Bow Ye Investments Pty Ltd (in liq) v DPP & Ors [2009] VSCA 149

1 This is an appeal from a decision of a judge of the Trial Division dismissing an application to set aside orders made under the Confiscation Act 1997 (Vic). The appeal essentially concerns the question of whether the orders gave an operation to the relevant provisions of the Confiscation Act 1997 which altered, impaired or detracted from the operation of the Corporations Act 2001 (Cth) and brought the former into direct inconsistency with the latter. If direct inconsistency arose, s 109 of the Constitution would operate to render the relevant provisions of the Confiscation Act invalid.

Factual background and history****[1]

2 On 17 March 1999, Tat Sang Loo pleaded guilty in the Magistrates' Court of Victoria at Dandenong to 14 charges relating to the illegal sale of abalone in contravention of the Fisheries Act 1995 (Vic). The charges arose out of an illegal abalone processing business conducted by Loo in 1997 and 1998. He was convicted on all charges and sentenced to a term of imprisonment of 18 months with a non-parole period of 12 months. He appealed the sentence and, on 14 December 1999, a judge of the County Court varied parts of the magistrate's order but did not disturb the conviction and imposed the same term of imprisonment.

3 On 19 November 1998, shortly after Mr Loo had been charged, a judge of the County Court, restrained him and the present appellant, Bow Ye Pty Ltd ('Bow Ye') pursuant to s 18 of the Confiscation Act 1997 from disposing of two properties situated at 26 Calambeena Avenue, Oakleigh and 181 Exhibition Street, Melbourne (the 'Oakleigh and City properties'). At all material times, the registered proprietor of the Oakleigh and City properties was the appellant as trustee of the Loo Family Trust. At the date of the restraining order, Mr Loo was the sole director, secretary and shareholder of the appellant.

4 On 21 April 1999, the Director of Public Prosecutions (the 'Director') applied to a judge of the Trial Division of the Supreme Court for:

5 (a) a forfeiture order under s 32 of the Confiscation Act on the basis that the properties were 'tainted property';

6 (b) a pecuniary penalty order pursuant to s 58 of the Confiscation Act; and

7 (c) a declaration, pursuant to s 70 of the Confiscation Act, that the properties be available to satisfy the pecuniary penalty order.

8 On 11 October 2000, a judge of the Trial Division ordered that Loo pay a pecuniary penalty pursuant to s 59 of the Confiscation Act. His Honour also made orders that certain properties, not including the Oakleigh and City properties, be forfeited pursuant to s 33 of the Confiscation Act. His Honour declined to make a declaration pursuant to s 70 of the Confiscation Act, adjourning the application to a later date and observing that an application for leave to proceed may be necessary under s 440F of the then Corporations Law given that an administrator, Mr R J McDermott, had been appointed to the appellant on 14 September 2000.[2]

9 On 14 November 2000, the Director filed an Originating Motion seeking leave to proceed with the application against the appellant for a declaration pursuant to s 70 of the Confiscation Act. However, before that application could be determined, on 24 November 2000, a meeting of creditors voted to place the appellant into liquidation. It seems that no creditors attended the meeting in person. By this time Mr Loo's son, Zachary, had replaced his father as sole director of the appellant. Zachary held proxies for all but one of the creditors, with the proxy for that creditor being held by Mr McDermott, the administrator. The effect of the resolution made at the meeting was that winding up commenced on the first day of the administration, that is 14 September 2000.

10 On 1 December 2000, a Master of the Supreme Court made an order granting leave to the Director to proceed under s 440F of the Corporations Law against the appellant. Thereafter, on 6 March 2001, the Director filed a fresh application seeking a declaration pursuant to s 70 of the Confiscation Act that the Oakleigh and City properties be made available to satisfy the pecuniary penalty ordered by the Court on 11 October 2000.

11 Later, on 20 November 2001, a judge of the County Court varied the restraining order initially made on 19 November 1998 restraining the disposal of the Oakleigh and City properties to permit their sale, with the proceeds to be held by the liquidator.

12 In the course of the liquidation of the appellant, formal proofs of debt were lodged by five creditors of the company. The liquidator admitted the debts of four of those creditors, totalling $218,219.03. When the Director's application came before a judge of the Trial Division on 14 November 2001, his Honour adjourned the matter and ordered that notice of the application be given to the creditors and to the beneficiaries of the Loo Family Trust.

13 On 20 February 2002, just prior to the resumption of the hearing Mr Loo gave Notice of a Constitutional Matter under O 19 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (the 'Supreme Court Rules') stating that the proceeding involved a matter arising under the Constitution or involved its interpretation within the meaning of s 78B of the Judiciary Act 1903 (Cth). No application to intervene was made.

14 Essentially the notice raised two issues: first, whether ss 70 and 72 of the Confiscation Act are directly inconsistent with Ch 5 of the Corporations Act (external administration provisions) by virtue of s 109 of the Constitution; and, if so, whether those provisions are saved by Part 1.1A of the Corporations Act (dealing with the interaction between the corporations legislation and state and territory laws).

15 The Director's application was heard and determined by a judge of the Trial Division who held that the Oakleigh and City properties were available to satisfy the pecuniary penalty order made on 11 October 2000. On the constitutional point, his Honour held that no constitutional invalidity arose in the operation of the Confiscation Act.[3] His Honour concluded that, even assuming direct inconsistency between the relevant provisions, Part 1.1 of the Corporations Act would operate to save the state legislation.[4] Accordingly, orders were made on 18 June 2002 granting the Director the declaration sought.

