Macquarie Health Corp Ltd v Commissioner of Taxation

Smith v Deputy Commissioner of Taxation (No 2) (1997) 15 ACLC 687, cited Zuks v Jackson McDonald (1996) 96 ATC 4588, cited Hall v Richards (1961) 108 CLR 84, cited Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in liq) (1998) 43 NSWLR 484, cited Qantas Airways Ltd v Cornwall (1998) 84 FCR 483, cited Nguyen v Nguyen (1990) 169 CLR 245, cited Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589, discussed R v Justices of Berkshire (1878) 4 QBD 469, cited Loizos v Carlton and United Breweries Ltd (1993) 117 FLR 135, cited Litster v Forth Dry Dock and Engineering Co Ltd (In Receivership) [1990] 1 AC 546, cited Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456, cited Brien v Australasian Memory Pty Ltd (1997) 25 ACSR 1, cited Olsen v Nodcad Pty Ltd (1999) 17 ACLC 1167, cited In re Exhall Coal Mining Co Ltd (1864) 4 De G J & Sm 377; 46 ER 964, referred to In re Stanhope Silkstone Collieries Co (1879) 11 Ch D 160, cited Relwood Pty Ltd v Manning Homes Pty Ltd (No 2) [1992] 2 Qd R 197, cited Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blackshaw & Shadforth Pty Ltd (1997) 147 ALR 281, distinguished Australian Law Reform Commission, General Insolvency Inquiry (LRC 45, 1988) McPherson, The Law of Company Liquidation (4th ed 1999) Sykes and Walker, The Law of Securities (5th ed 1993) MACQUARIE HEALTH CORPORATION LIMITED & ORS v COMMISSIONER OF TAXATION N 336 OF 1999 RICHARD WALTER PTY LIMITED (IN LIQUIDATION) & ANOR v COMMISSIONER OF TAXATION & ORS N 344 OF 1999 HILL, SACKVILLE & FINN JJ SYDNEY 23 DECEMBER 1999

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: RICHARD WALTER PTY LIMITED (IN LIQUIDATION)

GREGORY WINFIELD HALL as liquidator of the First Appellant

THE COURT ORDERS THAT:

1. The proceedings be listed for further hearing at 10.15 am on 17 February 2000. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: RICHARD WALTER PTY LIMITED (IN LIQUIDATION)

GREGORY WINFIELD HALL as liquidator of the First Appellant

THE COURT: The Appeals 1 These two appeals and a cross-appeal involve competing claims to a large sum of money paid into Court on 4 August 1998 by a group of companies connected with Dr Thomas Richard Wenkart. The group of four companies ("the Debtors") were indebted to another company within the Wenkart Group, Richard Walter Pty Ltd, now in liquidation ("the Taxpayer"). 2 The moneys paid into Court, totalling $21,290,886, represent the amounts due by the Debtors to the Taxpayer pursuant to various intra-group dealings. Competing claims to the fund in Court have been made by the Commissioner of Taxation ("the Commissioner") and by the liquidator of the Taxpayer ("the Liquidator") on behalf of the Taxpayer. The Debtors, although having no direct interest in the outcome, support the Liquidator's claim, doubtless because the largest unsecured creditors of the Taxpayer are other entities within the Wenkart group. 3 The Commissioner's claims to the bulk of the moneys paid into Court were based upon three notices issued to various of the Debtors under s 218 of the Income Tax Assessment Act 1936 (Cth) ("ITAA"). That section permits the Commissioner, inter alia, to require any person by whom any money is due or may become due to a taxpayer to pay the amount due by the taxpayer in respect of tax. The s 218 notices were issued successively in July 1992 (in respect of tax due of $11,826,018); September 1995 (in respect of tax due of $15,784,701); and February 1997 (in respect of tax due of $19,536,409). We refer to these notices, respectively, as the First Notice, the Second Notice and the Third Notice. 4 The primary Judge directed that the Registrar of the Court pay the sum of $15,784,701 out of the funds in Court to the Commissioner (that is, the amount covered by the Second Notice). He declared that payment of this sum would satisfy the obligations of each of the Debtors in respect of the First and Second Notices. A declaration was also made that the Third Notice was void as a "disposition of property" within the meaning of s 468(1) of the Corporations Law (his Honour having held that the Third Notice was issued after the date of commencement of the Taxpayer's winding-up). 5 The primary Judge subsequently dismissed an application by the Commissioner for an order that the interest earned on the sum of $15,784,701 also be paid out to him. His Honour took the view that it was inappropriate to decide the question of interest, pending determination of the appeals which by then had been filed: Commissioner of Taxation v Macquarie Health Corp Ltd [1999] FCA 632. The order for payment out to the Commissioner was stayed pending the determination of the appeals and the cross-appeals. 6 The Liquidator and the Taxpayer, by their amended notice of appeal, challenge the validity or effectiveness of the three Notices. They seek a declaration that, in the events that have happened, the Liquidator was entitled to collect any amounts owing by the Debtors to the Taxpayer to the exclusion of the Commissioner. They also seek an order that the Registrar of the Court pay the whole of the funds in Court to the Liquidator. 7 The Debtors appeal against the judgment of the primary Judge insofar as he concluded that the Notices were valid and effectual so as to require payment by the recipients to the Commissioner. Their notice of appeal seeks an order that the moneys paid into Court be paid to the Taxpayer. 8 The Commissioner, by his cross-appeal, seeks orders which would require payment to him, out of the moneys in Court, of the sum of $19,536,409 (the amount due in respect of tax as stated in the Third Notice), together with interest earned on that sum. There is now no dispute between the parties to the appeal that interest earned on the moneys in Court should be paid out to the parties entitled to those moneys, in the appropriate proportions.

Section 218 of the ITAA 9 It will be necessary to consider a number of provisions of the ITAA and the Corporations Law in the course of the judgment. It is convenient at the outset, however, to set out the material provisions of s 218 of the ITAA: "218(1) The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require: (a) any person by whom any money is due or accruing or may become due to a taxpayer; (b) any person who holds or may subsequently hold money for or on account of a taxpayer; (c) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or (d) any person having authority from some other person to pay money to a taxpayer; to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held): (e) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax or, if the amount of the money is equal to or less than the amount due by the taxpayer in respect of tax, the amount of the money; or (f) such amount as is specified in the notice out of each payment that the person so notified becomes liable from time to time to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied; and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice. (2) Any person who refuses or fails to comply with any notice under this section is guilty of an offence. Penalty: $1,000. (3) Where a person (in this subsection referred to as the 'convicted person') is convicted before a court of an offence against subsection (2) in relation to the refusal or failure of the convicted person or another person to comply with a notice under this section, the court may, in addition to imposing a penalty on the convicted person, order the convicted person to pay to the Commissioner an amount not exceeding the amount or the aggregate of the amounts, as the case requires, that the convicted person or the other person, as the case may be, refused or failed to pay to the Commissioner in accordance with the notice. (4) Any person making any payment in pursuance of this section shall be deemed to have been acting under the authority of the taxpayer and of all other persons concerned and is hereby indemnified in respect of such payment. (5) If the Commissioner receives any payment in respect of the amount due by the taxpayer before payment is made by the person so notified he shall forthwith give notice thereof to that person. (6) … (6A) Where, but for this subsection, money is not due, or repayable on demand, to a person unless a condition is fulfilled, the money shall be taken, for the purposes of this section, to be due, or repayable on demand, as the case may be, to the person notwithstanding that the condition has not been fulfilled."

