered by his legal personal representative or by the court, when the affairs of a company or other body are wound up, when there is a bankruptcy and also, in effect, when the debtor is a lunatic so found, or occupies a similar position and perhaps there are other instances". Receivership is not such an instance. It is not the duty of a receiver of the property of a company to ensure that the property in his hands is distributed amongst all the creditors of the company. In the present case, the duty of the receivers under the deed was, so far as is relevant, to apply all moneys which they received under the mortgage deed, after payment of certain costs, charges, expenses and outgoings and of their own remuneration, "in payment to the Bank of the moneys hereby secured and the surplus (if any) shall belong to the Mortgagor": see cl. 3 (viii) of the mortgage deed. Under the deed, the receivers were in no way concerned with any creditors of the company other than the bank. By s. 196 of the Companies Act they were placed under a duty to pay the employees mentioned in that section. However, in the absence of any statutory duty to pay any debt due for tax, and if no liquidation had supervened, the receivers would have been bound to pay to the company the surplus remaining after the employees and the bank had been paid, and costs, charges, expenses, outgoings and remuneration had been met. Neither the deed nor s. 196 required the receivers to make any payment to the Deputy Commissioner of Taxation, and, apart from the possible effect of the statutory provisions to which I am about to refer, the Deputy Commissioner of Taxation had no right or claim to any of the assets realized by the receivers or to the proceeds of the realization. There was accordingly no competition between the Deputy Commissioner of Taxation and the employees or the bank in relation either to payment by the receivers or to payment out of the assets in their hands. The prerogative right of the Crown to priority might have been asserted against the liquidators, or possibly against the company itself, but it had no application to the receivers.

[41]

The expression "trustee" in that sub-section includes a receiver (see s. 215 (1) (b) and the definition of debenture in s. 6 (1)). The notification referred to is that given by the Commissioner pursuant to s. 215 (2) under which the Commissioner is required to "notify to the trustee the amount which appears to the Commissioner to be sufficient to provide for any tax which then is or will thereafter become payable by the company or principal, as the case may be". If the trustee fails to comply with any provision of s. 215, or fails as trustee duly to pay the tax for which he is liable under s. 215 (3), he shall, "to the extent of the value of the assets of which he has taken possession and which were available at any time for the payment of tax, be personally liable to pay the tax, and shall be guilty of an offence": s. 215 (4). The only provision of the Sales Tax Assessment Act (No. 1) which requires mention is s. 32, whose provisions are in similar terms to those of s. 215, but which applies only to liquidators and not to receivers. Although, for this reason, s. 32 has no direct application to the present case, the authorities in which its meaning and effect have been considered are of assistance in determining the meaning of s. 215. In Federal Commissioner of Taxation v. Official Liquidator of E. O. Farley Ltd. [14] it was held that the predecessors of the present ss. 215 and 32 neither conferred any priority nor created any charge. After s. 32 had been amended so that it had assumed its present shape, its effect was considered inIn re Foreman and Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation [15] and the same conclusions were reached. The sections originally required the liquidator to set aside the requisite sum "out of the assets of the company", whereas in their present form they require assets to the requisite value to be set aside "out of the assets available for the payment of the tax". In In re Foreman and Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation, Starke J. [16] drew attention to the latter words, saying: "It is to be observed, however, that the liquidator is to set aside the amount of the tax out of "the assets available for the payment of the tax". And that depends, I think, upon a proper and due course of the administration and distribution of the assets." Latham C.J. said [17] that the assets must be set aside and retained to the extent required by s. 32 (2A) and that "The assets must then be applied by the liquidator according to law - i.e., according to common law or any valid statute law". In The Commonwealth v. Cigamatic Pty. Ltd. (In liq.) although Taylor J. [18] indicated that in his opinion the view taken in the earlier cases was open to criticism, the other members of the Court adhered on this point to the earlier decisions. Dixon C.J. said [19] : "However, it may be said that on the view adopted by the majority of the Court in Uther's Case, all the liquidator need do under the provisions is to hold the assets or fund until from other sources of authority the proper application of the same be ascertained or determined." 1. (1940) 63 C.L.R. 278. 2. (1947) 74 C.L.R. 508. 3. (1947) 74 C.L.R., at p. 526. 4. (1947) 74 C.L.R., at p. 517. 5. (1962) 108 C.L.R., at p. 385. 6. (1962) 108 C.L.R., at p. 379.

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