16 Loo successfully appealed the decision.[5] The Court of Appeal held that s 70 and 72 of the Confiscation Act did not prevail over the winding up provisions in Chapter 5 of the Corporations Act. The decision is relevant to the present case.[6] Consequently, on 29 June 2005, the Court of Appeal set aside the orders of the trial judge made 18 June 2002 and ordered that the application under s 70 of the Confiscation Act be dismissed.

17 On 18 July 2005, the Director made application pursuant to s 16 and s 27(4) of the Confiscation Act for:

(a) orders setting aside the restraining orders made against Loo and the appellant on 19 November 1998 by a judge of the County Court which remained in force in respect of the appellant's properties; and

(b) additional restraining orders in relation to the dividends determined by the liquidator of the appellant; and

18 On that same day, upon the giving of an undertaking as to damages, orders were made by a judge of the Trial Division setting aside restraining orders made by a judge of the County Court on 19 November 1998, and making new orders under ss 14(3) and 18 of the Confiscation Act.

19 Section 14 of the Confiscation Act relevantly states:

(1) A restraining order is an order that no property or interest in property, that is property or an interest to which the order applies, is to be disposed of, or otherwise dealt with by any person except in the manner and circumstances (if any) specified in the order.

...

(3) If the court making a restraining order considers that the circumstances so require, the order may direct a trustee specified in the order to take control of some or all of the property specified in the order.

20 Section 18 relevantly states:

(2) On an application under section 16(2)(a) [in relation to 'tainted property'], the court must make a restraining order if it is satisfied that -

(a) the deponent of the affidavit supporting the application does suspect that the property is tainted property in relation to a Schedule 2 offence; and

(b) there are reasonable grounds for that suspicion.

21 The orders of 18 July 2005 are the subject of this appeal and are set out below:

1. THE COURT ORDERS pursuant to section 27(4) of the Confiscation Act ... that [orders of a judge of the County Court] be set aside ...
2. THE COURT ORDERS pursuant to section 18 of the Confiscation Act that the respondents, whether by themselves or by their servants, agents or any other person otherwise be restrained from disposing of or in any other way dealing with:

(A) The dividend to be declared, if any, and to be payable to Leong Mei FONG/Benteng Kiarra SDN BHD by the Liquidator of Bow Ye Investments Pty Ltd (in liquidation) (Bow Ye Investments Pty Ltd) pursuant to the liquidation of Bow Ye Investments Pty Ltd; and

(B) The dividend to be declared, if any, and to be payable to Leong Jeet Yui by the liquidator of Bow Ye Investments Pty Ltd pursuant to the liquidation of Bow Ye Investments Pty Ltd; and

(C) The dividend to be declared, if any, and to be payable to William TANG (aka Tang Kok SONG) by the liquidator of Bow Ye Investments Pty Ltd pursuant to the liquidation of Bow Ye Investments Pty Ltd; and

(D) The dividend to be declared, if any, and to be payable to Robert LOH by the liquidator of Bow Ye Investments Pty Ltd pursuant to the liquidation of Bow Ye Investments Pty Ltd; and

(E) The dividend to be declared, if any, and to be payable to any other creditor by the liquidator of Bow Ye Investments Pty Ltd pursuant to the liquidation of Bow Ye Investments Pty Ltd other than The Commissioner of State Revenue and Monash City Council; and

(F) Any surplus of the liquidation of Bow Ye Investments Pty Ltd.

and the court DECLARES pursuant to section 15(3) of the Confiscation Act that the property referred to in this paragraph is restrained for the purpose of satisfying any pecuniary penalty order that may be made under Part 8 of the Confiscation Act.

1. THE COURT DIRECTS pursuant to section 14(3) of the Confiscation Act that any dividend or surplus referred to in paragraph 2 of the orders hereof (other than any dividend to be declared and to be payable to The Commissioner of State Revenue or Monash City Council) be paid to State Trustees Limited ACN 064 593 148 being a "trustee" within the meaning of the Confiscation Act, pending the hearing and determination of any application in respect of the funds or further order.

22 The order in paragraph three requires distributions be paid to State Trustees Limited ('State Trustees') and contemplates that creditors may make exclusion applications under the Confiscation Act. The creditors are persons and companies in Malaysia and Singapore. The order seems to be intended to preserve the funds against movement off-shore.[7]

23 By Summons dated 18 September 2006 the appellant applied for orders, inter alia, that the orders of 18 July 2005 be set aside so far as they concerned Bow Ye. A judge of the Trial Division dismissed the application on 14 September 2007.

24 The appellant was granted leave to appeal on 14 November 2007. On 14 April 2008, the Director filed a Notice of Contention. Pursuant to orders of the Registrar, the appellant filed and served a Notice of a Constitutional Matter in accordance with O 19 of the Supreme Court Rules. No application to intervene has been made.

25 The application before the learned trial judge primarily concerned orders restraining the payment of dividends the liquidator determined to be due to certain creditors. As his Honour observed, the 'effect of payment of the sums in issue will be to remove the assets from the jurisdiction, in circumstances where it is likely they will be difficult to follow.'[8]

26 Sections 501 and 506(3) are the relevant provisions of the Corporations Act. Section 501 provides:

Subject to the provisions of this Act as to preferential payments, the property of a company must, on its winding up, be applied in satisfaction of its liabilities equally and, subject to that application, must, unless the company's Constitution otherwise provides, be distributed among the members according to their rights and interests in the company.

The liquidator must pay the debts of the company and adjust the rights of the contributories amongst themselves.

28 In dismissing the application, the learned trial judge held that whilst there was a potential inconsistency between the relevant voluntary winding up provisions of the Corporations Act and the relevant restraining order provisions in Part 2 of the Confiscation Act, there was ultimately no direct inconsistency between the operation of those provisions.