The Course of Events 10 On 11 December 1991, the Commissioner issued notices of assessment to the Taxpayer in respect of the 1981, 1982, 1983 and 1984 years of income. The assessments were founded on the contention that moneys received by the Taxpayer during those years from a related company, Morlea Professional Services Pty Ltd ("Morlea"), constituted income rather than loans (as the accounts of the Taxpayer and Morlea suggested). A challenge by the Taxpayer to the validity of the notices of assessment was ultimately rejected by the High Court: Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168. 11 On 7 July 1992, the Commissioner issued the First Notice and served it on each of the Debtors. The First Notice was in the following form: "The Public Officer Macquarie Health Corporation Pty Ltd ......................................... Income Tax Assessment Act Notice under section 218 TAKE NOTICE that, in the exercise of the powers conferred on me as Deputy Commissioner of Taxation... I DO BY THIS NOTICE REQUIRE MACQUARIE HEALTH CORPORATION PTY LIMITED being a person (a) by whom any money is due or accruing or may become due to; (b) who holds or may subsequently hold money for or on account of; (c) who holds or may subsequently hold money for or on account of some other person for payment to; or (d) having authority from some other person to pay money to RICHARD WALTER PTY LIMITED (hereinafter referred to as 'the taxpayer')... a taxpayer by whom the amount of $11,826,018.55 is due in respect of tax, TO PAY TO THE COMMISSIONER so much of that money as is sufficient to pay the amount of $11,826,081.55 [sic] or the whole of the money if it is equal to or less than the amount AND if the money is now due by MACQUARIE HEALTH CORPORATION PTY LIMITED to the taxpayer or is now held by MACQUARIE HEALTH CORPORATION on behalf of the taxpayer, the payment to the Commissioner is required to be made forthwith. BUT if the money becomes due by MACQUARIE HEALTH CORPORATION PTY LIMITED to the taxpayer in the future or is held by MACQUARIE HEALTH CORPORATION PTY LIMITED on behalf of the taxpayer in the future, the payment to the Commissioner is required to be made forthwith upon the money becoming due or held by MACQUARIE HEALTH CORPORATION PTY LIMITED. ....................................... DATED this Seventh day of July 1992 [Signed] DEPUTY COMMISSIONER OF TAXATION." 12 The First Notice was served under cover of a letter of the same date, which was in the following terms: "Please find enclosed a notice issued pursuant to section 218 of the Income Tax Assessment Act 1936. Would you please address any payments to the attention of: Ms Briony Andrew Complex Legal Recovery Unit ................................. Yours faithfully DEPUTY COMMISSIONER OF TAXATION." 13 In December 1992, the Commissioner instituted proceedings in the Supreme Court of New South Wales, pursuant to s 209 of the ITAA, seeking to recover the amounts due under the notices of assessment. Earlier that year the Taxpayer had instituted appeals in this Court, pursuant to Part IVC of the Taxation Administration Act 1953 (Cth) ("TAA"), against the Commissioner's disallowance of objections to the notices of assessment. The s 209 proceedings were cross-vested to this Court in 1993. 14 On 20 March 1995, Tamberlin J commenced hearing the s 209 and Part IVC proceedings. On that day, his Honour entered judgment by consent in favour of the Commissioner against the Taxpayer in the sum of $15,784,701.26. By agreement, execution of the judgment was stayed pending determination of the Part IVC proceedings. On 11 July 1995, Tamberlin J dismissed the Taxpayer's appeals in the Part IVC proceedings: Richard Walter Pty Ltd v Federal Commissioner of Taxation (1995) 95 ATC 4440. An appeal against that judgment was dismissed by the Full Court on 14 June 1996: Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243 (Lockhart and Hill JJ; Lehane J dissenting). An application for special leave to appeal to the High Court was ultimately refused on 13 February 1997: Richard Walter Pty Ltd v Commissioner of Taxation [1997] 4 LegRep SL4c. 15 On 26 September 1995, the Commissioner served the Second Notice on three of the Debtors. The Second Notice was served under cover of a letter in the following terms: "INCOME TAX: RICHARD WALTER PTY LTD Please find enclosed a copy of an amended notice which issued this day under Section 218 of the Income Tax Assessment 1936 [sic], as amended, for recovery of tax outstanding on the abovenamed taxpayer's account. Your attention is drawn to the original notice under section 218 of the Income Tax Assessment Act which issued on 7 July 1992. The amended notice issued this day does not operate to revoke the original notice." 16 With two exceptions, the Second Notice was virtually identical to the First Notice. The first exception was that the figure of $15,784,701.26 (the amount of the judgment entered by Tamberlin J), was substituted for that of $11,826,018.55 appearing in the First Notice. The second difference was that the Second Notice was headed "AMENDED NOTICE UNDER SECTION 218". 17 On 16 February 1996, the Commissioner instituted proceedings in this Court (NG 118 of 1996) ("the principal proceedings"), seeking to recover the moneys said to be owed by the Debtors to the Taxpayer. The proceedings were founded on the First and Second Notices. 18 On 3 July 1996, the Commissioner filed an application in the Supreme Court of New South Wales seeking a winding up order against the Taxpayer, based on the judgment obtained in the proceedings under s 209 of the ITAA. The application to wind up the Taxpayer was founded on s 459A of the Corporations Law, which empowers the Court, inter alia, to order that an insolvent company be wound up on the application of a creditor. The winding-up proceedings were subsequently cross-vested to this Court. 19 On 20 November 1996, the day before the Commissioner's application was to be heard, the directors of the Taxpayer resolved, pursuant to s 436A of the Corporations Law, to appoint administrators to the company. 20 The Commissioner served the Third Notice on Macquarie Health Corporation Ltd ("MHC") under cover of a letter dated 4 February 1997. That letter provided as follows: "INCOME TAX: RICHARD WALTER PTY LTD Please find enclosed a second amended notice which issued this day under Section 218 of the Income Tax Assessment 1936 [sic], as amended, for recovery of tax outstanding on the abovenamed taxpayer's account. Your attention is drawn to the original notice under section 218 of the Income Tax Assessment Act which issued on 7 July 1992 and the first amended notice which issued on 26 September 1995. The second amended notice issued this day does not operate to revoke the original notice or the first amended notice." 21 The Third Notice was identical to the Second Notice, except that the sum of $19,536,409.10 was substituted for the sum of $15,784,701.26. Like the Second Notice, the Third Notice was headed "AMENDED NOTICE UNDER SECTION 218". 22 The application to wind up the Taxpayer came before Hill J on 28 February 1997: Federal Commissioner of Taxation v Richard Walter Pty Ltd (1997) 36 ATR 195. The Commissioner and the Taxpayer were both represented by counsel. Senior counsel for the Commissioner requested that, before Hill J made an order winding up the Taxpayer, his Honour should make an order terminating the administration. 23 Hill J noted that the application to terminate the administration was made under s 447A(2) of the Corporations Law. He continued as follows (at 198): "The basis upon which the application is made is that, unless such an order be made, the period for relation back would commence only at the time the winding up order is made and not at the time the application to wind up Richard Walter occurred. There is some suggestion in the evidence that there are transactions which have occurred between the two dates which might be set aside for the benefit of creditors, should that course be taken. There has been no opposition to that course nor would I expect there to be, either from the administrators or from the other creditors who would at least share pro rata with the Commissioner subject to any advantage which the Commissioner may obtain by force of the s 218 notices." The orders made by his Honour included the following: "... (2) That, pursuant to section 447A(2) of the Corporations Law, the administration of [the Taxpayer] end. (3) That the [Taxpayer] be wound up under section 459A of the Corporations Law. (4) That orders 2 and 3 be stayed until 4.00 pm on 10 March 1997." There was no dispute that the effect of these orders was that the administration of the Taxpayer would end at 4 pm on 10 March 1997 and that the Taxpayer would be wound up at that time. 24 On 27 November 1997, the Taxpayer, the Liquidator, the Commissioner, the Debtors and certain other parties entered a Settlement Deed which, inter alia, varied the arrangements between the Debtors and the Taxpayer concerning payment of moneys due at various times by the Debtors to the Taxpayer ("the Debts"). The Settlement Deed relevantly provided that if a "Default Event", as defined, occurred, the Debts were to become due and payable immediately. The Settlement Deed provided, in addition, that if there were a Default Event before 1 July 1999 and the principal proceedings had not been finally determined, so that an amount was payable but the issue of whether the amount should be paid to the Taxpayer, the Commissioner or otherwise had not been resolved, the Debts were to be paid into Court pending final determination of the principal proceedings. A Default Event occurred on 1 July 1998. Accordingly, on 4 August 1998, the Debtors paid the sum of $21,290,886 into Court. 25 In the meantime, on 13 May 1998, the Commissioner commenced a second proceeding (NG 445 of 1998), apparently in response to a contention by the Debtors that any cause of action based on the Third Notice had not arisen when the principal proceedings were commenced. 26 On 11 August 1998, the Commissioner commenced yet a third set of proceedings (NG 812 of 1998) in this Court. These were commenced, as the primary Judge noted, to avoid any contention that no cause of action for recovery of any moneys from the Debtors under s 218 of the ITAA had arisen in favour of the Commissioner until the moneys had actually become payable by the Debtors to the Taxpayer.

