Deputy Commissioner of Taxation v Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust

Supreme Court of NSW|2016-10-26|Before: Black J

23; (2003) 175 FLR 124 - Australian Securities and Investments Commission, Re; Richstar Enterprises Pty Ltd v Carey (No 6) [2006] FCA 814; (2006) 58 ACSR 141 - Australian Trade Commission v Film Funding and Management Pty Ltd (1989) 87 ALR 49 - Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1 - Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 - Betfair Pty Ltd v Racing New South Wales [1020] FCAFC 133 (2010) 189 FCR 356 - Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation [2009] HCA 32; (2009) 239 CLR 346 - Campbell Street Theatre Pty Ltd (recs and mgrs apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 - Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557 - Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 - Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 - CPT Custodians Pty Ltd v Commissioner of State Revenue [2005] HCA 53; (2005) 224 CLR 98 - Crowle Foundation Ltd v NSW Trustee and Guardian [2010] NSWSC 647 - Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 - Deputy Commissioner of Taxation v Caporale Group Pty Ltd [2011] FCA 1189 - Deputy Commissioner of Taxation v Interactive Community Planning Pty Ltd [2011] FCA 1173 - Deputy Commissioner of Taxation v Tilley Property Management Services Pty Ltd [2011] FCA 678 - Di Carlo v Kashani-Malaki [2012] QCA 320; (2013) 2 Qd R 17 - DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510 - Dywer v Ross (1992) 34 FCR 436 - Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699; (2003) 46 ACSR 446 - FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) (1988) 14 NSWLR 643 - Federal Commissioner of Taxation v Oswald (No 6) [2016] FCA 762 - Gartside v Inland Revenue Commissioners [1968] AC 553 - Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 - Inland Revenue Commissioners v Trustees of Sir John Aird's Settlement [1982] 2 All ER 929 - JR Consulting & Drafting Pty Ltd v Cummings [2016] FCAFC 20; (2016) 329 ALR 625 - Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366 Langdon v Gruber [2001] NSWSC 276 - Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 219 ALR 555 - Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546 - Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 - National Provincial Bank Ltd v Ainsworth [1965] AC 1175 - Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 - Patel v Lal [2011] NSWSC 603 - Porteous v Rinehart (1998) 19 WAR 495 - Puglia v Basol [2005] NSWSC 1271 - Re Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551 - Re Goldsworthy [1969] VR 843 - Re Roma Industries Pty Ltd (1976) 1 ACLR 296 - Re Transphere Pty Ltd (1986) 5 NSWLR 309 - Royal v El Ali [2016] FCA 782 - Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213 - Southgate Investment Funds Ltd v Deputy Commissioner of Taxation [2013] FCAFC 10 - Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 - TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 - Wells v Wily [2004] NSWSC 607; (2004) 50 ACSR 103 Category: Principal judgment Parties: Deputy Commissioner of Taxation (Plaintiff) Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust (Defendant) Representation: Counsel: N Cotman SC/G J O'Mahoney (Plaintiff) J C Kelly SC/S Hartford Davis (Defendant)

Solicitors: Australian Government Solicitor (Plaintiff) David Legal (Defendant) File Number(s): 2016/51682

Judgment

By Amended Summons filed on 12 April 2016 the Plaintiff, the Deputy Commissioner of Taxation ("DCT") applies for the winding up of Peter Sleiman Investments Pty Ltd ("PSI") on the grounds of insolvency under s 459A of the Corporations Act 2001 (Cth) and for an order that Mr David Young be appointed as liquidator of PSI. The DCT also seeks a declaration that the "alienation" of nine properties by PSI in its capacity as trustee of the Sleiman Family Trust ("SFT"), by which it came to hold those properties as trustee for nine separate unit trusts referable to each property, was void under s 37A of the Conveyancing Act 1919 (NSW). I will return to the question whether that transaction constituted an alienation of property in dealing with that claim below.
By Amended Cross-Summons filed on 6 October 2016, PSI conversely sought a declaration that it holds each of the nine properties in trust for the nine separate unit trusts pursuant to trust deeds each dated 25 November 2013, in each case free of any estate or interest in the properties in favour of PSI as trustee of the SFT. PSI also seeks orders for its replacement as trustee of the land tax units trusts and an order discharging freezing orders previously made by a Judge of the Court on 19 February 2016.

