Commissioner of Taxation v Orica Ltd [1998] HCA 33; 194 CLR 500; 154 ALR 1; 72 ALJR 969

Commissioner of Taxation v Orica Ltd [1998] HCA 33; 194 CLR 500; 154 ALR 1; 72 ALJR 969 - HCA 1998 case summary — Zoe

[27]

(a) In consideration for the payment to be made by the Company under Clause 2(a), the Assumption Party shall, on and after the Assumption Date, assume in the manner provided in this Agreement the obligations of the Company to make due and punctual payment of the principal amount of all Stock in accordance with Clause 3 of each of the Trust Deeds and notwithstanding that after the date hereof an order is made for the winding up or dissolution of the Company or that the Company enters into any composition or arrangement binding on its creditors generally; and the Assumption Party shall indemnify the Company and the Guarantors, and keep them indemnified, in respect of such obligations. > > > (b) Unless otherwise agreed between the Assumption Party and the Trustee, the Assumption Party shall pay or cause to be paid to a bank account held in the name of the Trustee and nominated by the Trustee the amounts payable by the Assumption Party under Clause 3(a) and such payment shall be in pro tanto satisfaction of the obligations of the Assumption Party under Clause 3(a) and likewise in pro tanto satisfaction of the obligations of the Company as to repayment of principal under Clause 3 of each of the Trust Deeds. > > > > (c) Unless otherwise required by the Trustee, the Company shall procure that the Registry dispatches cheques drawn on the bank account referred to in Clause 3(b) to the relevant Stockholders and, subject to Clause 3(a) and (b), the Company shall bear the cost of such dispatch by the Registry. For this purpose, unless the Trustee otherwise requires, the Trustee shall authorize appropriate officers of the Registry to operate on the said bank account. > > > > (d) The Company shall, at its own expense, procure that the Auditors check the completion and dispatch of the cheques to be dispatched under Clause 3(c) and that the Auditors confirm in writing to the Company, the Trustee and the Assumption Party, within three (3) days after such dispatch, that payment has been made to the Stockholders entitled thereto and the date on which it was made."

[91]

"(a) In consideration for the payment to be made by the Company [the taxpayer] under Clause 2(a), the Assumption Party [MMBW] shall, on and after the Assumption Date [6 June 1986], assume in the manner provided in this Agreement the obligations of the Company to make due and punctual payment of the principal amount of all Stock in accordance with Clause 3 of each of the Trust Deeds and notwithstanding that after the date hereof an order is made for the winding up or dissolution of the Company or that the Company enters into any composition or arrangement binding on its creditors generally; and the Assumption Party shall indemnify the Company and the Guarantors, and keep them indemnified, in respect of such obligations. > > (b) Unless otherwise agreed between the Assumption Party and the Trustee, the Assumption Party shall pay or cause to be paid to a bank account held in the name of the Trustee and nominated by the Trustee the amounts payable by the Assumption Party under Clause 3(a) and such payment shall be in pro tanto satisfaction of the obligations of the Assumption Party under Clause 3(a) and likewise in pro tanto satisfaction of the obligations of the Company as to repayment of principal under Clause 3 of each of the Trust Deeds. > > (c) Unless otherwise required by the Trustee, the Company shall procure that the Registry dispatches cheques drawn on the bank account referred to in Clause 3(b) to the relevant Stockholders and, subject to Clause 3(a) and (b), the Company shall bear the cost of such dispatch by the Registry. For this purpose, unless the Trustee otherwise requires, the Trustee shall authorise appropriate officers of the Registry to operate on the said bank account. > > (d) The Company shall, at its own expense, procure that the Auditors check the completion and dispatch of the cheques to be dispatched under Clause 3(c) and that the Auditors confirm in writing to the Company, the Trustee and the Assumption Party, within three (3) days after such dispatch, that payment has been made to the Stockholders entitled thereto and the date on which it was made."

[150]

"(1) Subject to this Part, where a change has occurred in the ownership of an asset, the change shall be deemed, for the purposes of this Part, to have effected a disposal of the asset by the person who owned it immediately before the change and an acquisition of the asset by the person who owned it immediately after the change. > > (2) A reference in sub-section (1) to a change in the ownership of an asset is a reference to a change that has occurred in any way, including any of the following ways: > > (a) by the execution of an instrument; > > (b) by the entering into of a transaction; > > (c) by the transmission of the asset by operation of law; > > (d) by the delivery of the asset; > > (e) by the doing of any other act or thing; > > (f) by the occurrence of any event. > > (3) Without limiting the generality of sub-section (2), a change shall be taken to have occurred in the ownership of an asset by - > > (a) a declaration of trust in relation to the asset under which the beneficiary is absolutely entitled to the asset as against the trustee; > > (b) in the case of an asset being a debt, a chose in action or any other right, or an interest or right in or over property - the cancellation, release, discharge, satisfaction, surrender, forfeiture, expiry or abandonment, at law or in equity, of the asset; > > (c) in the case of an asset being a share in or debenture of a company - the redemption in whole or in part, or the cancellation, of the share or debenture; > > ... > > (6) A disposal of an asset that did not exist (either by itself or as part of another asset) before the disposal, but is created by the disposal, constitutes a disposal of the asset for the purposes of this Part, but the person who so disposes of the asset shall be deemed not to have paid or given any consideration, or incurred any costs or expenditure, referred to in paragraph 160ZH(1)(a), (b), (c) or (d), (2)(a), (b), (c) or (d) or (3)(a), (b), (c) or (d) in respect of the asset. > > (7) Without limiting the generality of sub-section (2) but subject to the other provisions of this Part, where - > > (a) an act or transaction has taken place in relation to an asset or an event affecting an asset has occurred; and > > (b) a person has received, or is entitled to receive, an amount of money or other consideration by reason of the act, transaction or event (whether or not any asset was or will be acquired by the person paying the money or giving the other consideration) including, but not limited to, an amount of money or other consideration - > > (i) in the case of an asset being a right - in return for forfeiture or surrender of the right or for refraining from exercising the right; or > > (ii) for use or exploitation of the asset, > > the act, transaction or event constitutes a disposal by the person who received, or is entitled to receive, the money or other consideration of an asset created by the disposal and, for the purposes of the application of this Part in relation to that disposal - > > (c) the money or other consideration constitutes the consideration in respect of the disposal; > > ..."[100]