29 His Honour reached this position by concluding first, that the Corporations Act does not place the property of a company in liquidation beyond the scope of a potential claim by a third party; and secondly, that the rights that the creditors would seek to assert in the context of the Corporations Act, are in fact also able to be asserted under the Confiscation Act. As such, the creditors' rights under the Corporations Act are not adversely affected by the relevant provisions of the Confiscation Act and therefore, the particular provisions of the two acts are not inconsistent.

30 On the first point, the Corporations Act itself, in s 500(2), envisages that a proceeding might be brought against a company in liquidation in relation to its property with leave of the court. The section prevents an 'action or other civil proceeding' against a company in voluntary winding up without leave of the court. His Honour held that the words 'an action or other civil proceeding' were broad enough to encompass an application for a restraining order under the Confiscation Act. As such, the Corporations Act envisages that such an application may be brought with leave of the court.

31 On the second point, his Honour held that the making of the restraining order did not give rise to an inconsistency between the interest in the property asserted by the creditors, and the rights and interests created by the Corporations Act. If the creditors claims are not genuine, then the dividend in issue is not in fact payable and the liquidator has no obligation to pay it. Conversely, if the creditors claims are genuine, then the basis of the restraining order will fall away and the relevant interests should be excluded from it. In this respect, the creditors are free, as persons claiming an interest in the property, to pursue an application for exclusion of the dividends from the restraining order pursuant to s 20(1) of the Confiscation Act. Thus, the creditors are permitted to assert the same right which they would seek to assert in the context of the Corporations Act. The trial judge distinguished Loo[9] on the basis that the rights of the creditors were adversely affected by the provisions of the Confiscation Act under consideration in that case.

32 The learned trial judge described in the reasons for judgment an underlying factual dispute between the Director and the appellant as to whether the creditors have genuine claims in respect of debts payable by the company.[10] The Director asserts that the alleged debts arise out of sham transactions and are not payable to the creditors. The liquidator has not purported to form a concluded view as to the underlying factual dispute.

33 The background to the underlying factual dispute was summarised by this Court in the earlier judgment in Loo as follows:

At all material times - particularly 1997 and 1998 ... Loo was a trader in illegally acquired abalone. In February 1997, Loo procured the incorporation of [Bow Ye] of which he was, between the date of its incorporation and its winding-up, the sole director, shareholder and secretary. Also, from the time of its incorporation, Bow Ye was the trustee of the Loo Family Trust, the trust having been established by deed dated 29 January 1997. Loo was the guardian and appointor named in the trust deed. Bow Ye was the registered proprietor of ... [the Oakleigh and City] properties ... The [Oaklegh] property ... had been acquired by Loo and his wife in February 1990, and appears to have been their matrimonial home, although the judge found that it had also been used by Loo in 1997/8 for the processing of abalone. In any event, that property was sold by Loo and his wife to Bow Ye in 1997 for the sum of $249,000; and in May 1997, Bow Ye acquired the [City] property ... for $275,000. It would appear, and the primary judge so found, that in March 1997 Loo had set up three bank accounts in names of persons he knew well or to whom he was related. Loo operated those accounts under notice of authority; and from March 1997 until June 1998, large sums of money passed through each account. The judge concluded, from the evidence before him, that the deposits into the accounts represented likely proceeds of sale of abalone. The judge also concluded, on the material before him, that funds on a large scale were available to Loo throughout 1997; a period during which "on the face of it, substantial unsecured loans were made to Bow Ye by off-shore individuals and a company with whom and which respectively [Loo] had links". His Honour identified three, or possibly four, unsecured creditors from Malaysia and Singapore who, at the time when Bow Ye went into liquidation ... claimed to be owed somewhere in the vicinity of $350,000. These creditors did not appear in the proceedings before the judge, despite being given notice in accordance with s.70 of the Act. The judge described the debts which they claimed as "dubious". The major assets of Bow Ye at the commencement of liquidation were the two properties which I have described. The value ascribed to them was approximately $500,000.[11]

34 In the judgment the subject of the present appeal, the learned trial judge stated that there was

no suggestion at the hearing ... that the affidavit material filed on behalf of the DPP and referred to by [the trial judge in making the orders of 18 July 2005] did not disclose a proper basis for concluding that it is suspected on reasonable grounds that the property in issue is not in fact property to which the creditors are entitled.[12]

35 His Honour held that the evidence did not establish that the creditors were owed payment in respect of the debts in issue, rather it provided a basis for serious doubt that this was so. However, his Honour also noted that the proceeding raised a question as to whether the restraining order is a valid procedural device for resolving the underlying factual dispute which itself could be brought before the Court for determination under the Confiscation Act.

36 The appellant asserted four grounds of appeal. The first ground alleges error on the part of the learned trial judge in holding that there was no direct inconsistency between sections 14 and 18 of the Confiscation Act and Ch 5 of the Corporations Act through the operation of the orders made on 18 July 2005.

37 The second ground does not allege specific error, but in effect makes submissions as to how the learned trial judge should rightly have resolved the issue to find direct inconsistency.

38 The third ground contends that the learned trial judge fell into error in holding that there was no direct inconsistency between the provisions on the ground that an application for a restraining order was an 'action or other civil proceeding' within the meaning of s 500(2) of the Corporations Act and could therefore be proceeded with or commenced with the leave of the court. This point is quickly disposed of and it is convenient to deal with it immediately.

39 Section 500(2) is a procedural provision which contemplates that an action or other proceeding may be brought against a company in voluntary winding up with leave of the court. As correctly observed by the learned trial judge, '[t]he words "no action or other civil proceedings" in s 500(2) are broad ones apt to cover claims for remedies such as an order for specific performance, injunction or rescission of a contract.'[13]

40 Whether the application would be granted in a particular factual circumstance is irrelevant. The Corporations Act contemplates that the property of a company in voluntary liquidation may be the subject of a claim by a third party.