The Proceedings Determined by the Primary Judge 27 The primary Judge dealt with all three proceedings commenced by the Commissioner. He observed, however, that in the events which had occurred, there was no real dispute between the Debtors and the Commissioner. The major question concerning entitlement to the moneys paid into Court arose from the first cross-claim, filed by the Liquidator. 28 His Honour characterised the first cross-claim as an application to the Court by the Liquidator for directions in the winding-up pursuant to s 479(3) of the Corporations Law. This does not seem to be precisely accurate, since the further amended first cross-claim, filed on 26 August 1998, sought substantive relief. In particular, it sought a declaration that the Liquidator and Taxpayer were entitled to collect and receive from the Debtors, to the exclusion of the Commissioner, any amounts owing by them to the Taxpayer as and when they became due and payable. The first cross-claim, at least as ultimately formulated, therefore went beyond an application for directions by the Liquidator. 29 The primary Judge identified the Commissioner's claim as resting principally on the contention that the Notices created an implied charge under s 218 of the ITAA in his favour over the Debts. The Commissioner contended that his rights under the charge were not affected by the winding-up of the Taxpayer, since s 471C of the Corporations Law provides that nothing in ss 471A and 471B (which concern the effect of a winding-up order) affects a secured creditor's rights to realise or otherwise deal in the security. The Liquidator disputed that the Notices did any more than create a personal obligation upon the Debtors which took precedence over obligations owed to the Taxpayer, but not over the Liquidator's right under s 474(1) of the Corporations Law to take control of all the property to which the Taxpayer is entitled. The Liquidator, the Taxpayer and the Debtors advanced a number of alternative contentions challenging the validity of the Notices. Accordingly, the primary Judge was required to resolve a large number of issues.

(i) Moneys Due on Service of the Notices 30 The primary Judge first considered whether or not any moneys were actually payable by the Debtors to the Taxpayer at the time the various Notices were served. His Honour noted that the issue arose in the context of a submission that s 218 of the ITAA only operates when the moneys due by the recipient of the notice to the taxpayer actually become payable. The issue was also relevant to the question of which of the proceedings instituted by the Commissioner could be relied on to obtain a judgment against the Debtors. 31 His Honour found that three of the loans made by the Debtors to the Taxpayer were the subject of separate loan agreements. The terms of the loans expired on 30 June 1998, 30 June 1999 and 8 April 2002, respectively. Since all the Notices were served before these dates, any indebtedness in respect of the loans had not become due and payable at the time of service of the Notices. The Settlement Deed varied the date for repayment (as events transpired) until 1 July 1999, a date which of course was also after the Notices had been served on the Debtors. 32 In the case of a fourth loan (by the third respondent in the proceedings before the trial Judge ("Ryndale")), the loans were repayable on demand. No demand had been made prior to the service of the First Notice. His Honour held, however, that where moneys are payable by a debtor to a taxpayer on demand, the service of a notice under s 218 constitutes, in effect, a demand by the taxpayer. 33 So far as interest was concerned, the loan agreements provided for interest to accrue on a daily basis, at a rate to be determined each year. In fact, interest was capitalised each year. There was no dispute that interest capitalised prior to service of the Notices was not due and payable at the time of receipt of the Notice. His Honour held that interest which had not been capitalised prior to service of a Notice was "money due…to a taxpayer" at the date of service of the Notice within the meaning of s 218(1)(a) of the ITAA. This followed from the proposition that service of the Notice constituted, in effect, a demand by the Taxpayer for the payment of moneys due to it on demand.

(ii) The Effect of the s 218 Notices 34 The second issue concerned the effect of service of the Notices issued under s 218 of the ITAA. The Liquidator contended that, in seeking to recover the Debts owed by the Debtors to the Taxpayer, the Commissioner had begun "a proceeding in a court…in relation to property of the company" without leave of the Court, contrary to s 471B of the Corporations Law. The Liquidator argued that the Commissioner was unable to rely on s 471C of the Corporations Law, which provides that nothing in s 471B "affects a secured creditor's right to realise or otherwise deal with the security". According to the Liquidator, service of the Notices did not constitute the Commissioner a secured creditor in relation to the Debts. The Notices merely imposed a personal obligation which took precedence over the obligations owed by the Debtors to the Taxpayer. 35 The primary Judge noted that the reasoning of the majority in Commissioner of Taxation v Donnelly (1989) 25 FCR 432 (FC) led to the conclusion that the service of a notice under s 218 of the ITAA creates a statutory charge over a debt owed by the recipient to the taxpayer. His Honour observed that if this reasoning applied to the Notices in the present case, s 471C of the Corporations Law would preserve the Commissioner's right to recover the Debts from the Debtors. The consequence would be that the Liquidator would be unable to invoke s 471B to prevent the Commissioner recovering the Debts. His Honour also observed that Hill J (with whom Lockhart J agreed) in Donnelly put forward an alternative ground for the decision. This was that the words of s 218, read literally, oblige the recipient of a notice to make payments to the Commissioner, notwithstanding that the taxpayer's property has vested in a trustee in bankruptcy. 36 The Liquidator had sought to avoid the result suggested by Donnelly by arguing that the decision in that case did not apply to the circumstances of the present case. He argued that, to the extent that Donnelly held that a notice under s 218 of the ITAA creates an implied statutory charge, it was wrongly decided. He also argued that the alternative approach in Donnelly did not lead to the conclusion that the Commissioner was a secured creditor in relation to the Debts, for the purposes of s 471C of the Corporations Law. Moreover, so he argued, s 474(1) of the Corporations Law, which provides that on a winding-up a liquidator must take into his or her custody or control "all the property to which the company is or appears to be entitled", enabled the Liquidator to recover the Debts. 37 The primary Judge did not specifically address the contention that the first ground for the decision in Donnelly was wrong. Rather, he expressed a preference for the second approach. However, in his view, that approach did not assist the Liquidator. The fact that a winding-up order had been made against the Taxpayer did not alter the character of the Debts, as money which is "due or accruing or may become due" to the Taxpayer. It mattered not whether one characterised the effect of s 218 as the creation of a statutory charge. It followed that the winding-up of the Taxpayer did not affect any rights which had arisen in favour of the Commissioner by the service of the Notices. Notwithstanding s 474 of the Corporations Law, the Liquidator had no greater right in relation to the Debts than did the Taxpayer. Neither the Taxpayer nor the Liquidator could take steps to "frustrate or subvert" the Commissioner's rights.

(iii) Was Tax Payable When the Debts to the Taxpayer Became Payable? 38 The third issue arose from the Liquidator's contention that even if s 218 operates so as to create a charge over moneys due by a debtor to a taxpayer, it can only have this effect where there is an identifiable debt due by the debtor to the taxpayer. In this case, as has been explained, when Notices were served, a substantial part of the Debts owing by the Debtors to the Taxpayer were not actually payable and in fact only became payable under the Settlement Deed on 1 July 1998. By that time, a winding-up order had been made against the Taxpayer. The Liquidator further contended that the charge created by s 218 of the ITAA only takes effect in respect of tax then payable by the taxpayer. Once a winding-up order is made against the taxpayer, tax is no longer payable (so it was said) because the Commissioner is no longer a creditor. At that point, the Commissioner's right to claim the tax due and payable is converted into a right to prove in the winding-up. Thus, on 1 July 1998, no tax was payable by the Taxpayer and the s 218 Notices could not be effective to create a charge. 39 The primary Judge accepted that the decision of a Full Court in Commissioner of Taxation v Government Insurance Office of New South Wales (1993) 45 FCR 284, had construed s 218 as requiring the recipient to make payments only to the extent that tax is properly payable by the taxpayer. That is, the words "the amount due by the taxpayer in respect of tax" in sub-par (e) of s 218(1), refer to so much of the tax due and owing by the taxpayer immediately on issue of the s 218 notice as remains due and payable from time to time. 40 However, his Honour held that the making of the winding-up order against the Taxpayer in the present case did not discharge or terminate the Taxpayer's indebtedness to the Commissioner. The Liquidator's contention confused the Commissioner's right in property with the remedy. It was true that, upon the making of a winding-up order, the Commissioner no longer had a right of action for debt. But it did not follow that the Taxpayer's indebtedness to the Commissioner ceased to exist at that point. The right to prove in the winding-up was a right to prove in respect of a debt which was still due to the Commissioner. Therefore, on 1 July 1998, when the Debts became payable to the Taxpayer by the Debtors, the Taxpayer was still indebted to the Commissioner in respect of tax due and payable. The Notices therefore attached the Debts to the extent of the amount of tax specified therein.