The affidavit evidence and cross-examination

It will be convenient, first, to refer to the affidavit evidence and the cross-examination of several witnesses and then to the structure of the relevant transactions. There are some difficulties in obtaining any precise understanding of the transactions, which arise from the limited information available to the DCT and the manner in which PSI led evidence in respect of its Amended Cross-Claim. Having done my best to identify the steps in the transactions, to the extent that they are ascertainable, I will then deal with the DCT's claim under s 37A of the Conveyancing Act, PSI's Amended Cross-Claim and the DCT's winding up application in turn.
The DCT relies on the affidavit dated 16 February 2016 of Mr Zafiriou, which sets out the background to the DCT's dealings with PSI and the structure of the transactions that are in issue, so far as the DCT understood them in February 2016. Mr Zafiriou also led evidence as to the assets of the SFT, prior to the transactions that are in issue. It appears that the DCT's then understanding of the transactions was then incomplete in some respects.
By a second affidavit dated 8 April 2016, Mr Zafiriou updated his calculation of the amount owed by PSI to the DCT and also led evidence that PSI owed the amount of $97,601.82 to the DCT by way of an RBA Deficit Debt, comprised of an assessment of goods and services tax ("GST") for the quarter ending 31 December 2012, a shortfall penalty and a general interest charge calculated to 7 April 2016. That debt arose from amended assessments of GST and of a shortfall penalty issued on 12 November 2014, and Mr Zafiriou's evidence was that no objection had ever been lodged in respect of the amended assessment of GST or the assessment of shortfall penalty. Mr Zafiriou was not cross-examined in respect of that evidence, although the Messrs Sleiman led unsatisfactory evidence of a possibility that such an objection might in fact have been lodged, to which I will refer below. I accept Mr Zafiriou's evidence as to that matter and do not accept the Messrs Sleiman's evidence to the extent that it is to the contrary.
Mr Zafiriou also referred to an affidavit of Mr Peter Sleiman sworn 4 March 2016 filed in these proceedings, which exhibited a statement of assets and liabilities of PSI as trustee of various trusts and led evidence (to which no objection was taken) that that statement of assets and liabilities indicated that PSI in its capacity as trustee of the SFT had assets of $20 and liabilities of at least $4.9 million excluding its tax liabilities. Mr Zafiriou also referred to the tax return of the SFT for the 2015 year of income, which indicated that it had a net loss of $7,274 in that income year; carried forwarded losses of $3,664,785; total assets of $20; total current liabilities of $45,212; and total liabilities of $4,915,373. As the evidence developed, it appears that PSI does not in fact have the assets of $20 to which Mr Zafiriou referred.
PSI relied on several affidavits of Mr Peter Sleiman. Mr Peter Sleiman was a director of PSI from 14 September 1999 to 29 September 2010 but has not been, at least in name, a director of that entity since that time. PSI relied on the affidavit of Peter Sleiman dated 4 March 2016, and also on the affidavit of Mr Peter Sleiman dated 7 March 2016 which attached a statement of assets and liabilities for PSI as trustee of the SFT and specified land tax unit trusts. That statement of assets and liabilities referred to a liability of the SFT in relation to the "disputed ATO debt [of] nil or $11m" but did not have regard to the GST debt which I have accepted above was owed by PSI to the DCT. It also referred to beneficiary loans owed by the SFT in the amount of $4,915,373 and referred to liabilities of the land tax unit trusts in respect of borrowings from National Australia Bank Limited ("NAB"). That statement of assets and liabilities also stated that: "In late November/early December 2013, SFT was restructured for land tax purposes. Unit Trusts were created for that purpose. The restructure also involved loan restructure and additional borrowings from NAB to finance the redemption by SFT of the units in the Unit Trusts issued to it, as part of the restructure. SFT and each of the Unit Trusts accept that, as a result of those redemptions, debts arose as per the following list. Those debts were, however, paid by Procorp Investments Pty Limited trustee of the Procorp Family Trust ("Procorp"), Slimpro Investments Pty Limited as trustee of the Slimpro Family Trust ("Slimpro"), and Superior Family Investments Pty Limited as trustee of the Superior Family Trust ("Superior"), from the from the [sic] proceeds of the NAB loans, as part of the restructure. That being so, there is no current indebtedness of any of the Unit Trusts in respect of the redemption. Alternatively, any indebtedness is to Procorp, Slimpro and Superior by way of subrogation, not to SFT. Alternatively, any indebtedness to SFT is subject to Fixed and Floating Charge in favour of NAB." That statement of assets and liabilities also referred to other matters including the valuation of the relevant properties.
PSI also relied on a further affidavit of Mr Peter Sleiman dated 18 March 2016 which set out aspects of the restructuring and refinancing in issue in the proceedings. Mr Peter Sleiman referred to the application that had been filed with the Administrative Appeals Tribunal ("AAT") seeking to review the ATO's decision to reject PSI's objection to the assessments summarised in Mr Zafiriou's affidavit (I interpolate, other than in respect of GST) and to a motion filed by PSI to set aside the Court's default judgment, to which I will refer below. PSI also relied on a fourth affidavit of Mr Peter Sleiman dated 10 June 2016. Mr Peter Sleiman there referred to the circumstances in which he was introduced to an adviser, Mr Batten, who provided advice in respect of the restructuring, and to the substance of the advice given by Mr Batten as to the manner in which the restructuring could reduce the land tax exposure of the SFT. I pause to note that that description of the effect of the transaction is inapt, since SFT's land tax exposure in respect of the properties was presumably eliminated, not reduced, by the transaction since it ceased to have an interest in them. Mr Sleiman also referred to a meeting with the Australian Taxation Office ("ATO") on 19 September 2014 and exhibited additional documents to his affidavit.
Mr Peter Sleiman accepted in cross-examination that the effect of Mr Batten's advice was that Slimpro Investments Pty Ltd ("Slimpro"), Procorp Investments Pty Ltd ("Procorp") and Superior Family Investments Pty Ltd ("Superior") would borrow moneys from NAB so as to extinguish the debt owed by PSI to NAB, the relevant properties would be held in the specific unit trusts rather than SFT and SFT would be allocated units in the relevant unit trusts for the difference between the value of the properties and the amount owed to NAB (T38). Mr Cotman, who appeared with Mr O'Mahoney for the DCT, put to Mr Peter Sleiman that Mr Batten's advice did not contemplate that the relevant companies would borrow more than the amount necessary to pay out the debt owed by PSI to NAB. Mr Peter Sleiman responded to questions in that area by a combination of claims that he did not understand them, a claim which I do not accept, and non-responsive answers.
Mr Peter Sleiman also claimed, in cross-examination, that he did not understand the apparently straightforward proposition put to him that Mr Batten had not advised that it was necessary to redeem the units issued to SFT for cash or to pay that amount in cash into SFT (T40). I am not persuaded by Mr Peter Sleiman's claim not to have understood that proposition. Mr Peter Sleiman thereafter retreated to the proposition that he could not recall speaking to Mr Batten and could not remember whether that question was addressed in Mr Batten's written advice or in correspondence with the ATO, and then reversed his evidence that he did not recall the conversations with Mr Batten by a claim that Mr Batten had said "we had to pay it all off". It seems to me that Mr Peter Sleiman did not give frank answers to questions about these matters.
Mr Peter Sleiman's evidence in cross-examination (T41) was also that: "Q: Do you agree with me that the idea that the discretionary trust, that is to say [PSI] as trustee for the family trust, would end up with $2.9 million in cash would be an important part of the transaction? A: Well, it was one transaction. Everything went - well, it was all paid and the units were redeemed." Although Mr Peter Sleiman there accepted that several aspects of the transaction, extending at least to the payment of $2.9 million to PSI as trustee for the SFT, amounted to the "one transaction", I do not understand that evidence as going so far as to accept that the subsequent payment of $2.6 million out of the SFT to Mr Peter Sleiman was, or necessarily was, part of that one transaction. However, Mr Peter Sleiman accepted that it was his decision to repay the amount of $2.6 million out of the SFT to him and that Mr Batten had not given advice to that effect (T41). Mr Peter Sleiman was then asked whether what was paid to him was substantially all of the equity in the properties that PSI was holding at the time; he responded by claiming not to understand the question, a claim which I also do not accept (T41). I recognise that some of the questions asked of Mr Peter Sleiman had a degree of complexity. However, it seems to me that those questions were not so complex that they would have prevented Mr Peter Sleiman understanding them or recognising the risk that answers to them might be adverse to PSI's case.
Mr Peter Sleiman's evidence was that he could not recall whether the SFT had earned a profit in any of the years between 2010 and 2013 without talking to the accountant for the trust (T44); that he could not recall when he received assessments of tax (initially, as I will note below, in the ordinarily memorable amount of over $7 million) from the ATO (T44) and that he could not recall whether he became aware, early in 2013, of the tax assessments that were issued to PSI, and did not recall receiving the assessments issued in June 2013 (T45). Mr Peter Sleiman's evidence in that respect was contradicted by Mr George Sleiman, whose evidence (to which I will refer below) was that Mr Peter Sleiman was aware of those assessments at that time. It seems to me outside the ordinary course of human experience that a person who had received a tax assessment of $7,113,615 in respect of a company which was under his control, although he was not a director of it, would not recall that matter. I do not accept Mr Peter Sleiman's evidence in that respect. Mr Peter Sleiman also denied that he was aware of the tax assessments issued by the DCT to PSI when the amount of $2.6 million was paid by PSI to him at the end of 2013 (T46). That denial is inconsistent with Mr George Sleiman's evidence that Mr Peter Sleiman knew of the assessment and is also inconsistent with Mr Peter Sleiman's claim not to recall when he received that assessment, since it implies that Mr Peter Sleiman recalls that he had not received that assessment prior to that date. I also do not accept Mr Peter Sleiman's evidence in this respect.
Mr Peter Sleiman denied that he determined that the restructuring of the SFT should involve a borrowing of $8 million and the payment of $2.6 million to him, as a means to remove assets that would otherwise be available in PSI to the DCT before claiming that he "didn't understand the full question", followed by a claim that he did not understand what was meant by removing the amount of $2.6 million "into [his] own pocket" (T46-47). Given the findings that I have made as to Mr Peter Sleiman's evidence generally, I do not place any weight on his denial of this matter. Mr Peter Sleiman's evidence was that Mr George Sleiman deferred to what Mr Peter Sleiman was going to do in respect of the relevant transactions (T48). That evidence is consistent with Mr George Sleiman's evidence and I accept it. It has significant implications for the relief which the Court should grant in these proceedings, to which I will refer below. Mr Peter Sleiman's evidence, in cross-examination, was that the amount of $2.6 million paid to him was used to pay off "other debts" some of which were his debts (T48). Mr Peter Sleiman denied that, at the time all of the properties owned by PSI were offered as security for a borrowing of over $8 million from NAB, he knew that the DCT had a claim against PSI for over $7 million in tax (T48). Somewhat inconsistently, when asked whether he knew whether the DCT was pursuing PSI for over $7 million in tax at the time he caused the payment to him out of the funds of PSI, as trustee for SFT, his answer was "I don't know" (T48). I also do not accept Mr Peter Sleiman's evidence as to these matters. Mr Peter Sleiman denied that the reason he caused the amount of $2.9 million to be paid to SFT was so that he could remove those monies by a payment to him, and not have those monies available to the DCT (T49). I give no weight to that denial given the view that I have reached as to Mr Peter Sleiman's evidence generally.
Mr Peter Sleiman's evidence was that PSI was objecting to the debt owed to the ATO in respect of GST, which was the subject of Mr Zafiriou's evidence (T51). Mr Peter Sleiman also led evidence that he thought the accountant had objected to the GST debt, although that accountant would know whether he had done so (T52). No attempt was made by PSI to lead further evidence to corroborate the claim of such an objection, or to call that accountant to lead evidence to corroborate the fact of that objection, even after its significance in the application was plain. I do not accept Mr Peter Sleiman's evidence in this respect. More generally, and having regard to the matters addressed above, I am satisfied that I should give little weight to Mr Peter Sleiman's evidence as to any contested issue, unless it is against PSI's interests.
PSI also relied on several affidavits of Mr George Sleiman. Mr George Sleiman has been, at least in name, the sole director of PSI since 29 September 2010 and is also, at least in name, the director of each of Slimpro, Procorp and Superior (T38). PSI relied on Mr George Sleiman's affidavit dated 5 May 2016 ("GS1"). Mr George Sleiman's evidence (GS1 [4]) is that he had a conversation with Mr Peter Sleiman before he signed a resolution of trustee dated 25 November 2013 and other documents to implement the suggested restructuring, and (GSI [5]) that he attended a meeting with Mr Peter Sleiman and Mr Batten, at which he was advised of a way that PSI could reduce its land tax by putting the several properties into separate land tax unit trusts instead of holding them in one trust. Mr George Sleiman's evidence (GSI [10]) (admitted subject to a limiting order under s 136 of the Evidence Act 1995 (NSW)) was that when he signed the resolution and other associated documents, his sole purpose was to reduce land tax. PSI also relied on seven further affidavits of Mr George Sleiman dated 10 October 2016, which exhibited resolutions passed by him, as the appointor of the Procorp Family Trust, the Master Family Trust and the Slimpro Family Trust indicating that Procorp, Master Investments Pty Ltd ("Master") and Slimpro had consented to be trustees of the relevant trusts, and that he would execute necessary documents to give effect to their appointment to the trusts pursuant to any Court order made in these proceedings.
Mr George Sleiman was also cross-examined, and that cross-examination demonstrated that he had little knowledge of the affairs of PSI, of which he was the sole director in name. His knowledge whether rent of properties owned by PSI was deposited to its bank accounts was limited to his "think[ing] so" (T70); he responded to the question whether PSI had a bank account initially by indicating that Mr Peter Sleiman dealt with that matter, and then by saying that he did not think it had such an account; he did not know who was receiving the rent for the relevant properties owned by PSI, because Mr Peter Sleiman also dealt with that matter; his knowledge whether loan agreements existed between PSI and Slimpro, Procorp and Superior (of which he was the sole director) was that he "suppose[d]" that they did but Mr Peter Sleiman also handled those matters; he was not sure whether the documents executed in respect of the restructuring recorded the terms of loans by those companies to PSI, and he did not know whether those companies had lent money to PSI at interest (T71); and, although he had signed the statement of assets and liabilities which was led in evidence in these proceedings, he did not know whether it was accurate and had simply signed where Mr Peter Sleiman told him to sign (T72).
Mr George Sleiman did, however, fairly concede that PSI could not pay a tax judgment of some $9 million against it; that it could not pay a GST liability which had been assessed against it for a sum of $97,000; that it had no money; that it had no income, other than rental income, which he then accepted it was not receiving (T73); and that it would still be incurring expenses (T73-74). Mr George Sleiman also accepted, rightly, that the SFT had recorded a GST liability in its accounts for the year ended 30 June 2014 (Ex D5, 80), and he also accepted that on the basis of PSI's balance sheet, PSI had no ability to pay the amount of GST or accrued charges in respect of it (T76-77). Mr George Sleiman was not aware, notwithstanding that he was the director of PSI, whether a set of accounts had been prepared as at June 2016 and had made no inquiry as to that matter (T76). Mr George Sleiman was unable to explain why that GST liability was not recorded in the statement of assets and liabilities of PSI which had been relied upon by PSI in the proceedings, notwithstanding that he had signed it (T77). Mr George Sleiman squarely contradicted Mr Peter Sleiman's evidence as to the latter's knowledge of the assessment of tax received in June 2013, giving evidence that he had raised the question how an assessments in that amount could be raised against PSI with Mr Peter Sleiman (T77) and that both he and Mr Peter Sleiman were aware of the assessments at the time he and Mr Peter Sleiman sought Mr Batten's advice as to the restructure (T79).
Mr George Sleiman's evidence was also that he was not sure whether, in mid-2013, the value of the properties then held by PSI exceeded the amount of money owed to NAB (as, I interpolate, it seems it did by a significant margin, before the restructuring) because Mr Peter Sleiman "handled all this sort of stuff" (T82). Mr George Sleiman also accepted (T84) that the only way the Court could understand the composition of the figures contained in the statement of liabilities which he and Mr Peter Sleiman had signed was to see the company's books and records (which were not tendered) or receive evidence from PSI's accountant, who was available to give evidence (T84) but was not called. Mr George Sleiman was also cross-examined as to other matters, which it is not necessary to address.
Mr Kelly, who appears with Mr Hartford-Davis for PSI, rightly accepted, in closing submissions, that the Court should prefer Mr George Sleiman's evidence to Mr Peter Sleiman's evidence as to the circumstances in which Mr Peter Sleiman became aware of the assessments issued by the ATO. Mr Kelly also submits that it was not put to Mr George Sleiman that his evidence as to the purpose of the restructuring was false and that fairness to Mr George Sleiman required that that be put. It is not necessary to address that submission, where the fundamental difficulty with Mr George Sleiman's evidence is that, even if his evidence fairly reflected his understanding, he did not and does not have sufficient knowledge of or involvement with PSI's affairs to give evidence of any weight as to that purpose. It was clear that Mr George Sleiman did not make the substantive decisions in respect of the restructuring which were made by Mr Peter Sleiman, notwithstanding that Mr George Sleiman was the appointor of the Procorp Family Trust, the Master Family Trust and the Slipro Family Trust and the sole director of the companies involved in the restructuring. I should add, for completeness, that it also seems to me that the substance of the DCT's case was clear throughout the proceeding, such that PSI, Mr Peter Sleiman and Mr George Sleiman had a fair opportunity to answer it.
At the conclusion of Mr George Sleiman's evidence, I drew Mr Kelly's attention to a possibility that the adequacy or otherwise of Mr George Sleiman's performance of his role as a director of PSI might be relevant to whether relief should be given in the form in which it was sought by PSI in its Amended Cross-Claim and that there was a possibility that I would reach an adverse view of the steps that Mr George Sleiman had taken to inform himself as to the affairs of PSI and to perform his duties as a director of PSI. I afforded Mr Kelly an opportunity to speak to Mr George Sleiman and consider whether Mr George Sleiman should be recalled, by leave, to lead further evidence as to these matters. No application was made for leave to recall Mr George Sleiman and I infer that any further evidence that Mr George Sleiman could have led as to these matters would not have assisted PSI's case.
I am satisfied that Mr George Sleiman had and has little knowledge of the affairs of PSI and left all important financial and business matters in respect of the conduct of PSI's affairs to Mr Peter Sleiman, notwithstanding that Mr Peter Sleiman was not a director of PSI and Mr George Sleiman was its sole director at the relevant time. As I noted above, I have formed the view that little weight should be given to Mr George Sleiman's evidence, because he lacks any real involvement with either the financial or business affairs of PSI, and because Mr Peter Sleiman was the real decision-maker in respect of significant matters concerning PSI, and that the same position subsists in respect of each of Procorp, Slimpro and Master. I have also formed the view, which will be relevant to the exercise of relief that is sought by PSI, that Mr George Sleiman lacks an appropriate understanding of either the duties of a director of a company or the duties of a corporate trustee of a trust, and would not perform such duties, so far as they attach to him, or take substantive steps to cause the corporate trustee of a trust, of which he is a director, to perform those duties.
PSI also relied on an affidavit of Mr Nasr dated 10 May 2016, who indicated that he was employed as corporate legal counsel for PSI in 2014. I will address one issue in respect of Mr Nasr's evidence below. Mr Nasr's affidavit otherwise does not seem to be material for the matters which I must decide in this application.
PSI also relied on an affidavit of Dr Ferrier dated 9 May 2016 which annexed an expert's report (Ex D5) that sought to describe the relevant transactions. That report had a number of unfortunate features, including that Dr Ferrier was asked to make and made numerous assumptions of fact as to the steps taken in the transaction, which he made no attempt to verify, several of which were not established by admissible evidence in the proceedings. In paragraph 2.1 of his report (which was admitted with a limiting order under s 136 of the Evidence Act that it involved assumptions only, and was not proof of the relevant facts), Dr Ferrier set out matters which he had been asked to assume as to the structure of the relevant transactions, to which I will refer below. Dr Ferrier was also instructed to assume that total funds in excess of $9 million were held by PSI as trustee for specified trusts in specified amounts, and to assume matters which explained differences in loan balances by reference to inter-company loans, although he fairly observed that he had not been provided with any documentary evidence as to the existence of those loans. Dr Ferrier was also instructed that PSI did not hold separate bank accounts for the trusts of which it was trustee and was instructed as to the manner in which PSI recorded the transactions between the trusts for which it was trustee. Dr Ferrier then set out the manner in which funds held or controlled by PSI as trustee for SFT were applied, by drawing inferences of fact from bank statements of PSI and other entities and making an assumption (again without any regard to whether it would be proved) that available funds were used to meet expenditures occurring immediately after the receipt of those funds. It does not seem to me that those inferences involved the application of any relevant expertise of Dr Ferrier, and some of them depended on the further matters that Dr Ferrier was instructed to assume, again without regard to whether they would be proved.
Dr Ferrier made clear not only that he accepted no responsibility if the report was used for any purpose other than for these proceedings, but also that: "7.2 In preparing this report, I have assumed that the information I have had regard to is reliable and accurate, and I have conducted no audit or otherwise verified that information. 7.3 I emphasise that this report is based on the stated assumptions, and the only source documents I have had regard to in preparing this report are the bank statements attached … I have not been instructed to consider whether other documentary evidence is sufficient to establish that all elements of the Trust Restructure, as described in paragraph 2.1 of this report, were implemented."
For these reasons, Dr Ferrier's report was of limited assistance.