41 Logically, an application for a restraining order under the Confiscation Act is not in a special or discrete category outside an 'action' or 'civil proceeding'. Rather, it is analogous to the injunctive and restraining powers under the Corporations Act itself. In any event, I observe this point was not of itself determinative to his Honour's reasoning and was in the nature of obiter.

42 The fourth ground takes issue with the learned trial judge's conclusion that the rights of the creditors under both the Confiscation Act and the Corporations Act, and the enquiry made under both Acts as to whether the claims of the creditors are genuine, are the same, and the conclusion that there is no direct inconsistency between the two.

Submissions of the appellant and the Director

43 It was submitted on behalf of the appellant that direct inconsistency arises between the Acts because the restraining order ventures beyond a restraint upon the creditors from dealing with the funds in their hands to a restraint upon the liquidator in performing a central part of his function, pursuant to the Corporations Act, in paying the debts of the company in liquidation. The orders of 18 July 2005, contends the appellant, prevent the liquidator from carrying out his duties under Part 5 of the Corporations Act by effectively restraining him from disposing or dealing with the property which is the subject of the orders in the manner prescribed by the Corporations Act. In particular, the restraining order prevents the liquidator from paying the debts of the company as required by s 506 of the Corporations Act, or alternatively, under s 501 from applying the company's property to the discharge of its debts, and subject to that to be distributed to the members of the company.

44 By his Notice of Contention the Director submits that there was no direct inconsistency between the Acts because the restraining order does not alter, impair or detract from the rights, powers or obligations of either the liquidator of Bow Ye, or its creditors or contributories, under the Corporations Act.

45 The Director contends that the restraining order restrains potential dividends, yet to be declared, and any possible surplus from being paid to the creditors or contributories of Bow Ye and instead directs such monies to be paid to the State Trustees. The payment of these monies to the State Trustees, it is submitted, will discharge the liquidator's obligations under the Corporations Act because the State Trustees will hold the monies on trust for the relevant parties. The Director argues that the Corporations Act does not confer an unqualified legal right upon the creditors to receive dividends, nor on the contributories to receive any surplus in the winding up of a corporation. The Director also submits that the payment to the State Trustees does not prevent the liquidator from finalising the winding up of Bow Ye.

46 The appellant argues that the State Trustees does not gain any interest in the property but merely holds it pending an outcome, in a similar manner to the lawyers of the parties in a joint account, or the Prothonotary, or some other entity simply holding the funds until the court determines the position. The appellant's position is that the holding of the funds by the State Trustees does not amount to a discharge of the liquidator's liability to the creditor. It is, submits the appellant, merely a payment to a third party with no direction as to how that payment should be distributed other than an implicit direction that it be held. The liquidator might then rightly fear that if a dividend payable to a creditor were in fact paid to a third party and the third party became insolvent, or the payment could not be otherwise recovered, the creditor would have a good action against the liquidator for non-payment of the dividend.

47 At this point, it is relevant to turn to the related decision in Loo.[14] As with the present case, the issue in Loo was whether certain provisions of the Confiscation Act were inconsistent with parts of the Corporations Act by way of s 109 of the Constitution.[15] However, the relevant provisions were ss 70 and 72 of the Confiscation Act and the winding up provisions in Chapter 5 of the Corporations Act, in particular ss 555 and 556 relating to priorities in winding up generally.

48 The Court essentially looked at two questions. First, did s 5G of the Corporations Act operate to avoid inconsistency between the relevant provisions of the State Act and the Commonwealth Act? Secondly, if s 5G is not applicable, did the two laws operate concurrently with each other within the meaning of s 5E of Pt 1.1A of the Corporations Act, which provides, '[t]he Corporations Act is not intended to exclude or limit the concurrent operation of any law of a State ...'

49 Section 5G was enacted to prevent direct inconsistency between Commonwealth corporations legislation and state and territory laws (and hence certain provisions of State legislation being invalidated pursuant to s 109 of the Constitution) by providing that if certain conditions are satisfied, the inconsistent provisions in the Commonwealth legislation will be 'rolled back'[16] to allow the relevant provisions of the state laws to continue to operate. In effect, the provisions in Part 1.1A 'endeavour to cut down the operation of s 109'.[17]

50 The conditions that the state provisions must satisfy are set out in the table appended to s 5G(3). These vary depending on whether the state provisions commenced before or after the commencement of the Corporations Act. It was agreed between the parties in Loo that ss 70 and 72 of the Confiscation Act were 'pre-commencement (commenced) provisions' within the meaning of s 5G of the Corporations Act.[18]

51 For s 5G to apply to the interaction between ss 70 and 72 of the Confiscation Act and Chapter 5 of the Corporations Law, the relevant provisions of the Confiscation Act were required to satisfy, inter alia, the condition that those provisions operated immediately before the Corporations Act commenced despite the provisions of the Corporations Law which corresponded to the provisions of the Corporations Act in question.[19]

52 Section 5(1) of the Corporations (Victoria) Act 1990 (Vic) ('Victorian Corporations Act') provided that an Act enacted after the commencement of the section was not to be interpreted as amending or repealing, or otherwise altering the effect or operation of the Victorian Corporations Act or the Corporations Law. Section 5(2) created an exception where the Act 'provide[d] expressly' that it was to have effect despite the provisions of the Victorian Corporations Act or the Corporations Law. The operation of ss 70 and 72 of the Confiscation Act was therefore assessed in light of s 5 of the Victorian Corporations Act.