(iv) Commencement of Winding Up 41 The fourth issue concerned the date on which the winding-up of the Taxpayer was deemed to have commenced. This date was potentially significant because s 468 of the Corporations Law (which is set out in par 43) invalidates a disposition of property or any attachment against the property of a company after the commencement of its winding-up. The Liquidator argued that the winding-up commenced on 20 November 1996, the date an administrator had been appointed to the Taxpayer. The Commissioner argued for a later date, namely 28 February 1997, the date the winding-up order was made. The later date was after the date of service of the Third Notice. It followed, on the Commissioner's submissions, that s 468 of the Corporations Law could not apply to any of the Notices, even if they did effect a disposition of or attachment against the property of the Taxpayer. 42 The primary Judge considered that the resolution of this issue depended on whether the Taxpayer had been under administration "immediately before" the making of the winding-up order on 28 February 1997. If so, the effect of s 513A(b) of the Corporations Law (which is set out in par 97) was that the winding-up was deemed to have commenced on the day of the administration of the Taxpayer. His Honour held that s 513A(b) did apply even though Hill J, at the time he made the winding-up order, made an order pursuant to s 447A(2) of the Corporations Law terminating the administration of the Taxpayer. (v) Section 468 of the Corporations Law 43 The fifth set of issues concerned the operation of s 468 of the Corporations Law. It provides as follows: "468(1) Any disposition of property of the company… made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void. … (4) Any attachment, sequestration, distress or execution put in force against the property of the company after the commencement of the winding up by the Court is void." 44 The Liquidator argued that if s 218 creates a charge over the debt due to the taxpayer, the charge arises only when the debtor actually complies with the notice. The primary Judge held that, on the principles applied in Donnelly, the Commissioner's rights arise on service of the notice (assuming a debt then to be in existence). The payment by the debtor merely gives effect to the realisation of the rights created by s 218. 45 The Liquidator also argued that s 468(4) of the Corporations Law applied to the Notices, because compliance with any of them would constitute an "attachment…put in force against the property of the company after the commencement of the winding up". His Honour held that this submission had been resolved against the Liquidator by Donnelly. There, the majority decided that s 118 of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act"), which is in similar terms to s 468(4) of the Corporations Law, did not affect the charge created in favour of the Commissioner by service of a s 218 notice. The primary Judge considered that the analogy between the winding up of a company in insolvency and a bankruptcy is sufficiently valid to warrant the conclusion that the term "attachment" in s 468(4) of the Corporations Law should be given the same meaning as in s 118 of the Bankruptcy Act. (vi) The Effect of the Third Notice on the Earlier Notices 46 The sixth issue arose out of a contention put by the Debtors, which was adopted on behalf of the Taxpayer, that it was only the Third Notice, to the extent it was valid and operative, upon which the Commissioner could rely. It was said that the terms of the Third Notice, like that of the Second Notice, were consistent only with an intention to replace the immediately preceding Notice. Thus, the First and Second Notices had effectively been replaced. 47 The primary Judge held that the effect of the subsequent Notices was not to replace the earlier Notices but merely to vary the way in which they operated. Insofar as the First Notice created a statutory charge, or rights analogous thereto, it remained operative until service of the Second Notice. The effect of the Second Notice was that the rights and obligations of the First Notice continued in force and effect except to the extent of the amendment brought about by the Second Notice. The Second Notice, to the extent it created a statutory charge, secured the higher amount specified in that Notice. The same analysis applied to the Third Notice, subject to any relevant effect of the winding-up. (vii) Disposition of Property 48 Since the primary Judge held that the winding-up of the Taxpayer had commenced on 20 November 1996, and the Third Notice was given after that date, it was necessary to decide whether that Notice constituted a "disposition of property of the company" within s 468(1) of the Corporations Law. If so, the sub-section renders the "disposition" void. 49 The primary Judge considered that service of the Third Notice constituted a disposition of the property of the Taxpayer, to the extent that it created in favour of the Commissioner a charge or other rights of priority over property of the Taxpayer in respect of the amount of tax specified in the Notice. It followed that the Third Notice was void. (viii) Voidable Transaction 50 The eighth issue arose because of the Liquidator's reliance on s 588FE(4) of the Corporations Law in order to attack the First and Second Notices. The Liquidator submitted that each of the First and Second Notices constituted an "insolvent transaction" of the Taxpayer within four years of the "relation-back day" and thus was voidable. 51 Section 588FE(4) of the Corporations Law provides as follows: "(4) The transaction is voidable if: (a) it is an insolvent transaction of the company; and (b) a related entity of the company is a party to it; and (c) it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day." Section 588FF(1) empowers the Court, on the application of a company's liquidator, to make one or more of a number of orders in relation to a transaction made voidable because of s 588FE. The orders include: "(c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction". 52 Other provisions of Part 5.7B Div 2 of the Corporations Law are relevant to the construction of s 588FE(4). Section 588FC defines the expression "insolvent transaction of the company" as follows: "A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company… and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or (b) …" Section 588FA(1) defines the expression "unfair preference given by a company": "A transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;

even if the transaction is entered into, or is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency."

53 Section 9 of the Corporations Law provides that in Part 5.7B, in relation to a body corporate, "transaction" means "a transaction to which the body is a party". The definition then gives a number of examples expressed to be "without limitation". The examples include the following: "(a) a conveyance, transfer or other disposition by the body of property of the body; and (b) a charge created by the body on property of the body; and (c) …; and (d) a payment made by the body; and (e) an obligation incurred by the body; and (f) a release or waive by the body; and (g) a loan to the body; and includes such a transaction that has been completed or given effect to, or that has terminated". 54 His Honour found that each of the Debtors was a "related entity" in relation to the Taxpayer by virtue of par (k) of the definition of "related entity" in s 9 of the Corporations Law. Since the First and Second Notices were each given within four years of the "relation-back day" (which his Honour had held to be 20 November 1996) it was necessary to consider whether each Notice was a "transaction of the [Taxpayer]" for the purposes of s 588FE and whether the recipients of Notices could each be a "party to" the transaction. 55 The primary Judge pointed out that a notice under s 218 of the ITAA is normally given without the knowledge of the relevant taxpayer and, indeed, often against the taxpayer's wishes. Accordingly, the taxpayer is not a party to the giving of such a notice. Further, the effect of s 218(4) of the ITAA is to deem something to have occurred which did not occur, namely that the taxpayer authorises the recipient of the notice to pay the amount due to the taxpayer. His Honour considered that s 218(4) operates on the assumption that the relevant taxpayer has not participated in the arrangement. It followed that the Taxpayer was not a party to the giving of the Notices and that there was no "transaction of the company" within s 588FE(4). 56 While it was not necessary to decide whether any of the Debtors were a party to the Notices, the primary Judge considered that they were not. The service of the Notices constituted transactions of the Commissioner, not of the recipients of the Notices. 57 Having regard to these conclusions, his Honour did not need to consider whether the Taxpayer had been insolvent at any time prior to 20 November 1996 and, in particular, whether it had been insolvent at the dates of service of the First and Second Notices. (ix) Conclusion 58 The primary Judge expressed his conclusion in relation to the first cross-claim as follows (at 42-43): "[I]n my opinion,… the Liquidator is not entitled to a declaration that he is entitled to collect and receive from the Debtors, to the exclusion of the Commissioner, any amounts owing by them. Similarly, the Liquidator is not entitled to payment out of Court of the moneys in Court representing the amounts which were owing by the Debtors to the Taxpayer except as to any surplus after the First and Second Notices have been complied with. It also follows that there would be no contravention of section 471B if the Commissioner proceeds against the Debtors for recovery of the amounts which, by the operation of section 218 following the service of the First and Second Notices, became payable to the Commissioner when those amounts became payable to the Taxpayer on 1 July 1998. As at the date of service of the Second Notice on MHC the balance of the loan account, after reversing the credits referred to above, was $15,105,183.98. Interest continued to accrue or become due after service of the Second Notice. The amount due by the Taxpayer in respect of tax as shown in the Second Notice was $15,784,701.26. It follows that the whole of the loan account was attached by the Second Notice. However, as I have indicated, the Third Notice was void. Accordingly, it did not amend the earlier Notices to increase the amount of money attached. In relation to Ryndale and Sarzana, the same considerations apply. That is to say, the balances of their respective loan accounts were exceeded by the amount due in respect of tax shown in the Notices served on them. In relation to B&P Leasing, however, the position is different. The balance of the loan account exceeded the amount due in respect of tax shown in both the First Notice and the Second Notice. Accordingly, the balance of the B&P Leasing loan account was attached to the extent of the amount shown in the Second Notice, namely $15,784,701.26."