[187]

"(i) Seek modifications to the Trust Deed > > Provisions are available to have the Deed modified to possibly expand borrowing ratios (e.g. by increasing percentage of qualifying assets from 60% to 66%) but the process is legally cumbersome requiring an extraordinary resolution to be passed by debenture holders and the possibility of having to increase existing coupon rates. > > (ii) Seek early redemption of all outstanding debentures > > This would involve a similar approach to that adopted in the early redemption of $10M of debentures during 1984/85. However as the Trust Deed does not provide an option for the company to compulsorily redeem its debentures and some debenture holders may not accept the offer no matter how attractive, the problem with the Trust Deed would remain. > > (iii) Undertake a defeasance > > A defeasance involves the purchase of a portfolio of risk free securities such as government or semi-government stock with the cash flows from the portfolio matching as closely as possible those of the company's own debentures. This defeasance portfolio of investments is held by the Trustee and as the interest and principal commitments of the company's debentures are matched by the defeasance portfolio, negotiation with the Trustee results in the release by the Trustee of the debenture Trust Deed floating charge and restrictive borrowing ratios. > > (iv) Arrange a liability assumption > > As an alternative to a defeasance, a liability assumption can be arranged. Under this alternative, in consideration for a payment by the company, the obligations to pay interest and principal on the debentures are assigned to a risk-free party such as the Commonwealth Bank, State Bank or a semi-government guaranteed body, the Trustee can be satisfied that obligations to debenture holders will be honoured and agree to release the floating charge over assets and the restrictive borrowing ratios. The success of a liability assumption is dependent upon identifying a suitable counter-party to assume the liability for debentures."

[189]

"It is recommended that the company enter into two separate assumption agreements, one for the outstanding debenture principal and the other for the ongoing interest payment obligations until the respective debenture maturities. These obligations would be assumed by two separate parties whose obligations are guaranteed either by the Commonwealth or a State Government. > > Under the principal assumption agreement ICI Australia would pay to a Principal Assumption Party an amount calculated as the net present value of the debenture principal repayments only, discounted at a rate approximating the Commonwealth Bond yield for each of the principal repayment dates. The amount of principal assumed would be $99 million and the payment required would be approximately $59 million which could be provided from available cash sources to the company. > > In the interest assumption agreement ICI Australia would undertake to make a series of payments to an Interest Assumption Party to coincide precisely with existing debenture interest obligations. A fee would be payable to the Interest Assumption Party as consideration for assuming the primary legal responsibility for these payments. > > It is expected that an extraordinary profit of approximately $17 million (after tax) would arise from the two transactions in the 1986 year comprising a capital profit of $40 million on the principal assumption less $23 million (after tax) for the interest assumption payments. > > While the $40 million capital profit would not be subject to income tax the regular fee payments would be claimed as tax deductions. > > It is proposed that debenture holders be given the option to early redeem their holding based on current market yield to redemption rates prior to the liability and interest assumption agreements being entered into. This step is recommended to avoid any adverse reaction from debenture holders. The number of debenture holders accepting the early redemption offer will affect the final extraordinary profit on the transaction. > > Imperial Chemical Industries PLC have been advised of the need to restructure the Trust Deed and the options considered. > > Accounting and Audit Implications > > The accounting and auditing implications of separate liability and interest assumption agreements have been discussed with Price Waterhouse. > > It is expected that in the year the principal liability assumption transaction takes place the accounts would disclose a general description of the transaction and the amount of debt that has been extinguished. The gain arising from the liability assumption less the aggregate amount payable to the Interest Assumption Party (net of tax) would be treated as an extraordinary profit."

At a glance

Court

Decision date

Before

Source

Judgment (433 paragraphs)

Commissioner of Taxation v Orica Ltd [1998] HCA 33; 194 CLR 500; 154 ALR 1; 72 ALJR 969 (12 May 1998)

Parties

Legislation Cited (10)

Cases Cited (53)