53 At issue in Loo was whether ss 70 and 72 of the Confiscation Act 'provided expressly' for those provisions to operate despite the winding-up provisions of the Corporations Law. If the provisions of the Confiscation Act did so provide, then s 5G of the Corporations Act would operate to prevent their invalidity.

54 The Court held, in answer to the first question, that the provisions did not so provide and therefore s 5G of the Corporations Act did not operate. Absent the application of that section, the Court held there is direct inconsistency between the statutory charge created under ss 70 and 72 of the Confiscation Act and ss 555 and 556 of the Corporations Act which create rights in the creditors of a company in liquidation. [20]

55 In considering the second question in Loo, that is, whether the two laws are capable of operating concurrently, Winneke P (with whom Charles JA agreed) concluded that they could not.[21] His Honour confirmed the conclusion of the trial judge that the pecuniary penalty order created a civil debt due to the Crown and that a declaration under s 70 gave rise to a charge (by way of s 72(2) of the Confiscation Act) which went to securing the Crown's position in relation to the debt created by the pecuniary penalty order.[22]

56 In the particular factual circumstances in Loo, the debt and the security both post-dated the commencement of the winding up. In addition, the pecuniary penalty order was made against Mr Loo, not Bow Ye and was therefore only enforceable against Loo. The judge at first instance in Loo doubted, but did not decide, whether a pecuniary penalty order made against Bow Ye after the commencement of the winding up would be effective.[23] Winneke P noted the doubts of the trial judge but like his Honour did not decide on the issue, it not being relevant in circumstances where the pecuniary penalty order was made against Loo not the company.[24]

57 In holding that the laws were not capable of concurrent operation Winneke P stated that the 'effect of making the order would be that Bow Ye's assets would become security for the indebtedness of Loo, leaving the unsecured creditors of Bow Ye subject to the secured debt of the Crown.'[25] The liquidator of Bow Ye would be deprived of assets of the company which would otherwise have been available to meet the debts of the company and the order of priorities would be altered as a result of the charge created in favour of the Crown.

58 Although the trial judge refrained from expressing a final opinion on the concurrency point,[26] his Honour came to a provisional conclusion that the laws were not capable of concurrent operation because a conflict arises with the liquidator's duties under the Corporations Act:

It is difficult to conclude that a provision of a state Act rendering a corporate asset security for a pecuniary penalty order made after the date of commencement of a winding up against a person other than the company is capable of concurrent operation with the liquidator's statutory duties to get in and apply the company's assets in an orderly way [emphasis added].[27]

59 Winneke P agreed with the trial judge's conclusion stating:

If ss 70 and 72 of the Confiscation Act operate in accordance with their natural meaning, they will clearly interfere with and detract from the operation of the provisions of Ch 5 of the Commonwealth law. Sections 555 and 556 of the Corporations Act create rights in the creditors of a company in liquidation who are entitled to have their debts and claims paid in accordance with the priorities provided for in s 556. Those rights will be adversely affected if the provisions of ss 70 and 72 of the Confiscation Act are permitted to operate according to their tenor because those provisions have the effect of creating a special class of secured creditor by means of a charge created after the commencement of the winding up [emphasis added, footnotes omitted].[28]

60 The decision in Loo therefore turned upon priorities in the liquidation. The laws were not capable of concurrent operation because the order of priorities listed in the Corporations Act would be altered by a declaration under s 70 of the Confiscation Act.

61 Two important distinctions can be made between Loo and the present case. First, the particular provisions in Loo caused a charge to be created over the property in favour of the Crown. This removed the property from the pool of assets available to the liquidator to meet the needs of the company. Conversely, in the present case, the order is made in relation to the dividend to be declared by the liquidator.

62 The provisions in Loo created rights in the creditors who became entitled to have their debts paid in accordance with the priorities listed in s 556 of the Corporations Act. Sections 70 and 72 of the Confiscation Act effectively turned the property in the hands of the liquidator into an asset charged in favour of the Crown. Such a charge arises at an earlier stage than the present case where the liquidator has declared a dividend and is then proceeding to pay the dividend or surplus, if any, to the creditors and members with rights or interests in the company. At this point, the Confiscation Act provisions intervene and deal with the property the subject of that distribution.

63 The second point of distinction is that in Loo the pecuniary penalty order was made against Loo as an individual, not the company Bow Ye, and yet it was the assets of Bow Ye that were the subject of the charge. Therefore, the relevant order in Loo caused the assets of the company to be used to meet the debts of the individual Loo. As such, the unsecured creditors of Bow Ye were forced to yield to the secured debt of the Crown effectively causing the order of priorities in the liquidation to be altered by the inclusion of a secured debt which had not previously existed.

64 In the present case, the order requires the dividend declared by the liquidator in the voluntary winding up to be paid to the State Trustees. The Corporations Act does not provide a guarantee that the creditors will in fact receive a dividend and as such the state law does not remove or interfere with a right, privilege or immunity conferred by the federal law. Further, creditors may waive or remove their entitlement to dividends. This was made apparent in the New South Wales Court of Appeal decision in United States Trust Co of New York v Australia and New Zealand Banking Group Ltd ('US Trust Co').[29] The Court addressed the issue of whether s 440 of the Companies law at that time was mandatory. The wording of s 440 is very close to the new provision, s 555 of the Corporations Act which applies to winding up generally.

65 The provision relevant to the present case of voluntary winding up is s 501 which is similar in terms to s 555. Section 501 does contain an additional component regarding the distribution among the members of the company according to their rights and interests in the company.