The structure of the transactions and further events

By way of background, PSI has been the sole trustee of the SFT. That trust was established on 14 September 1999 and has at various times held numerous properties, largely in New South Wales, some of which have been sold prior to the events in issue in these proceedings. A copy of the trust deed for the SFT is in evidence (Ex A1, Tab 2). The primary beneficiary of the SFT, as specified in Annexure A to the trust deed, is Mr Peter Sleiman, although the trust deed also contains provisions for the nomination of additional beneficiaries. Clause 2 of the trust deed for the SFT provides for the fund to be held on trust to be distributed among any one or more of the beneficiaries in PSI's absolute discretion from time to time.
The DCT commenced an audit of PSI in 2012 on the basis that it understood that PSI had accumulated substantial wealth and received significant deposits in its bank accounts but not lodged tax returns. (Part of the affidavit evidence of that matter was admitted with a limiting order under s 136 of the Evidence Act as identifying the basis of the audit and not as proof of the asserted fact.) The audit concluded on 4 June 2013. On 10 June 2013, the DCT issued assessments totalling $7,113,615.85 to PSI in its capacity as trustee of the SFT. The notices of assessment of income tax related to the income tax years ended 30 June 2008, 30 June 2009 and 30 June 2010 and the notices of assessment of penalty related to the same years (Zafiriou 16.2.16 [16]; Ex A1, Tabs 14-19).
Dr Ferrier summarised the assumptions that PSI asked him to make in respect of the steps of the restructuring which took place from late November 2013 as follows (in abbreviated form) (Ex D5, [2.1]): "(a) Between 2 December and 13 December 2013, a trust restructure was undertaken by entities associated with PSI, with the purpose of reducing the incidence of NSW Land Tax ("the trust restructure"). (b) The Trust Restructure involved the following essential elements (as reflected in the Unit Trust financial statements for the year ended 30 June 2014 … (i) Nine separate unit trusts were created by the issue of 100 units each by each of the Unit Trusts to initial unitholders … (ii) Each of the Unit Trusts purchased a property from [SFT] at the following valuations (I am instructed that these amounts represent fair market value), with the consideration for the purchase consisting of units in the Unit Trust issued to the Discretionary Trust and a balance owing to the Discretionary Trust … (iii) Each of the Unit Trusts borrowed funds from entities associated with PSI and used those funds to redeem the units issued to the Discretionary Trust and repay the balance owing to the Discretionary Trust … (iv) The 100 initial units in some Unit Trusts were transferred to other unitholders … (c) The funds loaned to the Unit Trusts by Procorp Investments Pty Ltd ("Procorp"), Slimpro Investments Pty Ltd ("Slimpro") and Superior Family Investments Pty Ltd ("Superior") were borrowed by those entities from the NAB and/or were resourced from funds already available to those entities."
I note, for completeness, that PSI implicitly abandoned the instruction to Dr Ferrier that each of the unit trusts "purchased" a property from PSI in closing submissions, by characterising the transactions as a resettlement of the trust rather than a purchase. Dr Ferrier was also asked to assume that, or was instructed that, certain payments were made at the direction of PSI and were properly considered to be loans to PSI; as I noted above, that funds of $9,054,305.65 were held by PSI for specified trusts in specified amounts and that differences in loan balances were explained by related party transactions. PSI accepted, in closing submissions, that those assumptions were not proven, although Dr Ferrier was not asked to explain how the fact that those assumptions were not proved affected the balance of his report.
The first step in the restructure was that Mr Peter Sleiman, as appointor of the SFT, consented to the restructure by which the properties would be moved to individual unit trusts (Ex PSJ-2, Tab 110). On 25 November 2013, PSI executed declarations of trust by which it declared that it held each of the nine properties in issue on trust for the "land tax unit trusts" established in respect of the relevant property, rather than for the SFT (Zafiriou 16.2.16 [62]-[79], Ex A1, tabs 54-77). The relevant resolutions recorded that the restructure was "to reduce the incidence of land tax attaching to the properties" (Ex D2, Tab 111). I accept that some aspects of that restructure are likely to have that consequence, although I will find below that other aspects of the restructure and associated transactions, as implemented, had the necessary effect of obstructing the enforcement of claims by the DCT against PSI.
Steps were taken by Mr Peter Sleiman and Mr Batten to estimate the value of the properties in connection with the restructure, and I recognise that the values attributed to two of those properties exceed those for which the DCT now contends. Steps were also taken to allocate the existing NAB mortgage debt of approximately $5.2 million across the properties, in proportion to the values attributed to them, from which the net equity held by the SFT in each of the properties was derived. PSI as trustee for the unit trusts then issued certificates of units in each unit trust to PSI as trustee for the SFT, with the number of units allocated to the SFT reflecting the value attributed to the property, after the amount of the NAB loan allocated to it. Each of the relevant properties was then encumbered to support borrowings of $8,186,000 by Procorp, Slimpro and Superior from NAB, and those borrowings were treated as allocated as to $3,776,000 to Procorp, $3,080,000 to Slimpro and $1,330,000 to Superior. Dr Ferrier's report noted that, on the instructions given to him, PSI borrowed an additional $844,305 in its capacity as trustee of the SFT to give effect to the transaction. (That evidence was admitted with a limiting order under s 136 of the Evidence Act as an assumption and not as proof of the asserted fact.)
PSI as trustee for the SFT then submitted requests to redeem its units in each of the unit trusts and PSI as trustee for the unit trusts resolved to redeem the units for a payment corresponding to the number of units, totalling $2,970,000. PSI submits that the amount of $2,970,000 was subsequently "paid" to PSI as trustee for the SFT for the redemption of its units in the unit trusts and that it, as trustee for the SFT, received full value in "cash" for the redeemed units. It is not necessary to determine whether that occurred given the conclusions that I have reached on other grounds, and it is preferable that I do not seek to do so given the significant gaps in the documentary evidence led by PSI; the fact that I have not accepted the evidence of Mr Peter Sleiman and Mr George Sleiman had no real knowledge of the matter; the fact that the expert evidence of Mr Ferrier was based, in part, on assumptions that PSI accepts it has not proved; and the fact that a liquidator appointed to PSI may well need to investigate these transactions. A substantial part of any monies available to the PST was then applied to repay what were described as "beneficiary loans", although that payment was made to Mr Peter Sleiman. As I noted above, I do not understand Mr Peter Sleiman to have accepted in his cross-examination (T41) that this step was part of the "one transaction" to which he referred. However, it seems to me that this step was an essential step in the structure of the overall transactions as implemented. PSI subsequently resigned as trustee of two of the land tax unit trusts in respect of two of the properties, and Procorp was appointed as trustee of each of those trusts. As I noted above, PSI now applies to have new trustees appointed to the other trusts.
PSI relies on statements made in contemporaneous documents, and the evidence of Mr George Sleiman and Mr Peter Sleiman, to establish that the restructure was implemented solely to minimise land tax. I have had regard, inter alia, to Mr Batten's engagement letter dated 12 November 2013 (Ex A1, 273), a letter of advice dated 26 November 2013 from MGS Private Pty Limited (Ex A1, 283) signed by Mr Batten, a letter later sent by Mr Batten to NAB describing the advice which he provided (Ex A1, 299) and Mr Batten's letter sent to Australian Government Solicitor describing the transaction (Ex A1, 322). As Mr Cotman points out, these documents do not contemplate, and the logic of the transactions did not require, that PSI borrow a larger amount than it then owed to NAB to effect the transactions, or disburse the additional funds received in payment to Mr Peter Sleiman. Those additional steps were not necessary to achieve the saving of land tax and their inclusion in the transaction is indicative of a substantial purpose other than the saving of land tax.
On 4 December 2013, PSI lodged an objection in respect of the assessments issued on 10 June 2013 (Zafiriou 16.2.16 [96]; Ex A1, Tab 84). On 10 January 2014, the DCT commenced proceedings for recovery of outstanding income tax and penalties in the sum of $9,259,674.29, and interest and costs, against PSI. PSI was legally represented in and appeared in those proceedings, but it did not file a Defence and, on 30 July 2014, the DCT obtained default judgment in those proceedings against PSI in the amount of $9,603,023.89 inclusive of costs. The total amount payable as a result of the judgment, quantified as at February 2016, was $10,625,119.63. No payments have been made in reduction of the judgment debt, although certain credits had arisen from amended assessments issued by the DCT. Those amended assessments, and any consequential interest impact, are immaterial for the purposes of this application.
On or about 2 October 2014, PSI filed an application with the AAT seeking to review the DCT's decision to reject PSI's objection to the assessments issued by the DCT. PSI relies on its Statement of Facts and Issues and Contentions in the application for review filed in the AAT. However, PSI has not established, as a matter of evidence, either the asserted facts or the prospects of success of the contentions that are advanced.
On 7 October 2014, Ms Nasr advised the ATO that PSI did not act in any capacity other than as trustee for the SFT (Nasr 10.5.16 [5]). That information was plainly incorrect, where PSI also acted as trustee of the unit trusts. Mr Nasr's evidence was that he was mistaken as to the question he was being asked. It is not necessary to determine that question, given the conclusions that I have reached on other grounds.
On 19 February 2016, White J made freezing orders, by consent, in these proceedings. On 22 February 2016, PSI filed a notice of motion seeking to set aside the default judgment for $9,603,023 in favour of the DCT. It was common ground that that motion has not been heard and accordingly that judgment remains in effect, and no evidence was led before me to seek to establish the prospects of success of that motion.