Issues on the Appeal 59 The issues debated on the appeal can be summarised as follows: (i) Did service of the Notices on the Debtors pursuant to s 218 of the ITAA create a statutory charge over the Debts in favour of the Commissioner? (ii) Could the Notices operate after the winding-up of the Taxpayer? (iii) Did the commencement of the Taxpayer's winding-up predate service of the Third Notice (with the apparent consequence under s 468 of the Corporations Law that the Third Notice was invalid)? (iv) Were the First and Second Notices invalidated in consequence of s 468(4) of the Corporations Law, which renders void any "attachment… put in force" against the property of a company after the commencement of the winding-up? (v) Did service of the Third Notice (whether or not it was invalid) effectively replace the First and Second Notice, thereby depriving them of any effect? (vi) Were the First and Second Notices voidable pursuant to s 588FE(4) of the Corporations Law as "insolvent transactions" of the Taxpayer? 60 A seventh issue was foreshadowed in argument by the Commissioner, but was not the subject of written or oral submissions. The foreshadowed argument was that there is an inconsistency between s 468 of the Corporations Law and s 218 of the ITAA and that, by reason of s 109 of the Constitution, s 468 cannot have the effect of invalidating the Third Notice (assuming that the third issue identified above is to be answered adversely to the Commissioner). This argument raises both a constitutional issue and a question as to the construction of s 222ARA of the ITAA, which provides as follows: "To avoid doubt, this Part is not intended to limit or exclude the operation of Chapter 5 of the Corporations Law of a State or Territory, in so far as that Chapter can operate concurrently with this Part." (Section 468 is within Chapter 5 of the Corporations Law.) 61 Since the Commissioner's foreshadowed argument was not developed, we consider the appropriate course is to address the other issues debated on the appeal. We shall provide an opportunity in due course for the parties to make submissions on the constitutional point.