66 In US Trust Co, the court held that s 440 was not a mandatory provision which must be complied with, rather it conferred a private right upon a creditor. Provided the creditor does not prejudice the rights of other creditors, the creditor may waive or remove the right by contract or otherwise. [30]

67 A creditor entitled to share in a distribution or dividend payable to the creditor by a liquidator may lose the benefit of that right. Creditors may voluntarily divest themselves of any right to payment provided they do not injure other creditors.[31] For example, by granting a security or other proprietary interest over the right in favour of a third party who thereby becomes entitled to the receipt of the distribution or dividend of the liquidation. And indeed, the law may divest them of such a right through devices such as attachment orders and garnishee orders. As the trial judge here noted, 'the example of a garnishee order is helpful because it points up the fact that the provisions of the Corporations Act do not place the property of a company in liquidation beyond the scope of a potential claim by a third party.'[32] These devices are of a procedural nature which enable interference with the right of the creditors to receive the dividend. [33]

68 Nothing inhibits the power to deal with, by way of restraint, the dividend because it presupposes the winding up is concluded. The 'dividend' in these circumstances is the distribution of the property of the company applied to meet the liabilities admitted as debts by the liquidator. The dividend and surplus, if any, is declared at the point when the liquidator is ready to render the final accounts and pay those validly recognised as the creditors and members with rights and interests in the company.

69 To recapitulate, the property the subject of the proceedings in Loo was the subject of a charge and was not therefore available to the liquidator in the winding up. The focus there was on the priority of the creditors in the liquidation. In the present case, the focus is on the distribution of dividends and any surplus by the liquidator. The liquidator is not restrained from paying the monies. He is able to declare a dividend and pay that dividend, albeit to the State Trustee. Following payment of the dividend, any surplus may be distributed to the members according to their rights and interests in the company and the winding up concluded. The restraining order does not prevent the liquidator fulfilling his duties under the Corporations Act.

70 The test for inconsistency was summarised by the learned trial judge as follows:

The test of inconsistency is that stated by Dixon J in The Kakariki[34] and applied by the Court of Appeal in ruling that there was a direct inconsistency between ss.70 and 72 of the Confiscation Act and the winding up provisions of the Corporations Act.[35] The Kakariki was a steamship which sunk in Port Phillip Bay in 1937. The question arose whether officers of the State of Victoria were able to remove the ship wreck pursuant to the Marine Act 1928 (Vic) with consequential rights to recover costs or whether this state Act was inconsistent with the Navigation Act (Cth), which gave similar rights to Commonwealth officials to remove sunken ships. The Court held that there was no inconsistency under s.109 of the Constitution because the power conferred on Commonwealth officials to remove ship wrecks was compatible with and aided by the co-existence of other powers for securing the removal of wrecks.[36] Dixon J stated the test of inconsistency under s.109 as follows:

When a State law, if valid, would alter, impair or detract from the operation of a law of the Commonwealth Parliament, then to that extent it is invalid. Moreover, if it appears from the terms, the nature or the subject matter of a Federal enactment that it was intended as a complete statement of the law governing a particular matter or set of rights and duties, then for a State law to regulate or apply to the same matter or relation is regarded as a detraction from the full operation of the Commonwealth law and so as inconsistent [footnotes omitted]. [37]

71 Following Dixon J's formulation, two categories of inconsistency arise: direct inconsistency and indirect inconsistency. Indirect inconsistency arises when the intention of Parliament in enacting the federal law was that it should 'cover the field' with respect to its subject matter.[38] Part 1.1A operates to render this aspect of inconsistency irrelevant in relation to the Corporations Act.[39] Direct inconsistency, however, remains a live issue.

72 Direct inconsistency clearly arises where 'one law requires what the other law forbids'.[40] However, inconsistency may arise even where simultaneous obedience to both laws is possible.[41] In Telstra v Worthing,[42] the High Court unanimously confirmed that[43]

there will be what Barwick CJ identified as "direct collision" [in Blackley v Devondale Cream (Vic) Pty Ltd] where the State law, if allowed to operate, would impose an obligation greater than that for which the federal law has provided. Thus, in Australian Mutual Provident Society v Goulden, in a joint judgment, the Court determined the issue before it by stating that the provision of the State law in question "would qualify, impair and, in a significant respect, negate the essential legislative scheme of the Life Insurance Act 1995 (Cth)". A different result obtains if the Commonwealth law operates within the setting of other laws so that it is supplementary to or cumulative upon the State law in question. But that is not this case. (footnotes omitted).

73 In relation to the federal law as supplementary to or cumulative upon the State law, the High Court held in A-G (Vic) v Andrews[44] that

s[ection] 109 does not operate where, on its proper construction, the federal statute assumes the operation of the common law as modified by State statute law; in that situation the federal law operates within the setting of other laws so that it is supplementary to, or cumulative upon, the State law in question.

74 Contrary to the submissions of the Director, the federal law is not supplementary to or cumulative upon the state law in the sense envisaged in Andrews. The federal law has not here assumed the operation of the common law as modified by the state law.

75 The focus of the present enquiry as to whether the relevant sections of the Confiscation Act alter, impair or detract from the operation of the Corporations Act, is not whether the orders made pursuant to the Confiscation Act are inconsistent with the federal law, rather it is whether inconsistency arises between the laws themselves.[45] Where a state law is found to be invalid by reason of inconsistency, it is rendered invalid by the operation of s 109 of the Constitution, not by the competing federal law.[46] If the laws are held to be inconsistent, s 109 operates so that the state Act is invalid to the extent of the inconsistency. In this context, 'invalid' means 'inoperative', that is to say that an invalid state law has no legal operation whilst the federal law with which it is inconsistent remains operative.[47]

76 The appellant submitted that the Confiscation Act was invalid by reason of it placing a greater obligation on the creditors in the sense that there are further obstacles to be overcome if the creditor chooses to exercise exclusion rights under the state legislation.