DCT's claim under s 37A of the Conveyancing Act

As I noted above, the DCT seeks a declaration that the "alienation" of nine properties by PSI in its capacity as trustee of the SFT, by which PSI came to hold those properties as trustee for nine separate unit trusts referable to each property was void under s 37A of the Conveyancing Act. The DCT attacks only the declarations of trust that brought about that result and not the other aspects of the transactions, although the DCT relied on those other aspects of the transactions, as part of the surrounding circumstances on which it relied to impugn the declarations of trust under s 37A of the Conveyancing Act.
Mr Kelly submits that the DCT should be limited to its "pleaded" case. The case was commenced by Originating Process and affidavit and there is no pleading. The DCT had provided particulars of its claim, by letter dated 27 April 2016, in response to a letter dated 15 April 2016 from PSI's solicitors that requested such particulars (Ex D6) which pointed out, reasonably enough, that the DCT was not party to the relevant transactions, the facts of which were within PSI's knowledge and outlined the steps in the transactions in a manner that is consistent with the case now put. That outline noted the matters raised by PSI as to its "receipt" of funds for the redemption of units that it (as trustee for the SFT) held in the land tax unit trusts and its dispersal of those funds to or at the direction of Mr Peter Sleiman and identified the claim put under s 37A of the Conveyancing Act as follows: "Each of the above events are facts and matters disclosing an alienation of assets by [PSI] as trustee of the [SFT], which had the purpose and effect that it was unable to employ the said assets to pay the debts of [PSI] incurred as trustee of the [SFT]. Finally, we note that the purported alienation of the properties occurred at a time when [PSI] was the subject of large assessments to tax and just before proceedings to obtain judgment on them were commenced by the [DCT], or judgment had been obtained in the amount claimed. [PSI] knew, or ought to have known, that it was the subject of large assessments to tax and that it was a debtor of the [DCT] at the time of the alienation of the properties. In the premises, the alienation of the properties on 25 November 2013 and thereafter was an attempt by [PSI] to delay, hinder or otherwise defraud its creditor, the [DCT]."
That letter sufficiently identified the facts and matters upon which the DCT relies to seek to avoid the declarations of trust under s 37A of the Conveyancing Act. The reference to the "alienation of the properties" was perhaps not a particularly precise way of identifying the declarations of trust that were attacked, but the substance of the attack was made clear by the reference to 25 November 2013, the date of the trust deeds under which PSI holds the properties on trust for the land tax units trusts. The affidavit evidence led by the DCT also identified the matters on which it relied, and none of the findings that I reach below relate to matters that were not squarely raised in a manner that allowed PSI an opportunity to meet the case against it. I should also recognise that, even if the case had been conducted on pleadings, their function is to afford procedural fairness and the court is not strictly confined by them and should conduct the proceedings so as to promote a just outcome: Betfair Pty Ltd v Racing New South Wales [2010] FCAFC 133; (2010) 189 FCR 356 at [55]; Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15; JR Consulting & Drafting Pty Ltd v Cummings [2016] FCAFC 20; (2016) 329 ALR 625 at [410]-[411].
The DCT characterises the transactions as a whole as having the result that PSI remains indebted to the DCT but no longer has the capacity to meet that indebtedness. Mr Kelly does not contest that result but he submits that it arises from the payments subsequently made by PSI, as trustee of the SFT, to Mr Peter Sleiman and that neither those payments nor the transactions as a whole are within the scope of s 37A of the Conveyancing Act.
Section 37A of the Conveyancing Act relevantly provides that: "1. Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. 2. This section does not affect the law of bankruptcy for the time being in force. 3. This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors."
The matters necessary to establish an "intent to defraud creditors" for the purposes of s 37A of the Conveyancing Act were summarised by Austin J in Langdon v Gruber [2001] NSWSC 276 at [54]-[56] (omitting citations of authority) as follows: "It is not necessary to prove all of the ingredients of the tort of deceit. In Lloyds Bank v Marcan, at 760-1, Cairns LJ said that a dishonest intention must be shown, at any rate where the conveyance is for consideration. But in Australia, at least, it is not necessary for the plaintiff to bring actual proof that the debtor had in his or her mind an intention to defraud creditors; if it appears from evidence of all the circumstances that the transfer might be expected to have that effect, and has had that effect, the Court will attribute fraudulent intention to the debtor … However, the onus of proof of intent to defraud is on the plaintiff … If the conveyance is voluntary, it is easier to infer a dishonest intention than when it is made for consideration … There is Canadian authority for the proposition that, where the parties to the conveyance of property are related and the circumstances are suspicious, there is a presumption that the transfer is voidable ... This probably means no more than that a transferor and transferee being related is a factor relevant to the court's decision on the transferor's intention."
This section is capable of applying to a transaction which involves an intention to hinder or delay creditors, and where it is established that the party to the transaction knew of its adverse effect on the ability of its creditors to recover, without showing an actual intent to cause loss to those creditors: Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546 at [31]-[32]. Although this section requires that the requisite intention be established, the existence of that intention would ordinarily be inferred, from a consideration of all relevant circumstances: Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557 at [12], [92]; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1 at [9105]; Marcolongo v Chen above at [26]. These principles were helpfully summarised in Patel v Lal [2011] NSWSC 603 at [6], to which the DCT refers, where Biscoe AJ observed that: "Section 37A should receive a liberal construction in effecting its purpose of suppressing fraud. The term "defraud" in s 37A means to delay, hinder or otherwise defraud: Marcolongo v Chen [above] at [19], [20], [58]. It is unnecessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss. It is necessary to show the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor had acted dishonestly. If the debtor disposes of an asset which would be available to creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor. In cases of voluntary disposition that intention may be inferred: at [32]. A person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest: at [33]. The party seeking to avoid the disposition bears the onus of proving an intent to defraud. While the existence of the intent may be inferred from the evidence, it is to be found as a fact: at [34]. Sections 37A does not require the intent to defraud to be the sole or predominant intent: at [57]." It is not necessary that an intention to hinder or delay creditors is the sole or predominant or primary purpose of the transaction: Federal Commissioner of Taxation v Oswald (No 6) [2016] FCA 762 at [63].
PSI's primary submission, which I do not accept, is that the challenged "alienations" of property were not made with the intention to hinder and delay creditors, in the sense explained by the High Court in Marcolongo v Chen above. As I noted above, the DCT commenced proceedings claiming the sum of $9,259,674.29, and interest and costs, against PSI in January 2014 and default judgment was given against PSI in the sum of $9,603,023.89 on 30 July 2014. I have not accepted the evidence of Mr Peter Sleiman that the sole purpose of the transactions, as implemented, was to bring about a saving in land tax, and Mr George Sleiman did not have sufficient knowledge to give evidence of any weight in that respect. It seems to me that the several transactions to which I referred above were directed to effecting a larger purpose, which included the redemption of units in the unit trusts and the subsequent payment of the amount of $2.6 million to Mr Peter Sleiman.
Mr Kelly emphasises that PSI adopted estimated values for the properties for the purpose of the restructure that were in excess of the market value of the properties, at least so far as the evidence now led by the DCT of those market values. Mr Kelly also submits that the practical effect of that was that the unit trusts paid $2,460,000 more for the properties than they were worth when the restructuring took place, using the money borrowed by Procorp, Slimpro and Superior from NAB. That aspect of the transactions in turn placed PSI as trustee for the SFT in funds to make the relevant payment to Mr Peter Sleiman. Since the properties were encumbered to support that excess borrowing from NAB, that step also had the result that they would no longer be available for the enforcement of the judgment obtained by the DCT against PSI in its capacity as trustee of the SFT.
Mr Kelly submitted that the effect of the restructure as a whole was to enhance the fund available for creditors, not to hinder and delay the recovery of any debt. That submission did not have regard to the later step of payment of monies by the SFT to Mr Peter Sleiman which, I observed above, seems to me to be an essential step in the structure of the overall transactions as implemented. Mr Kelly also places substantial reliance on the observations of Brennan CJ and McHugh J in Cannane v J Cannane Pty Ltd (in liq) above at [12]-[14] that an intent to defeat creditors may be inferred from the making of a disposition which depletes the funds available to creditors, including a disposition at undervalue. However, I do not understand their Honours' observation to indicate that that is the only basis on which such an intent could be inferred and, in any event, the declarations of trust and subsequent transactions, including the payment to Mr Peter Sleiman, did deplete the funds available to creditors of PSI.
Mr Kelly also submits that: "It is not to the point, of course, that the $2,970,000 paid to PSI as trustee of the Sleiman Family Trust was then used by that trust to repay some of its beneficiary loans. Those payments are not said to be alienations made to defraud creditors; the payees have not been joined; and it is erroneous in point of principle to elide s 37A with the law relating to preferential payment of unsecured creditors." I accept that the DCT does not seek relief in respect of that aspect of the transactions. It does not follow that it is not a relevant circumstance, to determining the intent of the declarations of trust. Mr Kelly also submits that the transaction cannot be impeached merely on the ground that it constituted a preference of a particular creditor, Mr Peter Sleiman, by his debtor PSI: PT Garuda Indonesia Ltd v Grellman (1992) 107 ALR 199 at 208. While I accept that proposition, the DCT does not here seek to invalidate the payment to Mr Sleiman that would constitute that preference, but rather relies on that payment as one of the surrounding circumstances that caused the declarations of trust to have the capacity of a transaction intended to defraud creditors. That principle does not seem to me to prevent reliance on the fact of that payment for that purpose.
I am satisfied, having regard to the serious character of the finding, that the aspect of the transaction that is challenged by the DCT, involving the declarations of trust over the properties in favour of the unit trusts, was undertaken for purposes including a substantial purpose of facilitating the several steps of raising additional funds from NAB, secured upon the properties; applying those funds to redeem the units issued to PSI as trustee for the SFT in the unit trusts; and then paying those funds to Mr Peter Sleiman, with the result that the equity in the relevant properties was not available to meet the judgment in favour of the DCT. The evidence of Mr Peter Sleiman or Mr George Sleiman, which has the range of difficulties to which I referred above, does not provide any basis on which to displace that conclusion which I otherwise draw from the objective evidence and the structure of the transactions as implemented. If the declarations of trust amounted to an alienation of property for the purposes of s 37A of the Conveyancing Act, then it seems to me that an order could have been made declaring that transaction (as a step in the wider transactions) to be void on the application of the DCT as a person prejudiced by it. Had I reached the conclusion that the transaction involved an alienation of property, it may well have been necessary to allow an opportunity to be heard to any other persons whose interests may or may not be affected before making such a declaration.

