Deputy Commissioner of Taxation; in the matter of James Hardie Australia Finance Pty Ltd (Deregistered) (No 2) [2008] FCA 1928

FACTS 3 Following the reinstatement of JHAF, negotiations took place between the Commissioner and the James Hardie group of companies (JH Group), including JHAF and its immediate parent James Hardie International Finance BV (JHIFBV). Agreement was reached for a settlement of the tax liabilities of JHAF and of other companies within the JH Group. 4 JHAF has no assets and only one creditor, the Commissioner. 5 The settlement reached requires, inter alia, James Hardie Industries NV, JHAF, Mr Donnelly and the Commissioner to enter into a Deed of Settlement, and that JHAF (called "Borrower") and JHIFBV (called "Financier") to enter into a Loan Agreement. Both the proposed Deed of Settlement and the proposed Loan Agreement were admitted into evidence on the hearing and made confidential exhibits. This was because they contain detail of without admissions negotiations and of the tax affairs of companies in the JH Group, and promises by the parties to each other to keep the terms of their settlement confidential and to seek a "confidentiality" order from the Court. However, the following outline can be given. 6 Under the settlement, JHIFBV, in its capacity as general partner of a limited partnership, is to provide financial accommodation to JHAF in an amount that JHAF is to pay to the Commissioner in full settlement of its tax liability. JHAF is to give a drawdown notice addressed to JHIFBV directing that it pay the amount directly to the Commissioner. JHIFBV's right to recover from JHAF is limited to the "Borrower's Net Assets" (as defined in the proposed Loan Agreement). Mr Donnelly is to enter into the proposed Loan Agreement as agent for JHAF and is to have no personal liability for JHAF's obligations under it. 7 In the proposed Deed of Settlement the amount to be paid to the Commissioner is identified and is described as the "JHAF Settlement Sum", which is also the amount of the "Facility Limit" identified in the proposed Loan Agreement. 8 Mr Donnelly sought a direction that he was not prevented from entering into the proposed Deed of Settlement or the proposed Loan Agreement by reason of the fact that those documents contained certain provisions. 9 The provision in question in the proposed Loan Agreement is that JHAF is to drawdown the amount of the JHAF Settlement Sum for payment to the Commissioner under the proposed Deed of Settlement upon terms, inter alia, that recourse by JHIFBV to JHAF is limited to the amount of the "Borrower's Net Assets" as at the date of demand, and that Mr Donnelly will have no personal liability for the obligations of JHAF. 10 The provision in question in the proposed Deed of Settlement is that an application for termination of the winding up of JHAF is to be made by JHIFBV and that Mr Donnelly will support that application.

[4]

CONSIDERATION 11 It is noteworthy that when Mr Donnelly filed his interlocutory process, the structure of the proposed settlement, and therefore the directions sought by Mr Donnelly, were different. The present structure is simpler. Reduced to its essentials, it consists of a borrowing by JHAF from JHIFBV, in its capacity as general partner of the limited partnership, to pay out JHAF's sole creditor, the Commissioner, with JHIFBV becoming sole creditor of JHAF in the Commissioner's place. The parties hope that the winding up of JHAF will subsequently be terminated. 12 Section 477 of the Act sets out powers of the liquidator of a company. Those of potential relevance are as follows: (2) Subject to this section, a liquidator of a company may: … (d) do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents and for that purpose use when necessary a seal of the company; ... … (m) do all such other things as are necessary for winding up the affairs of the company and distributing its property. 13 Clearly, the Commissioner wishes JHAF, acting through Mr Donnelly, to enter into the proposed Loan Agreement and the proposed Deed of Settlement, and that Mr Donnelly, as liquidator of JHAF, also to enter into the latter: cf s 479(1) and (2) of the Act. 14 It is not the Court's task to embark upon a consideration of the desirability of the settlement from a commercial viewpoint: see, for example, Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674. However, I see no reason why Mr Donnelly should not, if he considers it to be commercially desirable to do so, facilitate the Commissioner's being paid not only the amount of JHAF's tax liability, but also that of the other companies within the JH Group, by the substitution of JHIFBV, in the capacity previously mentioned, as creditor in place of the Commissioner. 15 It is true that according to one view, the proposed settlement in isolation will not achieve a winding up of the affairs of JHAF because it will merely substitute one sole creditor for another. As a practical matter, however, the proposed settlement is "necessary for winding up the affairs of" JHAF (see s 477(2)(m) set out above) by making it possible for the termination application to be made. The ancillary power to execute documents in the name and on behalf of the company given by para (d) of s 477(2) assists.

Deputy Commissioner of Taxation; in the matter of James Hardie Australia Finance Pty Ltd (Deregistered) (No 2) [2008] FCA 1928 - FCA 2008 case summary — Zoe

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Legislation Cited (1)

Cases Cited (2)

Cited By (1)