77 Under the Corporations Act a creditor lodges a proof of debt with the liquidator who either admits or rejects the proof.[48] Creditors have a right of appeal against the decision of the liquidator.[49] Similarly, the state Act requires persons who have an interest in property the subject of a restraining order to declare an interest in the property.[50] The state Act also provides for any person with an interest in a property over which a restraining order has been made under s 18, to apply to the court for an exclusion order.[51] Thus, in the present case the creditors of the appellant could apply for an order excluding their interest in the property from the operation of the restraining order.

78 Section 21 of the Confiscation Act requires that, in determining an exclusion application, the court must be satisfied that at the time the creditors made the loans, they did not know of the illegal activity and had no reasonable grounds for suspecting it.[52] This, the appellant argues, places a greater obligation on the creditor so as to bring the state law into collision with the federal law.

79 The argument is misconceived. The enquiry is not whether a greater obligation is placed on the creditors, but whether the state law imposes a greater obligation on the liquidator in discharging the duties imposed by the federal law.

80 If the state law prevented, or 'effectively precluded' the operation of the provisions of the federal law, then the state law would be invalid to that extent.[53] The effect of the orders made on 18 July 2005 pursuant to the Confiscation Act is that the liquidator is able to discharge his duties under the Corporations Act and the provisions are given full effect. The liquidator declares a dividend and, if necessary, a surplus. He then proceeds to distribute the dividend and surplus, if any, to the members according to their rights and interests in the company. Thus the monies are placed in the hands of the members where they are restrained by the orders made under the Confiscation Act and directed to the State Trustees.

81 The state law does not come into 'direct collision' with the federal law by imposing an obligation greater than that for which the federal law has provided, as was the case, for example, in Blackley v Devondale Cream (Vic) Pty Ltd.[54] Similarly, the state law does not qualify, impair or significantly negate the scheme of the federal legislation in the sense envisaged in Australian Mutual Provident Society v Goulden.[55]

82 An examination of the process and procedures of s 21 of the Confiscation Act when compared with the processes and procedures of s 501 and s 506(3) of the Corporations Act reveals no substantive difference between the two enquiries. The two Acts are capable of concurrent operation.

83 In terms of the enquiry under s 21 of the Confiscation Act and the enquiry conducted by the liquidator in admitting proofs of debt, both investigations are essentially concerned with one issue - that is, whether the relevant transaction is genuine, or to use the Director's phrasing, whether the transaction is a 'sham'. Two questions arise in determining the outcome under the provisions of both Acts; first, did the loans exist; and secondly, were they real transactions? Although the Confiscation Act requires the court to examine directly the creditor's state of mind in relation to whether the property was tainted, this consideration may also figure in a determination by the liquidator of whether the transaction is a sham.

84 Once the liquidator, under the Corporations Act, has admitted a proof of debt the relevant sections of the Confiscation Act come into operation to restrain the property in the hands of the creditors. That is, a restraint order issued pursuant to s 18 of that Act will come into play to restrain the payment of the dividend to the creditor because the subject matter of the dividend is tainted property. In these circumstances, the creditor may apply to the court for an exclusion order to remove the relevant property from the realm of the restraining order. At this point, the court

will consider whether the transaction is a sham. Therefore, it is possible for the debt to be admitted, the restraint to operate in relation to the property and the liquidator to discharge his duties under the Corporations Act, thus avoiding an impairment of the provisions of that Act.

85 No collision exists between the processes and procedures of the relevant sections of the Confiscation Act and the Corporations Act. The relevant provisions of the two Acts are capable of concurrent operation. The state law does not alter, impair or detract from the operation of the federal law and no direct inconsistency exists between the two. Accordingly, it is unnecessary to consider whether s 5G of the Corporations Act would operate to avoid a direct inconsistency, and indeed this is a provision on which neither party relied in this case.

86 It follows that none of the grounds of appeal is made out. It is unnecessary to decide on the Notice of Contention. These issues were not raised before the trial judge and not seriously prosecuted on the appeal.

89 I agree with the reasons of the Chief Justice and the order proposed by her.

[1] DPP v Loo [2007] VSC 343, [4] - [7].

[2] Section 440F of the Corporations Law stated as follows:

'During the administration of a company, no enforcement process in relation to property of the company can be begun or proceeded with, except:

(b) in accordance with such terms (if any) as the Court imposes.'

[3] DPP v Loo [2002] NSWSC 856; (2002) 130 A Crim R 452.

[5] Loo v DPP [2005] VSCA 161; (2005) 12 VR 665 ('Loo').

[8] DPP v Loo [2007] VSC 343, [1].

[9] [2005] VSCA 161; (2005) 12 VR 665.

[10] DPP v Loo [2007] VSC 343, [18] - [22].

[11] Loo [2005] VSCA 161; (2005) 12 VR 665, [3] (Winneke P).

[12] DPP v Loo [2007] VSC 343, [23].

[13] DPP v Loo [2007] VSC 343, [52]; Fielding v Vangrand Pty Ltd (in liq) [1992] FCA 617; (1992) 39 FCR 251; Vangrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550.

[14] [2005] VSCA 161; (2005) 12 VR 665.

[16] Sections 5E to 5G in Part 1.1A of the Corporations Act are referred to as 'roll-back' provisions; Loo [2005] VSCA 161; (2005) 12 VR 665.

[17] Loo [2005] VSCA 161; (2005) 12 VR 665, [6]; Austin R P and Ramsay I M, Ford's Principles of Corporations Law (13th ed, 2007) [3.100].

[18] Loo [2005] VSCA 161; (2005) 12 VR 665, [27].