Whether the declarations of trust were an "alienation" of property

PSI submits that the term "alienation" in s 37A of the Conveyancing Act involves a transfer of property from one person to another, and that PSI did not "alienate" anything by the declarations of trust in favour of the unit trusts, where it retained the legal estate in each of the properties. PSI also initially submitted that any beneficial interest of the discretionary objects of the SFT in the properties was discharged, and a new beneficial interest arose in favour of the unitholders of the land tax trusts; PSI refined that submission, in oral submissions, to submit that neither the discretionary objects of the SFT nor unitholders in the land tax trusts had such a beneficial interest. Mr Kelly submits that there cannot be an "alienation" for the purpose of s 37A of the Conveyancing Act unless there has been a disposition or transfer of an identified interest, having regard to the ordinary meaning of the term "alienation", and refers to case law to which I will refer below. Mr Kelly submits that the declarations of trust did not constitute an alienation for the purposes of s 37A of the Conveyancing Act, because no legal title was transferred or disposed of by PSI, and no equitable title was transferred or disposed of, where the interest of the discretionary objects of the SFT in the properties did not attach to particular assets and was not "alienated" as part of the restructure.
The concept of an "alienation" of property within the scope of s 37A of the Conveyancing Act was described in the joint judgment in Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at [65]-[67] as follows: "The expression 'alienation of property' which is used in the section does not immediately strike one as apt to apply to the declaration and payment of a dividend. However, it has been held that, for the purpose of s 37A and its equivalents, "alienation" is a parting with property and includes a parting with some interest in the property. Mayo J in In re Symon: Public Trustee v Symon [[1944] SASR 102 at 108] said of the meaning to be given to the word 'alienation' as used in the Crown Lands Act 1929 (SA): "'Alienation' denotes the act, or series of acts, of alienating, and takes place whenever the owner of land, or of an interest therein, so acts as to divest himself of his interest or some lesser interest, and to vest the same in another person [Lang v Castle [[1924] SASR 255 at 263-264]]. Not every agreement that relates to property is necessarily an alienation or an undertaking to alienate. If all that is to be made over is a mere personal right, and not in the nature of property, there will, I apprehend, be no alienation". Alienation is the transfer of value from one person to another [Ord Forrest Pty Ltd v Federal Commissioner of Taxation (1974} 130 CLR 129 at 142]. It is usually understood as applying only to a transfer of property effected by the action of the transferor, as distinct from a transfer by involuntary operation of law [Australian Trade Commission v Film Funding & Management Pty Ltd (1989) 24 FCR 595 at 613]." That observation was applied, in the context of a claim under s 37A of the Conveyancing Act, by Barrett J (as his Honour then was) in Puglia v Basol [2005] NSWSC 1271 at [7].
In Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 343 at [550], Palmer J observed that: "The purpose of s 37A is to defeat fraud no matter by what device it is implemented. The reach of the section is not foreshortened by technical obstructions placed in the way of recovery proceedings in furtherance of the original fraudulent intent. The words of the section are of the widest possible application; they focus on the effect of what is done, not on the means by which it is done. The word "alienation" encompasses every conceivable means whereby property might be removed from the reach of a person's creditors." His Honour also observed (at [551] and [553]) that: "If a person acts collusively with a fraudulent debtor in such a way as to cause ownership of property to move, or to remain away, from the apparently passive debtor, there nevertheless has been an alienation of property for the purposes of the section. … 'Alienation' includes taking steps to frustrate recovery of property under s 37A. It would defeat the purpose of the section if property, once removed from creditors' reach, could be kept permanently out of their reach by the collusive defensive acts of a third party, even though those acts could not have been undertaken by the fraudulent debtor. Section 37A therefore empowers the Court to declare void the acts of a collusive third party calculated to maintain the fraudulent alienation, and the Court may order the third party to re-transfer the property." That reasoning was approved by Davies J in Royal v El Ali [2016] FCA 782 at [202]. However, it does not seem to me that a broad view of the section can extend its application to a transaction that does not involve an alienation of property. In Di Carlo v Kashani-Malaki & Anor [2012] QCA 320; (2013) 2 Qd R 17 (at [30]), Muir JA (with whom Fraser and Gotterson JJA agreed) observed that, for property to be "alienated", it must be "disposed of", and an act that may ultimately lead to disposal will not suffice.
The question whether the declarations of trust in this case amounted to an alienation of property also depends upon the concept of property used in s 37A of the Conveyancing Act and on whether the rights or interests of the beneficiaries in the SFT fell within that concept. The meaning of the concept "property" used in s 37A of the Conveyancing Act will in turn depend on the context and purpose for which the word is being used: Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366 per Heydon J at [162]. In National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1247-1248, Lord Wilberforce observed that: "Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability." That observation has been approved by the High Court on several occasions, to which Heydon J referred in Kennon v Spry above at [162].
It is also necessary to have regard to the nature of the rights or interests of the beneficiaries in the SFT. In Gartside v Inland Revenue Commissioners [1968] AC 553 at 617-618, Lord Wilberforce observed that: "No doubt in a certain sense a beneficiary under a discretionary trust has an 'interest': the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity." His Lordship went on to observe that: "[T]hat does not mean that he has an interest which is capable of being taxed by reference to its extent in the trust fund's income: it may be a right, with some degree of concreteness or solidity, one which attracts the protection of a court of equity, yet it may still lack the necessary quality of definable extent which must exist before it can be taxed."
A similar view was expressed by Smith J in Re Goldsworthy [1969] VR 843 at 848. In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510, Hope JA observed (at [16]) that: "Firstly, an absolute owner in fee simple does not hold two estates, a legal estate and an equitable estate. He holds only the legal estate, with all the rights and incidents that attach to that estate. If he were to execute a declaration that he held the land in trust for himself absolutely, the declaration would be of no effect; it would give him no separate equitable rights; he would remain the legal owner with all the rights that a legal owner has. … Secondly, although the equitable estate is an interest in property, its essential character still bears the stamp which its origin placed upon it. Where the trustee is the owner of the legal fee simple, the right of the beneficiary, although annexed to the land, is a right to compel the legal owner to hold and use the rights which the law gives him in accordance with the obligations which equity has imposed upon him. The trustee, in such a case, has at law all the rights of the absolute owner in fee simple, but he is not free to use those rights for his own benefit in the way he could if no trust existed. Equitable obligations require him to use them in some particular way for the benefit of other persons."
In Re Transphere Pty Ltd (1986) 5 NSWLR 309 at 311, McLelland J similarly observed that: "It is important to recognise the true nature and incidents of legal and equitable estates in property subject to a trust. They are clearly and succinctly described in the judgment of Hope JA in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 518-520. (His Honour's analysis is not affected by the decision of the High Court in that case - see 149 CLR 431.) I would not wish to detract from the value of Hope JA's exposition by trying to summarise it. But what is significant for present purposes is the imprecision of the notion that absolute ownership of property can properly be divided up into a legal estate and an equitable estate. An absolute owner holds only the legal estate, with all the rights and incidents that attach to that estate. Where a legal owner holds property on trust for another, he has at law all the rights of an absolute owner but the beneficiary has the right to compel him to hold and use those rights which the law gives him in accordance with the obligations which equity has imposed on him by virtue of the existence of the trust. Although this right of the beneficiary constitutes an equitable estate in the property, it is engrafted onto, not carved out of, the legal estate."
In I J Hardingham & R Baxt, Discretionary Trusts (2nd ed, 1984), the authors observed (at [606]) that: "[A]n object of a discretionary trust has no interest in any of the assets comprising the distributable fund for at no time, even after due administration, can he necessarily claim any asset or aliquot share; but he has a right of due administration entitling him to call upon the trustees to deal appropriately with the distributable fund; in a popular sense, he may be said to have an interest in the totality of the distributable fund. As far as each asset comprising the fund is concerned, he will have nothing more than an expectancy."
In Dwyer v Ross (1992) 34 FCR 463, the Court declined to make an order restraining the trustee of a discretionary trust from disposing of an amount of money on the basis that the "interest" of a beneficiary under a discretionary trust was his or her right to be considered as a potential recipient of benefit by the trustee and would not entitle the trustee in bankruptcy to the assets of the trust under ss 58 and 116 of the Bankruptcy Act 1966 (Cth).
In Australian Securities and Investments Commission; Richstar Enterprises Pty Ltd v Carey (No 6) [2006] FCA 814; (2006) 153 FCR 509; (2006) 58 ACSR 141 at [25], French J (as his Honour then was) observed that, generally, a person to whom an appointment of trust property may be made under a discretionary trust does not have an interest in the trust property, although all the beneficiaries of a discretionary trust might together be able to direct the trustee as to how to deal with the trust property. His Honour also there applied Inland Revenue Commissioners v Trustees of Sir John Aird's Settlement [1982] 2 All ER 929 to hold that, where a discretionary trust is controlled by a trustee who is the alter ego of a beneficiary, the beneficiary may have a contingent interest in the property of the trust, as it is as good as certain that the beneficiary will receive the benefits of distributions. The DCT did not contend that Mr Peter Sleiman had a property interest in either the SFT or the unit trusts on that basis and, even if he had such an interest, it is difficult to see that it would have been affected by the transactions where he appears to have had practical control of PSI, the SFT and the unit trusts both before and after the transactions.
In CPT Custodians Pty Ltd v Commissioner of State Revenue [2005] HCA 53; (2005) 224 CLR 98, the High Court also held that none of the unitholders in a unit trust could be treated as the "owner" of land for the purposes of s 3 of the Land Tax Act 1958 (Vic), where those unitholders were not the only persons in whose favour the trust property could be applied, where the trustees had (as PSI here appears to have) an unsatisfied right of indemnity, and where it was not established that a unitholder had the power to bring the trust to an end at will and require the transfer of the trust property to it. In Kennon v Spry above, the majority of the High Court took a broader view of the rights of the object of a power of appointment for the purposes of the Family Law Act 1975 (Cth). However, Heydon J (dissenting) there noted (at [160]) that Lords Reid and Wilberforce had held in Gartside v Inland Revenue Commissioner above that the object of a bare power of appointment out of assets had no proprietary interest in those assets and also observed that the object of a bare power of appointment could not assign the "rights" which he or she had.
The position in this case is distinguishable from that in Patel v Lal above, where a company held property in trust and transferred that property to a new trustee for nominal consideration, since here there was no transfer of the properties from PSI to a different entity. In Royal v El Ali above, Davies J considered the position where properties were held on trust and the transferees were purportedly appointed as trustees of the trust. One of defences advanced in that case was that some of the relevant real estate was not property available to creditors, because the properties were held in trust and the defendant did not hold any beneficial estate or interest in those properties at any material time. The defendant there relied on Dwyer v Ross above for the proposition that there was no alienation of property, because a right to require the due administration of the trusts was a personal not a proprietary right, which was not vested in the trustee of the defendant's bankrupt estate. This case is also distinguishable from Royal v El Ali because, here, there was no dealing with the relevant properties by PSI.
It seems to me that there was no alienation of the legal estate, or any undivided interest in the relevant properties, because PSI was the legal owner of the relevant properties both before and after the relevant transaction. It seems to me that there was also no alienation of an equitable estate in the properties because, as Mr Kelly points out, the SFT was a discretionary trust, and neither the trust itself (which is not a separate legal entity) nor any beneficiary of it had a subsisting equitable interest in the properties. Those properties were, instead, held by PSI, prior to the transaction, subject to obligations properly to administer the SFT and, if the transactions were effective, after the transaction, subject to obligations properly to administer the unit trusts. The change of the nature of those obligations did not amount to an alienation of any property. It seems to me that, Mr Kelly is therefore correct in his submission that the transaction was properly characterised as a preference given to Mr Peter Sleiman which would be voidable on the application of a liquidator under Part 5.7B of the Corporations Act rather than a transaction in breach of s 37A of the Conveyancing Act. In the event, a liquidator will have the opportunity to bring such application as he considers appropriate in that respect.
PSI also submits that the resettlement of the properties on the unit trusts did not involve an "alienation" of property on the alternate basis that it involved payment of full consideration and did not involve any shift of value away from PSI. I recognise that the declaration of the new trusts in itself, if considered without regard to the subsequent transactions, did not have that effect. Mr Kelly also submits that, if a trustee had received a tax assessment for $7 million or more, which it had no known way to pay, the last thing which it would do if it were intent upon hindering, delaying or otherwise defrauding the DCT, would be to borrow additional monies, then cause an additional amount to flow into its account. That submission omitted reference to the fact that any additional amount which did flow into PSI's account was shortly thereafter paid out to Mr Peter Sleiman. To the extent that the submission is an appeal to common sense as to the structure of the transaction, it seems to me to disregard both the ingenuity with which the transaction was implemented and its ultimate effect. However, it is not necessary to reach a final view as to these matters where I have held the declaration of trust was not an "alienation" of property in any event.