Effect of the Notices 62 The written submissions filed on behalf of the Liquidator in relation to his appeal were directed primarily to the question of whether service of the Notices on the Debtors created a statutory charge over the Debts in favour of the Commissioner. Mr Conti QC, who appeared with Mr Dodson for the Liquidator, submitted that, on analysis, the alternative approach put forward in Donnelly was not a true alternative because it rested on the unexpressed assumption that the Notices created interests in the nature of statutory charges. Mr Conti sought to argue that Donnelly was wrongly decided. 63 In the course of oral argument, it was put to Mr Conti that it might not be appropriate for a Liquidator to adopt a vigorous stance which appeared to favour one set of substantial creditors (companies associated with the Taxpayer) over another substantial creditor (the Commissioner). In this respect, the general principle is that a liquidator, as an officer of the Court, is bound to maintain an even and impartial hand between all individuals whose interests are involved in the winding-up: In re Contract Corporation (Gooch's Case) (1871) LR 7 Ch App 207, at 211. For this reason, the liquidator must both be and appear to be independent and impartial: Re Intercontinental Properties Pty Ltd (in liq) (1977) 2 ACLR 488 (Needham J), at 491-492; McPherson, The Law of Company Liquidation (4th ed 1999), at 287, 290, 294. 64 Mr Conti thereafter approached the question on the basis that the Liquidator merely wished to bring issues to the attention of the Court rather than to argue for a particular result. No party with an interest in the outcome of the appeals or cross-appeal, other than the Liquidator, suggested that Donnelly should not be followed. 65 The starting point for a consideration of the effect of a notice under s 218 of the ITAA is Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1. The issue arose in that case because the taxpayer purported to assign his interest in interest-bearing deposits held with a bank. The purported assignment took place after a s 218 notice had been served on the bank but before the deposits had matured. The Court held that the service of the notice imposed an obligation on the bank to pay the deposits at maturity to the Commissioner. In the meantime, the bank was obliged not to make any payment inconsistent with the rights of the Commissioner. 66 Clyne establishes several propositions: (i) The word "due" in s 218(1)(a) of the ITAA means "due and payable", while "accruing" means a debt due but not immediately payable: at 15, per Mason J (with whom Aickin and Wilson JJ agreed). Thus a notice can be given in respect of a debt due to the Taxpayer but not immediately payable. (ii) By contrast, the word "due" in sub-par (e) applies to tax which is the subject of an assessment albeit not yet payable: at 16-17, per Mason J. (iii) Where the debtor owes money to the taxpayer at the time the notice is given, it imposes an obligation on the debtor to pay forthwith to the Commissioner the moneys which are then payable. The notice imposes an obligation to pay moneys which become payable at a future time when that time arrives: at 23, per Mason J; at 27, per Brennan J. It is unlawful for the recipient to pay moneys to anyone but the Commissioner after receipt of the notice: at 23, per Mason J. (iv) A debtor who acts in accordance with a s 218 notice is protected by s 218(4) (which deems the payment to be made with the authority of the taxpayer): at 23, per Mason J. (v) The effect of service of s 218 notice is to prevent the taxpayer from thereafter assigning the debt the subject of the notice so as to defeat the Commissioner's right to payment. Nor can the taxpayer's purported assignment affect the debtor's obligation to pay the money to the Commissioner when the debt becomes due and payable: at 11-12, per Gibbs CJ; at 19, per Mason J; at 27, per Brennan J. 67 In Clyne, counsel for the Commissioner conceded that s 218 did not purport to create a charge over, or interest in, the moneys in favour of the Commissioner. Doubtless this concession was influenced by the absence of any express statement in s 218 that the Commissioner is to have the benefit of a charge over the debt which is the subject of a notice. Nonetheless, Mason J (at 18) doubted that the concession had been rightly made. Brennan J went considerably further (at 26): "The statute thus works an assignment of the moneys to be paid to the Commissioner as though the taxpayer had charged the moneys otherwise payable to him with payment of his tax liability. Statutory charges are no novelty, although a statute which creates a charge usually describes it as such and defines the chargee's remedies." Gibbs CJ did not address the issue. 68 It was not necessary in Clyne to decide whether the effect of a s 218 notice is to create a charge in favour of the Commissioner. The question was, however, squarely raised in Donnelly. There, a s 218 notice was served on the Health Insurance Commission which was indebted to the taxpayer, a medical practitioner. The indebtedness arose because the taxpayer procured assignments from his patients of their Medicare entitlements (in accordance with "bulk billing" arrangements). A sequestration order was made against the medical practitioner. The trustee in bankruptcy sought to recover all moneys paid to the Commissioner pursuant to the notices between the date the bankruptcy commenced and the date the sequestration order was made. The Full Court, by majority (Lockhart and Hill JJ; von Doussa J dissenting), held that the trustee was not entitled to recover those moneys. 69 As Hill J noted, s 218 has had a long history in Australian income tax law (at 451). A provision authorising the Commission to require a debtor of the taxpayer to pay the amount of the debt directly to the Commissioner was first enacted in 1918: Income Tax Assessment Act 1915 (Cth), s 50A, inserted by the Income Tax Assessment Act 1918 (Cth), s 32. The 1915 Act was repealed by the Income Tax Assessment Act 1922 (Cth), s 65 of which was in substantially the same form as the present s 218. In 1922, Crown debts, including debts due in respect of income tax, enjoyed priority over debts of equal degree: Commissioner of Taxation for New South Wales v Palmer [1907] AC 179. The principle applied in bankruptcy (Palmer, at 183, 185-186) and on a winding-up: Palmer, at 184; In re Henley & Co (1878) 9 Ch D 469. The Bankruptcy Act 1924 (Cth), s 84, displaced the Crown's priority under the general law by providing for a statutory order of priority, initially giving eighth place to income tax assessed under Commonwealth or State law: see Deputy Federal Commissioner of Taxation v Stranger (1934) 50 CLR 468. In New South Wales, for example, the general law priority for Crown debts was not displaced in a winding-up until the enactment of the Companies Act 1936 (NSW). Section 297(1) provided for statutory order of priority on a winding-up, with income tax assessed under a New South Wales or Commonwealth statute ranking fourth; and see s 199(3). The High Court upheld the New South Wales legislation in its application to Commonwealth income tax in In re Richard Foreman & Sons Pty Ltd; Uther v Federal Commissioner of Taxation (1947) 74 CLR 508, but that decision was overruled in Commonwealth v Cigamatic Pty Ltd (in liq) (1962) 108 CLR 372. See now Crown Debts (Priority) Act 1981 (Cth). 70 Hill J addressed in detail whether service of a s 218 notice constitutes the Commissioner a secured creditor in relation to the debt which is subject to the notice. For this purpose, his Honour examined the reasoning in Clyne and, in particular, the analogy drawn by Mason J between a s 218 notice and a garnishee order. Hill J concluded that the effect of service of a s 218 notice on the debtor was to create a charge over the debt due to the taxpayer (at 456-457): "A notice under s 218 is not itself a garnishee order although as Mason J in Clyne's case remarked it is certainly very similar to such an order. Particularly, in my view it confers upon the Commissioner not merely the negative right to prevent the taxpayer from accepting payment of the debt or disposing of it, but positive rights, namely a right to give a valid receipt and discharge for the money (s 218(4)): the payment being deemed by that section to have been made under the authority of the taxpayer and there is conferred upon the Commissioner the further right in the event of default or failure to comply with a s 218 notice to apply to the court for an order requiring the convicted person to pay to the Commissioner an amount which the convicted person has refused or failed to pay. Thus the similarity between the s 218 notice and garnishee order is indeed most striking and in my opinion it follows that for the purposes of the Bankruptcy Act there is created in the Commissioner by virtue of the service of the s 218 notice a charge so that the Commissioner becomes for the purposes of bankruptcy law a secured creditor. … In my view the effect of a s 218 notice is to charge the debt owed to the taxpayer preventing the debtor from paying it and obliging him to pay it to the Commissioner… [I]t charges the debt in the hands of the debtor (here the Health Commission) who has to pay it. It has, therefore, the effect of making the Commissioner a secured creditor." 71 Hill J also expressed the view that the charge in favour of the Commissioner operates immediately upon the debt coming into existence in a manner similar to that of a floating charge (at 458-459). It followed that, where a s 218 notice is served prior to a sequestration order being made against the taxpayer and the recipient of the notice subsequently becomes indebted to the taxpayer, the charge crystallises immediately the debt comes into existence. The doctrine of relation-back has no application to the notice, since there is no moment of time prior to the crystallisation of the charge during which the debt is payable to the taxpayer. 72 Hill J gave an alternative reason for his conclusion (at 459-460): "An alternative and perhaps equally satisfactory way of arriving at the same conclusion is to merely give effect to the words of s 218 themselves. As and from the date of the s 218 notice the Health Commission is bound as and when debts become due and payable by it to Dr Edelsten to pay those moneys to the Commissioner. That obligation arises by statute. The fact that subsequently a petition is presented and a sequestration order is made does not alter the character of the moneys as being moneys due or accruing or moneys which may become due to Dr Edelsten at the time the notice takes effect. In other words I do not see why the provisions of the Bankruptcy Act should have the consequence of affecting the proper interpretation of s 218. Although the taxpayer becomes a bankrupt, the provisions of s 218 continue to operate between the date of relation back and the date of the sequestration order as the debts are always subject to the charge created over them by force of s 218. My view that s 218 would have priority over the provisions of the Bankruptcy Act is reinforced by s 218(4) which deems the payment to the Commissioner to be made inter alia with the authority of 'all other persons concerned' there is also an indemnification from such other persons. I see no reason why the trustee in bankruptcy might not for the purpose of s 218(4) be 'an other person'." It was this alternative which the primary Judge considered to be the preferable approach. 73 Lockhart J agreed with Hill J, but added some observations on the effect of a s 218 notice. His Honour referred to the judgments in Clyne and to a number of subsequent first instance decisions which favoured the view that a s 218 notice creates a charge over the moneys due to the taxpayer in favour of the Commissioner. Lockhart J (at 436) considered that this view was correct: "Section 218 empowers the Commissioner, by giving the notice in writing under the section, to require the recipient to pay to the Commissioner moneys when they become payable to the taxpayer by the recipient. The section confers on the Commissioner the right to prevent the taxpayer from subsequently dealing with the moneys so as to prevent compliance with the notice by the recipient when the time for payment of the moneys by the recipient to the taxpayer arrives; the section also creates an offence for a recipient to refuse or fail to comply with the notice: s 218(2). Upon payment by the recipient to the Commissioner a valid discharge of the recipient's obligation to the taxpayer is given pro tanto with the amount of the payment: s 218(4). The section operates as a statutory assignment of the moneys payable by the recipient to the taxpayer in favour of the Commissioner in the nature of a charge over those moneys. In my opinion the notices in this case, upon being served upon the Health Commission, created charges in favour of the Commissioner over debts due by the Health Commission to Dr Edelsten at the time of service of the notices and debts that came into existence and became due thereafter before the making of the sequestration order against Dr Edelsten." 74 von Doussa J dissented, but on grounds that did not require him to address whether service of a s 218 notice has the effect of creating a charge in favour of the Commissioner. 75 In the GIO Case, a majority of the Court (Hill and Beazley JJ; Jenkinson J dissenting) applied the principles laid down in Donnelly. In that case, a s 218 notice was served on an insurer (the GIO) against which the taxpayer had made a personal injuries claim. The notice was served before a sequestration order was made against the taxpayer. However, no debt due to the taxpayer came into existence until after the taxpayer was discharged from bankruptcy. (The debt due by the GIO to the taxpayer was created by a judgment founded on the personal injuries claim.) Hill J, with whom Beazley J agreed, held that if at the time a s 218 notice is served there is no debt due by the addressee to the taxpayer, it is only when a debt due to the taxpayer comes into existence that s 218 operates to work on assignment or create a charge (at 294). Thus the Commissioner was not a secured creditor at the time of the taxpayer's discharge from bankruptcy because no debt to the taxpayer had yet come into existence in respect of which the Commissioner's charge under s 218 could operate. Although he dissented, Jenkinson J (at 286) accepted Hill J's analysis of what had been decided by the majority in Donnelly. 76 Hill J went on to hold that the consequence of the bankrupt being released from all unsecured debts was to exonerate the GIO from any obligation to make payments under the notice. In his view, the words "the amount due by the taxpayer in respect of tax" in s 218(1)(e) mean the amount, if any, actually due by the taxpayer at the time the notice becomes operative to require the person to whom it is given to pay moneys to the Commissioner. Since on discharge from bankruptcy, the taxpayer owed no tax to the Commissioner, the s 218 notice did not oblige the GIO to pay any moneys it owed to the taxpayer to the Commissioner. 77 Subsequent authorities have treated Donnelly and GIO as establishing that the effect of service of a s 218 notice is to create a charge over the debt owing by the recipient to the taxpayer: Smith v Deputy Commissioner of Taxation (No 2) (1997) 15 ACLC 687 (FCA/Mansfield J), at 708; Zuks v Jackson McDonald (1996) 96 ATC 4588 (S Ct WA/Steytler J), at 4598. 78 The Liquidator's submissions suggest that it is by no means inevitable that s 218 should be construed as creating a statutory charge over a debt due by the recipient of the notice to a taxpayer. As Mr Conti pointed out, the language of s 218 does not expressly create a charge over the debt. In this respect, it stands in contrast to s 216(1)(d) of the ITAA which expressly creates a first charge over the estate of a deceased taxpayer in respect of certain tax unpaid at his or her death. Mr Conti also pointed out that the analogy between a s 218 notice and a garnishee order does not necessarily suggest that s 218 creates a charge, since a garnishee order does not effect an assignment of the property of the garnishee: Hall v Richards (1961) 108 CLR 84, at 92, per Kitto J; Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in liq) (1998) 43 NSWLR 484 (Santow J), at 496. It is also correct to say, as Mr Conti did, that the observations of the High Court in Clyne, although carrying persuasive weight, did not authoritatively decide the question. 79 These and other contentions raised by the Liquidator indicate that a plausible argument can be made against the conclusion that service of a s 218 notice creates a statutory charge over debts due to a taxpayer in favour of the Commissioner. But the arguments fall short of demonstrating that the careful analysis of the majority in Donnelly is "plainly wrong" and therefore should not be followed by a later Full Court: Qantas Airways Ltd v Cornwell (1998) 84 FCR 483 (FC), at 489-490; Nguyen v Nguyen (1990) 169 CLR 245, at 268-269, per Dawson, Toohey and McHugh JJ. This conclusion is reinforced by the fact that the predecessor to s 218 was introduced at a time when Crown debts enjoyed priority over other debts of equal degree in bankruptcy and on a winding-up of a company. It is hardly surprising that the language has been seen as calculated to reinforce the priority then (although not now) enjoyed by Crown debts, including income tax. If this result is anomalous, in that it allows the Commissioner by his or her own enforcement actions, to acquire the preferential status of a secured creditor, the anomaly should be corrected by Parliament, or by the High Court should it choose to revisit the question. 80 Once it is accepted that Donnelly should be followed, subject to further arguments as to the effect of the Taxpayer's winding-up, certain conclusions follow: (i) The service of the s 218 Notices on the Debtors created an interest in the nature of a statutory charge over any debts then due by the Debtors to the Taxpayer. The charge was created notwithstanding that the amounts due to the Taxpayer were not payable until a future date. (ii) The Notices were also effective to create a statutory charge over any debts coming into existence (whether or not payable immediately) after the date of service, but before commencement of the winding-up. (iii) To the extent the Commissioner was entitled to a statutory charge over debts due by the Debtors to the Taxpayer, s 471C of the Corporations Law preserves the Commissioner's right to realise or enforce the charge notwithstanding the winding-up of the Taxpayer. (iv) The Liquidator cannot invoke s 474(1) of the Corporations Law to take control of debts subject to the statutory charge in favour of the Commissioner. Can the Notices Operate After the Winding-Up Has Commenced? 81 The Debtors, supported by the Liquidator, put forward what Mr Hammerschlag described as a beguilingly simple argument. The steps in the argument are these: (i) By reason of s 218(1)(e) of the ITAA, a s 218 notice is effective to require the recipient to pay moneys to the Commissioner if, and only if, at the time the notice becomes operative, there is tax due and owing by the taxpayer to the Commissioner; (ii) The notice becomes operative in the relevant sense only when the recipient has or acquires moneys that are due and payable to the taxpayer; (iii) In this case, the bulk of the Debts due by the Debtors to the Taxpayer did not become due and payable until 1 July 1998, after the winding-up order had been made; (iv) The effect of the winding-up order was that no tax was thereafter due and payable by the Taxpayer to the Commissioner, since the Commissioner's debt was converted into a right to prove in the winding-up; (v) On 1 July 1998, the date the Notices became effective, there was no tax due and payable by the Taxpayer to the Commissioner and thus the Notices did not oblige the Debtors to pay any moneys to the Commissioner. 82 It must be said immediately that this argument, which ultimately depends on the construction of s 218 of the ITAA, produces curious results if correct. On the one hand, s 218(1) (so it has been held) is intended, upon service of a notice, to create in the Commissioner an interest in the nature of a charge over debts due to the taxpayer. One consequence is that the Commissioner becomes a "secured creditor" for the purposes of s 471C of the Corporations Law, whose right to realise or otherwise deal with the security is not affected by the limitations specified in ss 471A and 471B of the Corporations Law. Yet on the Debtors' argument, s 218(1)(e) has the effect of preventing the Commissioner from realising his security after a winding-up order has been made. This must be since, on the Debtors' argument, once a winding-up order has been made against a taxpayer, there can never be a debt due and payable by the taxpayer to the Commissioner. 83 The short answer to the submission would seem to be that, once it is accepted that service of a s 218 notice constitutes the Commissioner a secured creditor, step (iv) in the Debtors' argument is not made out. Unlike an unsecured creditor, a secured creditor of a company in liquidation is entitled to take proceedings against the company or in relation to property of the company. Thus a secured creditor's debt is not merely converted into a right to prove in the winding-up. 84 An implicit assumption in the argument may have been that the alternative view of the operation of s 218 is to be preferred, namely that s 218 does not create a statutory charge but simply operates according to its terms so as to bind the addressee even after the bankruptcy or winding-up of the taxpayer. 85 In this form, the argument relied heavily on the GIO Case, the facts of which have been referred to earlier. Hill J in that case addressed the significance of the fact that the taxpayer, by reason of his discharge from bankruptcy, had been released from the debt due to the Commissioner. His Honour identified the question of construction as follows (at 298): "[W]hether the words 'the amount due by the taxpayer in respect of tax' in s 218(1)(e) of the ITA Act refer to the amount actually due by the taxpayer for tax at the moment the notice was given, unaffected by subsequent events, or whether they mean the amount, if any, of tax due by the taxpayer at the time the notice becomes operative to require the person to whom it is given to pay moneys to the Commissioner." (Emphasis in original.) 86 His Honour opted for the second of the alternatives because he thought it "hardly conceivable" that the Commissioner could require the addressee of a notice to pay over moneys when the tax debt due by the taxpayer to the Commissioner had been satisfied by payment. The same problem would arise if the tax debt were discharged for other reasons, such as a successful objection or appeal, or the release of the debt upon the taxpayer's discharge from bankruptcy. His Honour thought that the short question was "whether s 218, in any of these circumstances, contemplates that the recipient of a notice must nevertheless make payment to the Commissioner of tax no longer payable, or whether it is to be construed as requiring the recipient only to make payment in a case where the tax is in fact properly payable." He answered this question in a passage on which the Debtors relied (at 298-299): "In my view the latter construction should be adopted. It is unlikely that the parliamentary intention was that the recipient of a notice should make payment to the Commissioner where tax is no longer payable in cases where it would then be incumbent upon the taxpayer to seek to recover from the Commissioner the amount wrongly paid. In my view the proper construction of s 218 is that the words 'the amount due by the taxpayer in respect of tax' refers to so much of the tax due and owing by the taxpayer immediately upon the issue of the s 218 notice as remains due and owing from time to time. So construed the section can be given a sensible operation." 87 It is clear from the context that Hill J was not considering the effect of a s 218 notice which becomes "operative" after a sequestration or winding-up order has been made against a taxpayer. He was directing his remarks to the case where, at the time the s 218 notice becomes operative, the taxpayer's indebtedness to the Commissioner has been discharged whether by payment, judicial or administrative decision or release of the debt. The reference in the passage quoted to "so much of the tax… as remains due and owing from time to time" must be understood within this context. 88 A winding-up order against a taxpayer company does not discharge the tax debt owed by the taxpayer to the Commissioner. It is true that an unsecured creditor is precluded from taking proceedings to recover the debt (s 471C of the Corporations Law) or putting in force any attachment or execution (s 468(4)). Such a creditor instead is entitled to lodge a proof of debt: s 553(1). But this does not mean that the debt is discharged or released. 89 In Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589, it was held that, where a debtor had already become bankrupt on his own petition, the petitioning creditor could not establish that "the debt or debts on which the petitioning creditor relies is or are still owing" within the meaning of s 52(1)(c) of the Bankruptcy Act. The joint judgment (Gibbs CJ, Murphy, Brennan and Dawson JJ) reasoned as follows (at 594): "But since the debtor was already bankrupt when the petition came to be heard, the remedies against the person and property formerly available to the Deputy Commissioner had been taken away and there was substituted a right to prove against the estate which had become vested in [the] trustee." Nonetheless, the judgment specifically acknowledged that "[a]mounts which were owed by a debtor at the date of the bankruptcy may, notwithstanding his bankruptcy, still be described as debts… They are 'debts' from which the bankrupt is not released until he is discharged from bankruptcy… However,… they are no longer debts 'still owing' within the meaning of s 52(1)(c)… [t]he word ['owing'] connotes a sense of obligation to make the payment. The effect of the bankruptcy… is that the debtor is no longer obliged to pay his creditors…; their right is a right of proof against the estate." (Emphasis added.) 90 The position described by the High Court applies on the winding-up of a taxpayer. The curtailment of the Commissioner's remedies does not discharge or release the debt due by the taxpayer to the Commissioner. The principle applied in the GIO Case does not require or justify a holding that s 218 notice ceases to be operative. Accordingly, the Debtors' argument should be rejected.