[19] Corporations Act 2001 (Cth) s 5G, item 1(a) in the Table sub-joined to s 5G.

[20] Loo [2005] VSCA 161; (2005) 12 VR 665, [34]-[35] (Winneke P [with whom Charles JA agreed]), [51] (Callaway JA).

[23] DPP v Loo (2002) 130 A Crim R 470, [75] - [76].

[24] Loo [2005] VSCA 161; (2005) 12 VR 665, [39] - [41].

[26] DPP v Loo (2002) 130 A Crim R 470 [79].

[28] Loo [2005] VSCA 161; (2005) 12 VR 665, [40].

[29] (1995) 37 NSWLR 131.

[31] Horne v Chester and Fein Property Developments Pty Ltd [1987] VicRp 75; [1987] VR 913.

[32] DPP v Loo [2007] VSC 343, [49].

[33] Horwood v Murdoch (1879) 5 VLR 435; Evans v Stephen (1882) 3 NSWR 154; Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in liq) (1998) 43 NSWLR 484.

[34] Victoria v The Commonwealth [1937] HCA 82; (1937) 58 CLR 618, 630 ("Kakariki").

[35] Loo [2005] VSCA 161; (2005) 12 VR 665.

[36] Kakariki [1937] HCA 82; (1937) 58 CLR 618, 630 (Dixon J); see also Wallis v Downard-Pickford (North Queensland) Pty Ltd [1994] HCA 17; (1994) 179 CLR 388.

[37] DPP v Loo [2007] VSC 343, [35].

[38] Clyde Engineering Co Ltd v Cowburn (1926) 37 CLR 445, 489; Ex parte McLean [1930] HCA 12; (1930) 43 CLR 472, 483; Telstra Corp Ltd v Worthing [1999] HCA 12; (1999) 197 CLR 61, [28].

[39] Loo [2005] VSCA 161; (2005) 12 VR 665, [25].

[40] Telstra Corp Ltd v Worthing [1999] HCA 12; (1999) 197 CLR 61, [27].

[41] Clyde Engineering Co Ltd v Cowburn [1926] HCA 6; (1926) 37 CLR 466, 478, 489-90; Viskauskas v Niland [1983] HCA 15; (1983) 153 CLR 280, 291.

[42] [1999] HCA 12; [1999] 197 CLR 61.

[43] Telstra v Worthing [1999] HCA 12; [1999] 197 CLR 61, [27].

[44] [2007] HCA 9; (2007) 230 CLR 369, [54] ('Andrews').

[45] P v P [1994] HCA 20; (1994) 181 CLR 583, 635 (McHugh J).

[46] University of Wollongong v Metwally [1984] HCA 74; (1984) 158 CLR 447, 455; Western Australia v Commonwealth [1995] HCA 47; (1995) 183 CLR 373, 451.

[47] Carter v Egg and Egg Pulp Marketing Board (Vic) [1942] HCA 30; (1942) 66 CLR 557, 573; Western Australia v Commonwealth [1995] HCA 47; (1995) 183 CLR 373, 451.

[48] Corporations Regulations 2001 (Cth) Part 5.6.

[49] Corporations Act 2001, s 1321.

[50] Confiscation Act s 19A.

[51] Confiscation Act 1997, s20.

[52] Section 21 of the Confiscation Act is headed 'Determination of exclusion application - restraining order - Schedule 1 offence' and states:

On an application made under section 20, where the restraining order has been made in relation to a Schedule 1 offence (other than for a purpose referred to in paragraph (b) or (c) of section 15(1)) -

(a) if the court is satisfied that the property in which the applicant claims an interest -

(ii) will not be required to satisfy any purpose for which the restraining order was made -

the court may make an order excluding the applicant's interest in the property from the operation of the restraining order; or

(b) if the applicant is a person other than the defendant and -

(i) the court is not satisfied as specified in paragraph (a)(i), the court may make an order excluding the applicant's interest in the property from the operation of the restraining order if satisfied that -

(A) the applicant was not, in any way, involved in the commission of the Schedule 1 offence; and

(B) where the applicant acquired the interest before the commission, or alleged commission, of the Schedule 1 offence, the applicant did not know that the defendant would use, or intended to use, the property in, or in connection with, the commission of the Schedule 1 offence; and

(C) where the applicant acquired the interest at the time of or after the commission, or alleged commission, of the Schedule 1 offence, the applicant acquired the interest without knowing, and in circumstances such as not to arouse a reasonable suspicion, that the property was tainted property; and

(D) the applicant's interest in the property was not subject to the effective control of the defendant on the earlier of the date that the defendant was charged with the Schedule 1 offence or the date that the restraining order was made in relation to the property; and

(E) where the applicant acquired the interest from the defendant, directly or indirectly, that it was acquired for sufficient consideration; or

(ii) the court is satisfied as specified in paragraph (a)(i) but not satisfied as specified in paragraph (a)(ii), the court may make an order excluding the applicant's interest in the property from the operation of the restraining order if satisfied that -

(A) the applicant's interest in the property was not subject to the effective control of the defendant on the earlier of the date that the defendant was charged with the Schedule 1 offence or the date that the restraining order was made in relation to the property; and

(B) where the applicant acquired the interest from the defendant, directly or indirectly, that it was acquired for sufficient consideration.

[53] Australian Mutual Provident Society v Goulden [1986] HCA 24; (1986) 160 CLR 330, 337; ALPA Ltd v Legal Services Commissioner (NSW) [2005] HCA 44; (2005) 224 CLR 322, 400 (Gummow J).

[54] (1968) 117 CLR 253, 258 (Barwick CJ).

[55] [1986] HCA 24; (1986) 160 CLR 330.