PSI's claim for declaratory relief

As I noted above, by its Amended Cross-Summons, PSI seeks declarations that it holds each of the nine properties in trust for the nine separate unit trusts pursuant to trust deeds each dated 25 November 2013, in each case free of any estate or interest in the property in favour of PSI as trustee of the SFT. The DCT responds to the Cross-Summons filed by PSI by relying upon the matters raised in its attack under s 37A of the Conveyancing Act. Although I have held above that the relevant transactions involved an intent to defraud the DCT as creditor of PSI, I have also held that they did not involve an alienation of property and are not liable to be set aside under s 37A of the Conveyancing Act. It does not follow, of course, that declarations should now be made on PSI's application to perfect them, so far as they have not yet been perfected.
I do not consider that I should make the declarations sought by PSI that it holds the relevant properties on trust for the particular unit trusts. First, as I noted above, each of the declarations sought provides that PSI holds the estate or interest in the relevant property as trustee for the relevant unit trust, free of any estate or interest in favour of PSI as trustee of the SFT. Mr Kelly submits that the claim that the interest is held free of any estate in favour of PSI as trustee of the SFT does not affect the substance of the declaration sought. However, that claim seems to me to be an essential aspect of the relief sought by PSI, although adverse to PSI in its capacity as trustee of the SFT and plainly adverse to creditors of the SFT such as the DCT. As Mr Cotman points out, a trustee's indemnity and a charge on the trust's assets to secure that indemnity, would ordinarily survive the appointment of a new trustee: Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26; (2012) 16 BPR 30,397. Mr Cotman also points out that no undertaking is offered by the proposed new trustees to maintain the assets of the relevant unit trusts, so as to allow them to discharge a right of indemnity available to PSI as trustee of the land tax unit trusts or to place PSI as trustee of the land tax unit trusts in a position to indemnify PSI as trustee of the SFT and Mr George Sleiman's evidence is that that question has not been considered.
The declarations sought seem to me to be inconsistent with PSI's right of indemnity over trust assets in respect of liabilities properly incurred by it. In Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 367, the plurality described that right as is in the nature of a charge or lien over trust property, and observed that: "In such a case there are then two classes of persons having a beneficial interest in the trust assets: first, the cestuis que trust, those for whose benefit the business was being carried on; and secondly, the trustee in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust. The latter interest will be preferred to the former, so that the cestuis que trust are not entitled to call for a distribution of trust assets which are subject to a charge in favour of the trustee until the charge has been satisfied: Vacuum Oil Co Pty Ltd v Wiltshire [(1945) 72 CLR 319]."
In Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226, the High Court observed (at [50]) that: "A court of equity may authorise the sale of assets held by the trustee so as to satisfy the right to reimbursement or exoneration. In that sense, there is an equitable charge over the 'trust assets' which may be enforced in the same way as any other equitable charge. … the enforcement of the charge is an exercise of the prior rights conferred upon the trustee as a necessary incident of the office of trustee. "
In Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation [2009] HCA 32; (2009) 239 CLR 346 at [42]-[43], the High Court described a former trustee's right to recoupment or exoneration as being supported by a lien over the whole of the trust assets which survived its loss of office as trustee. That interest has substance, even if it is better not described as a charge or lien where a trustee has both a right of indemnity and also has legal title to the assets: Agusta Pty Ltd v Provident Capital Ltd above at [41]. I should not grant the declarations sought by PSI, so far as they would purportedly extinguish any lien that may be available to PSI in its capacity as trustee of the SFT or the units trusts over the relevant properties, in respect of obligations, including obligations incurred to the DCT prior to the declarations of trust in favour of the relevant unit trust.
Second, a liquidator of PSI may have grounds to set aside the relevant transactions under Part 5.7B of the Corporations Act and, where a liquidator is to be appointed to PSI for the reasons noted below, I should not now make such a declaration where he or she has had no opportunity to be heard in respect of it. Third, I have held above that the transaction involved an intent to defraud the DCT, in the sense that concept is used in s 37A of the Conveyancing Act although it did not involve an alienation of property so that it can be set aside under that section. It is at least arguable that the Court should not exercise its power to grant declaratory relief in a manner that would amount to perfecting that intent, although I need not determine this issue on that third basis given the conclusions I have reached on other grounds. I decline to grant the declarations sought in respect of each of the properties.