Commencement of the Winding-Up 91 The date of commencement of the Taxpayer's winding-up is significant for the present appeal. The Commissioner conceded that, if the commencement of the winding-up predated the service of the Third Notice (4 February 1997), the effect of s 468 of the Corporations Law would be to render the Third Notice void. This concession seemed to be based on acceptance of the proposition that the service of the Third Notice created a charge over the Debts due to the Taxpayer and thus constituted (as the primary Judge held) a "disposition of property of the company" within s 468(1) of the Corporations Law. Alternatively, it may have been based on the view that service of the Notice after the winding-up constituted the putting in force of an attachment. It will be recalled that s 468(1) renders void any disposition of property of the company made after the commencement of the winding-up by the Court, unless the Court otherwise orders, while s 468(4) invalidates a post-winding-up attachment. The Commissioner's concession was subject to his foreshadowed argument that there was a conflict between s 218 of the ITAA and s 468 of the Corporations Law and that the former prevailed. 92 The relevant sequence of events has been explained (see pars 10 to 26). The legislation relevant to this issue is set out below. 93 Part 5.3A of the Corporations Law deals with "Administration of a Company's Affairs with a View to Executing a Deed of Company Arrangement". Part 5.3A was introduced into the Corporations Law by the Corporate Law Reform Act 1992 (Cth), enacted in part as a response to the report of the Australian Law Reform Commission, General Insolvency Inquiry (LRC 45, 1988) ("Harmer Report"). The object of Part 5.3A is to provide for the property and affairs of an insolvent company to be administered in a way that maximises the chances of the company continuing in existence or results in a better return for creditors and members than would result from an immediate winding-up: s 435A. Section 436A allows a company to appoint an administrator if the directors resolve that in their opinion the company is insolvent or likely to become so and that an administrator should be appointed. It was s 436A that was invoked by the directors of the Taxpayer on 20 November 1996. 94 The administration of a company begins, relevantly, when an administrator is appointed under s 436A: s 435C(1)(a). It ends on the happening of the first event of a kind specified in s 435C(2) or (3): s 435C(1)(b). Section 435C(2) deals with the "normal outcome of the administration", such as the execution of a deed of company arrangement. Under s 435C(3), the administration may also end in other ways, including these: "(a) the Court orders, under section 447A or otherwise, that the administration is to end, for example, because the Court is satisfied that the company is solvent; or