PSI's application under s 70 of the Trustee Act

By its Amended Cross-Claim, PSI also sought an order under s 70 of the Trustee Act 1925 (NSW) removing it as trustee of each of the specific trusts attached to the properties and appointing Procorp as trustee in respect of five of those trusts, appointing Slimpro in substitution for PSI as trustee of one of those trusts and appointing Master in substitution for PSI as trustee of one of those trusts. Orders for the removal of PSI and appointment of new trustees were not sought by PSI in respect of two trusts, because Procorp had already been appointed as the trustee of those unit trusts. PSI also sought an order vesting several of the relevant properties in Procorp, Slimpro and Master as trustee of the relevant trusts.
Section 70 of the Trustee Act relevantly provides that the Court may make an order for the appointment of a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees. Subsections 70(2)-(3) relevantly provide that: "(2) The appointment may be made whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient difficult or impracticable so to do without the assistance of the Court. (3) In particular and without prejudice to the generality of any other provision of this section, the Court may make an order for the appointment of a new trustee in substitution for a trustee … being a corporation is in liquidation or is dissolved."
The language of s 70 of the Trustee Act is directed to whether it is "expedient" to appoint a new trustee, rather than, in terms, to what is in the best interests of the beneficiaries and the administration of the trust: Crowle Foundation v NSW Trustee and Guardian [2010] NSWSC 647 at [33]. However, the question what is expedient for the purposes of s 70 of the Trustee Act will be answered by reference to the objects that are sought to be achieved by the exercise of the power, which include the matters relevant to the replacement of a trustee at general law: Porteous v Rinehart (1998) 19 WAR 495 at 507; Crowle Foundation v NSW Trustee and Guardian above at [34].
The matters relevant to the removal of a trustee at general law were identified in Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 at 580-581, where Dixon J (with whom Evatt and McTiernan JJ agreed) observed that: "The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary."
In Porteous v Rinehart above at 508, White J similarly observed, by reference to authority that: "the jurisdiction of the Court to remove a trustee is ancillary to its principal duty to see that the trusts are properly executed and, if the Court is satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee may be removed. The main guide in the exercise of this jurisdiction must be, not whether the trustee has committed breaches of trust, but the welfare of the beneficiaries." I do not understand his Honour's reference to the importance of the interests of beneficiaries to exclude the relevance of the interests of persons who have claims to the assets of trust in priority to the claims of beneficiaries, including a former trustee of the trust exercising a right of indemnity or exoneration, supported by an equitable lien or charge over the assets of the trust, or a creditor of the trustee claiming against the assets of the trust by way of subrogation to a former trustee's rights. That matter is of particular relevance here, as I will note below.
Section 70(3) of the Trustee Act in turn provides that the Court may make an order under the section where an existing trustee is a corporation in liquidation, and that provision is a "subset" of the circumstance described in s 70(2) of the Trustee Act, where it is expedient to appoint a new trustee: Crowle Foundation v NSW Trustee and Guardian above at [32]. That provision does not, of course, indicate that it will necessarily be expedient to appoint a new trustee wherever the existing trustee is a corporation in liquidation or mandate the exercise of the court's discretion in a particular way in any case. PSI accepts that the question of the proper administration of the trust is relevant in the exercise of the court's discretion in that respect.
PSI submitted, in its opening submissions, that: "It is not in the best interests of the beneficiaries for the unit trusts to be administered by a company controlled [by] an insolvency practitioner, with concomitant fees and charges. Nor would it be expedient to require the beneficiaries to invite PSI to retire, following the appointment of such a practitioner. In point of principle, it has been held that a bankrupt trustee is unfit to act and therefore an appointment can be made out of court." The authorities indicate that a court may well remove an individual who has become bankrupt as trustee of a trust in order to promote the welfare of the beneficiaries of the trust: Miller v Cameron above. However, that approach is not adopted, at least as a matter of course, where a corporate trustee is placed in liquidation. In Wells v Wily [2004] NSWSC 607; (2004) 50 ACSR 103, Austin J declined to make an order under s 70(3) of the Trustee Act replacing a trustee in liquidation, where the liquidator of the trustee was taking steps to recover and sell the trust property for the benefit of trust creditors, to the disadvantage of beneficiaries of the trusts. His Honour observed at [26] that: "One can understand that, once a certain stage has been reached in the liquidator's administration of the affairs of a corporate trustee in liquidation, the company has come so close to dissolution that it is inevitably necessary to replace it as trustee, at any rate where the trust is to continue and not itself be wound up. Where, however, the liquidation of the corporate trustee has just commenced, and particularly where it seems likely that it will be necessary to realise the trust assets in order to pay trust creditors, there may be good reasons to leave the administration of the trust, for the time being, in the hands of the liquidator - unless to do so would give rise to a conflict between the liquidator's duties of a liquidator and his or her duties as trustee. To that limited extent, I respectfully disagree with the learned authors of Jacob's. I prefer the view of a H A J Ford, M Bryan and W A Lee, Principles of the Law of Trusts, (looseleaf, LBC Information Services, Sydney), at [14,110], that in some cases it may be appropriate for a new trustee to be appointed where the corporate trustee is in liquidation, but in other cases it may be better to allow the liquidator to administer the trust and the liquidation, for a time, concurrently." His Honour summarised the proper approach (at [31]) as being that: "the court will not replace a corporate trustee in insolvent liquidation as a matter of course, but rather will approach the question with an open mind, and assess where the balance of interest lies, in the exercise of its discretion."
Mr Kelly also submits that a liquidator appointed to PSI would have a conflict of interest, so far as the interests of the SFT and the interests of the unit trusts may diverge, in respect of the ownership of the properties. Any such conflict would be the product of the position already occupied by PSI, as a result of the restructuring, as trustee of both the SFT and the unit trusts. It seems to me that a liquidator can readily manage that conflict, including by seeking judicial advice from the court or a declaration as to the capacity in which PSI holds the properties, in which persons whose interests are affected or representatives of them may be joined. I did not understand Mr Kelly to submit that a conflict arose between a liquidator's duties to creditors of PSI on the one hand and any duty to potential beneficiaries of the SFT or the unit trusts on the other. There is no necessary conflict in that respect, although a liquidator may need to obtain judicial advice if particular difficulties arise, for the reason identified by Austin J in Wells v Wily above at [33]: "It cannot be contended that the interests of the trust creditors and the beneficiaries are interests at the same level. If the trustee has acted properly and within its authority in incurring debts on behalf of the trust, the trustee has a right of indemnity or recoupment and an equitable lien, giving it priority to the interests of the beneficiaries, and the creditors are entitled to be subrogated to those rights."
It seems to me that the Court should not make the order sought by PSI under s 70 of the Trustee Act, where that order would place the trusts under the control of entities of which Mr George Sleiman is the sole director, and Mr Peter Sleiman likely exercises practical control. I have had regard to the matters raised by Mr Kelly in reaching that view, but have also had regard to Mr George Sleiman's lack of understanding of, and lack of commitment to performing, or causing a corporate trustee to perform, his and its duties to which I have referred above. PSI submits that there is no reason to think that Mr George Sleiman's performance as a director of the companies which are sought to be appointed as trustee will not improve with his experience in this matter. I do not share that view. Mr George Sleiman has neither acknowledged any deficiency in the previous performance of his duties as a director of PSI nor give evidence that he will in future conduct himself in any different manner, even when given the opportunity to give additional evidence to address the issues that had arisen from his cross-examination in that respect.
Having regard to the conclusions that I have reached above, it seems to me that the proper administration of each of the SFT and the unit trusts will be promoted by leaving PSI, as trustee, under the control of a liquidator, as an officer of the court, rather than avoiding that result by appointing companies of which Mr George Sleiman is the sole director as trustee of the trusts. Mr Kelly submitted that, if I were to form that view, then I should afford PSI a further opportunity to nominate other entities which may be appointed as trustees of the relevant unit trusts. I do not consider that I should take that course. First, that was not the basis on which PSI's application was brought. Second, such an application may be separately pursued by the liquidator appointed to PSI if he or she considers it is in the interests of PSI, its creditors or potential beneficiaries of the trusts to pursue it. If a liquidator does not bring such an application, it could also potentially be brought by persons with an interest in the relevant trusts, if so advised, and the liquidator would then have an opportunity to be heard in that application.

Discharge of freezing orders

PSI also seeks to discharge freezing orders previously made by a Judge of the Court on 19 February 2016. It seems to me that such orders should remain in place at least until the liquidator who will be appointed to PSI, for the reasons set out below, has an opportunity to consider his position in respect of these proceedings and the relevant property.

The winding up application

As I noted above, the DCT applies for the winding up of PSI on the grounds of insolvency under s 459A of the Corporations Act and for an order that Mr David Young be appointed as liquidator of PSI.
Section 459A of the Corporations Act relevantly provides that, on an application under s 459P of the Corporations Act, the Court may order that an insolvent company be wound up in insolvency. Section 459P of the Corporations Act provides that, relevantly, a creditor may apply for an order winding up a company under s 459A. I am satisfied that the DCT is a creditor of PSI with standing to make such an application. The principles applicable to a determination of PSI's solvency are well-established, and I have drawn here upon my summary of those principles in Re Gladstone Mortgagee No 1 Pty Ltd [2015] NSWSC 1551 at [39]ff. Section 95A(1) of the Corporations Act has effect that, relevantly, PSI is solvent if, and only if, it is able to pay all its debts as and when they become due and payable. Section 95A(2) of the Corporations Act has effect that a person who is not solvent is insolvent. That definition adopts a cashflow test of insolvency which turns upon the income sources available to PSI and the expenditure obligations that it has to meet, rather than a balance sheet test which focuses on the value of its assets and liabilities reflected in its books, although a balance sheet test can provide context for the application of the cashflow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213; Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124 at [370]ff; Campbell Street Theatre Pty Ltd (recs and mgrs apptd) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [23]. Whether PSI is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively in all the circumstances, including the nature of its assets and business, and the court will have regard to commercial realities in that regard: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation above at [54]; Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [93]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd [2011] NSWSC 186; (2011) 248 FLR 384 at [48]-[49].
The DCT relies, in support of its winding up application, on the evidence that an amount exceeding $10.7 million is due and payable by PSI to the DCT and remains unsatisfied. The DCT submits, and I accept, that the application filed in the AAT does not affect the legal status of the assessment to tax issued to PSI, unless and until that assessment is varied or set aside, by reason of s 14ZZM of the Taxation Administration Act 1953 (Cth) ("TAA"); compare Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at [44]; Southgate Investments Funds Ltd v Deputy Commissioner of Taxation [2013] FCAFC 10 at [77]. There is also no evidence as to the merit or potential outcome of PSI's application to the AAT, even if it were otherwise relevant. PSI submits that the key proposition advanced in its application for review to the AAT, as summarised in paragraph 15 of its Statement of Facts and Issues and Contentions in that application is that: "[SFT] holds the rental properties … on a negatively geared basis and accordingly has not derived a net income position. [SFT] has received loans from Mr Peter Sleiman, various financial institutions and from various private constitutional corporations and other entities." Putting aside the lack of specificity in that proposition, including the lack of identification of the "private constitutional corporations and other entities" which are said to be involved, the fundamental difficulty with that proposition is that there is no substantive evidence in these proceedings to establish its truth, or to allow an assessment of the likelihood that it will be accepted by the AAT. PSI also points to the fact that the income tax assessed for the relevant years reflects a level of income which is substantial and greater than the total costs of all of the properties. PSI asked me to infer that that means that the assessment must be wrong. I do not draw that inference, which depends upon unarticulated assumptions that the properties are the only source of PSI's income in the relevant years and as to the level of income which could be derived from the properties, neither of which were established. The debt is also presently the subject of a judgment debt and the relevant judgment has not been set aside.
I also find that the debt owed by PSI to the DCT in respect of GST is due and payable and that PSI cannot pay it, and, as I noted above, I do not accept the evidence of Mr Peter Sleiman that an application has been, or may have been, made for review of the relevant assessment. The sole asset of PSI, being $20, appears to have been dissipated, because the one bank account held by PSI was closed where there was no money in it (T61). Mr Peter Sleiman also accepted, in cross-examination, that PSI was incurring costs in relation to the AAT appeal, although one of his other companies was paying those costs, because PSI could not afford to do so from its own resources (T60-61). I accept, however, that the liability of PSI in respect of beneficiary loans does not give rise to insolvency, where it is not presently being asked to repay the amount that has not already been paid to Mr Peter Sleiman (cf T61-62).
The DCT submits that the evidence plainly establishes that PSI is unable to generate positive cash flow, has made continuing and sustained losses, has no assets of value and is unable to pay the debts owed to the DCT as and when they fall due. The combination of PSI's statement of assets and liabilities filed in the proceedings, and its tax return for the year ended 30 June 2015, makes clear that it has neither assets nor income which would allow it to meet the relevant debts. PSI cannot recoup that position by the receipt of rental income, since the evidence suggests that it does not receive rental income, notwithstanding that properties it owns are rented, and where any such income is paid was not disclosed by the evidence. There is no evidence that any right of indemnity available to PSI against the SFT or any other trust of which it is trustee would allow it sufficient assets to discharge the relevant debts, particularly given the extent to which the properties have now been encumbered, even apart from PSI's attempt by its Amended Cross-Claim in these proceedings, to extinguish access to the right of indemnity and the lien that would be otherwise be available to it as trustee of the SFT against the properties now held in the land tax unit trusts. The financial position of PSI is such that it could not pay any debts that would arise from its corporate existence, including annual registration fees payable to the Australian Securities and Investments Commission.
Mr Kelly submits that the solvency of PSI depends on whether it is indebted to the DCT for the amount claimed or any other amount and whether the alienation of property that is subject to challenge by the DCT is void. It seems to me that the fact that PSI is indebted to the DCT for the amount claimed is established by the existence of a judgment for that amount against it and I have referred above to the fact that it is also indebted to the DCT for the amount of GST. The question whether the alienation of property is void does not affect its solvency, given the extent to which the properties are now encumbered to the NAB. Mr Kelly also relied, in opening on the possibility that applications may be made by a liquidator or a creditor to bring other assets back into PSI (T18-19). That matter cannot assist in establishing PSI's solvency, where applications cannot be made by a liquidator until PSI is wound up, and applications which might in future be made by a creditor do not establish PSI's present ability to pay its debts as and when they fall due.
Mr Kelly also submits that the Court should decline to wind up PSI as a matter of discretion where an appeal is pending in respect of the assessments to which I have referred above. Section 467(1)(a) of the Corporations Act relevantly provides that the Court may, on hearing a winding up application, "dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up on the application." It has long been recognised that a finding of insolvency can result in there being an entitlement to a winding up order ex debito justitiae, but that the Court nonetheless has a discretion to decline to make a winding up order: FAI Insurances Ltd v Goldleaf Interior Decorators Pty Ltd (No 2) (1988) 14 NSWLR 643 at 660 per McHugh JA; Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 699; (2003) 46 ACSR 446 at [57]; TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 at [114].
Mr Kelly submits that, as a matter of discretion, the Court should not wind up PSI when there is an appeal pending in the AAT, in relation to a debt that materially affects its financial position. Sections 14ZZM and 14ZZR of the TAA respectively have the result that review proceedings in the AAT, and a pending appeal in relation to a "taxation decision" (as defined in s 14ZQ of the TAA) do not affect the decision and any tax, additional tax or other amount may be recovered as if no review or appeal was pending. I proceed on the basis, adopted in the recent case law, that the decision of the High Court of Australia in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd above is directed to the setting aside of a statutory demand under the Corporations Act, rather than dealing with wider questions such as a stay of execution of a judgment pending the hearing of an appeal against an assessment or, for present purposes, a winding up application. I note that, in that case, the DCT conceded the relevance of the merits of an appeal against a taxation assessment to the exercise of a discretion whether or not to make a winding up order against a company in insolvency; such a concession was also made in Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd [2012] FCA 363; (2012) 127 ALD 64.
In Deputy Commissioner of Taxation v Tilley Property Management Services Pty Ltd [2011] FCA 678, Logan J declined to adjourn a winding up application where no valid taxation objection was on foot and where his Honour noted that no security was offered for the demand by the DCT. A winding up order was not deferred, in circumstances that appear to have greater merit than the application for deferral in this case, in Deputy Commissioner of Taxation v Interactive Community Planning Pty Ltd [2011] FCA 1173. In Deputy Commissioner of Taxation v Caporale Group Pty Ltd [2011] FCA 1189, Yates J declined to defer a winding up application where an appeal had been brought against a tax assessment, on the basis that the defendant had not adduced evidence to establish that it had a "reasonably arguable case" in the appeal proceedings, and that there was no appropriate evidence establishing the defendant company's solvency or its solvency but for the tax debt. Both of those factors are present here, with the qualification that Mr Kelly sought to advance a case for the merit of the appeal without an adequate evidentiary basis for that case.
The relevant authorities were comprehensively reviewed by Robertson J in Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd above at [26], where his Honour summarised those principles as having the effect that: "There is no doubt that there is a discretion and that there are principles relevant to the exercise of that discretion. A principle of great importance is that the collection of the revenue should not be prejudiced. But there may be circumstances where an application to wind up the company on the grounds of insolvency should be adjourned until the outcome of Pt IVC proceedings is known. The circumstances in which such a discretion may be exercised include where the collection of the revenue is not prejudiced or any such prejudice is insubstantial, where a debtor company has a reasonably arguable case in proceedings under Pt IVC of the Administration Act and where those proceedings are soon to be heard." His Honour there declined to make a winding up order, in circumstances that the DCT had accepted that the merits of the appeal were relevant to the exercise of the discretion whether to do so, and his Honour had found that the company had a "reasonably arguable" case in the appeal. By contrast, the proposition that PSI has a reasonably arguable case in its appeal against the 2013 assessments is not established here and no such appeal has been shown to have been brought in respect of PSI's liability to GST. It is also not established here that the adjournment of the winding up would not prejudice the collection of revenue or that any prejudice would be insubstantial. By contrast with the position in Re Roma Industries Pty Ltd (1976) 1 ACLR 296, no offer of security for the amount which may be found to be due to the DCT has been made.
In Southgate Investment Funds Ltd v Deputy Commissioner of Taxation above, the Full Court of the Federal Court of Australia again reviewed the relevant authorities, and expressed the view (at [69]) that the well-established jurisdiction to stay taxation recovery proceedings in appropriate circumstances had not been entirely displaced by provisions in taxation legislation and the merits of such an appeal remained a material consideration in an appropriate case in exercising that jurisdiction.
I do not consider that the winding up application should be either adjourned or dismissed in an exercise of discretion, by reason of the appeal to the AAT. As I have noted above, there is no evidence of substance that would allow me to form any view as to the substance of PSI's appeal to the AAT, or the likelihood of its success, or form any view that it will extinguish, or even materially reduce, the amount of the debt owed by PSI to the DCT. So far as a judgment presently exists against PSI, there is no offer to pay the amount of that judgment into Court, and it is apparent that PSI does not have the financial capacity to do so. I am also not satisfied that an appeal has been brought in respect of the GST debt, and there is no basis to exercise a discretion not to wind up PSI where it cannot pay the GST debt that is presently due and payable, merely because it contests the existence of, or the amount of, another debt which it also cannot pay. The present case is one where PSI is insolvent, whether or not the debt the subject of the original assessment or the judgment debt could be disputed, and in those circumstances there is no reason to stay or dismiss the winding up application to allow any dispute in the AAT as to the original assessment to be determined: Australian Beverage Distributors Pty Ltd v Evans & Tait Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 69 NSWLR 374 at [72] per Beazley JA (with whom Hodgson and Santow JJA agreed).
PSI also submits that the judgment entered by the Court marginally exceeds the amount of the assessment, as amended, and that there now exist liabilities of PSI both under the judgment and under the amended assessment. It seems to me those complaints are immaterial to this application, where PSI is incapable of meeting either the amount of the judgment, or the lesser amount of the amended assessment, or the amount of its GST liability to the DCT.
Mr Kelly also submits that the Court should decline to wind up PSI, as a matter of discretion, where there are proceedings under s 37A of the Conveyancing Act on foot which, if successful, may return assets to PSI as trustee for the SFT. It seems to me that the claim under s 37A of the Conveyancing Act does not support such an exercise of discretion, both because I have accepted PSI's submission that there is no alienation of property that is capable of being set aside under that section, and because the avoidance of the declarations of trust in favour of the unit trusts would in any event not restore the solvency of PSI, where the properties are now encumbered to NAB and could not be realised, still less within a short time, to meet PSI's liabilities to the DCT. Finally, in closing oral submissions, Mr Kelly also submitted that the appointment of a liquidator would give rise to an event of default under facilities offered by NAB to other companies. Mr Kelly did not draw attention to any evidentiary basis for that submission, such as the relevant loan facilities with NAB, and there is no evidence of NAB's attitude to the appointment of a liquidator to PSI, which is a matter of speculation. It does not seem to me that there is an adequate evidentiary basis for a submission that any such effect provides sufficient ground not to appoint a liquidator in the relevant circumstances.
I should also have regard to the public purpose served by a winding up order, where it will protect the public against continuing to deal with PSI in circumstances of its insolvency. In that respect, I adopt the observation of Barrett J (as his Honour then was) in TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd above at [118] that where insolvency is established then: "the discretion to dismiss the application will be exercised only if some good reason is shown for allowing the admittedly insolvent company to continue in the mainstream of commercial life." I am not satisfied that good reason to take that course is established in this case.
The formal requirements for a winding up order are satisfied. A consent of liquidator of Mr Young to his appointment as liquidator of PSI was tendered (Ex A2). The affidavit of Ms Jones dated 12 April 2016 proves lodgement of a notice of the winding up application with the Australian Securities and Investments Commission and the affidavit of Ms Whan dated 26 May 2016 proves publication of the winding up application.
Accordingly, I am satisfied that an order should be made for the winding up of PSI.

Costs and orders

The DCT's costs of the application to wind up PSI should be paid out of PSI's assets on the winding up in the usual way. My preliminary view is that there should be no other order as to the costs of the DCT's claim or PSI's cross-claim, where the DCT did not obtain the orders it sought under s 37A of the Conveyancing Act and PSI did not obtain the declarations it sought or orders under s 70 of the Trustee Act, although I recognise that the substantive result of the proceedings was more favourable to the DCT than to PSI.
I make the following orders:
The Defendant, Peter Sleiman Investments Pty Ltd, be wound up in insolvency pursuant to s 459A of the Corporations Act 2001 (Cth).
Mr David Young of Young Business RIT Pty Limited be appointed liquidator of the Defendant.
The Plaintiff's costs of the application to wind up the Defendant be paid out of the assets of the Defendant.
The Amended Summons and the Amended Cross-Summons otherwise be dismissed with no order as to costs.

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: 02 December 2016

Land Tax Act 1958(Vic)

Crown Lands Act 1929(SA)

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