(g) the Court appoints a provisional liquidator of the company, or orders that the company be wound up." 95 Section 447A(1) of the Corporations Law empowers the Court to make such orders as it thinks appropriate as to how Part 5.3A should operate in relation to a particular company. Section 447A(2) provides as follows: "(2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of [Part 5.3A] are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end." 96 A creditor of the company may apply for an order under s 447A(1): s 447A(4)(b). It will be recalled that Hill J's order terminating the administration of the Taxpayer was made on the application of the Commissioner pursuant to s 447A of the Corporations Law. 97 Section 513A of the Corporations Law, which is contained within Part 5.6 Div 1A, provides for the commencement of a winding-up: "513A If the Court orders under section… 459A … that a company be wound up, the winding up is taken to have begun or commenced: (a) if, when the order was made, a winding up of the company was already in progress - when the last-mentioned winding up is taken… to have begun or commenced; or (b) if, immediately before the order was made, the company was under administration - on the section 513C day in relation to the administration; or (c) if: (i) when the order was made, a provisional liquidator of the company was acting; and (ii) immediately before the provisional liquidator was appointed, the company was under administration; on the section 513C day in relation to the administration; or (d) if, immediately before the order was made, a deed of company arrangement had been executed by the company and had not yet terminated - on the section 513C day in relation to the administration that ended when the deed was executed; or (e) otherwise - on the day when the order was made." (Emphasis added.) Section 513C identifies the "section 513C day": "513CThe section 513C day in relation to the administration of a company is: (a) if, when the administration began, a winding up of the company was in progress - the day on which the winding up is taken because of this Division to have begun; or (b) otherwise - the day on which the administration began." It will be seen that s 513C deals specifically with the case where a winding-up of the company was "in progress" when the administration began. It does not specifically address the case where winding-up proceedings had been instituted when the administration began, but a winding-up was not yet in progress. 98 The Commissioner submitted that the primary Judge had erred in concluding that s 513A(b) had the effect that the winding-up of the Taxpayer must be taken to have commenced on "the [s] 513C day in relation to the administration" (that is, under s 513C(b), the day on which the administration began). The error was said to be in the holding that immediately before the winding-up order was made the Taxpayer was under administration. According to Mr Nettle QC, who appeared with Ms Gordon for the Commissioner, the orders made by Hill J on 28 February 1997 took effect at the time each was pronounced. Since the order terminating the administration of the Taxpayer (Order 2) was made before the winding-up order (Order 3), there was a moment in time (albeit in scintilla) during which it could not be said that the Taxpayer was not under administration. It followed that the Taxpayer was not under administration "immediately before" the making of the winding-up order. Thus, pursuant to s 513A(e), the winding-up of the Taxpayer was to be taken as having begun or commenced on the day the order was made, namely 28 February 1997. 99 Mr Nettle contended that this submission was supported by the fact that, as Hill J recorded, the order terminating the Taxpayer's administration was sought because the period for relation-back would otherwise commence only at the time the winding-up order was made. So much was said to follow from the definition of "relation-back day" in s 9 of the Corporations Law. The expression is defined as follows: "(a) if, because of Division 1A of Part 5.6 [which contains ss 513A and 513C], the winding up is taken to have begun on the day when an order that the company or body be wound up was made - the day on which the application for the order was filed; or (b) otherwise - the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun". Mr Nettle said that Hill J was asked to make an order under s 447A precisely in order to avoid the winding-up being deemed to have commenced on 20 November 1996, the day on which the administration began. The object of the application was to attract par (a) of the definition of "relation-back day", so that the "relation-back day" would be 3 July 1996, the day on which the application for the order was filed. That object would have been frustrated if s 513A(b), rather than s 513A(e) established the date the winding-up was taken to have commenced. In that case, s 9(b) would determine the "relation-back day" as 20 November 1996, since that would be the day winding-up is taken, because of Div 1A of Part 5.6, to have begun. 100 The term "immediately before", like other expressions incorporated into statutes, must take its meaning from the statutory context: R v Justices of Berkshire (1878) 4 QBD 469, at 471, per Cockburn CJ; Loizos v Carlton and United Breweries Ltd (1993) 117 FLR 135 (S Ct NT, CA), at 137-139, per Kearney J. In Litster v Forth Dry Dock and Engineering Co Ltd (In Receivership) [1990] 1 AC 546, Lord Oliver observed (at 567) that "[t]he expression 'immediately before' is one which takes its meaning from its context, but in its ordinary signification it involves the notion that there is, between two relevant events, no intervening space, lapse of time or event of any significance. If, for instance, the question is whether a deceased person was seized of property immediately before his death, attention is focused upon the very instant at which the death occurred." In Litster itself, his Lordship considered that the expression "employed immediately before the transfer" required the Court to consider whether the contract of employment was subsisting at the moment of transfer: at 575. In other cases, of which Loizos gives examples (at 138-139), the expression has been construed as encompassing a relatively short interval of time between the two identified events. 101 Part 5.3A of the Corporations Law contemplates that the creditors of a company under administration may resolve that the company be wound up: ss 439C(c); 445E. In such a case, the company is taken to have passed a special resolution that it be wound up voluntarily under s 491: s 446A(1), (2). The Corporations Law also contemplates that a company under administration may be the subject of a winding-up order by the Court in insolvency. When an application for winding-up is made in respect of a company under administration, s 440A(2) requires the Court to adjourn the application if it is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. But unless so satisfied, the Court ordinarily will make a winding-up order against an insolvent company under administration: Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 (S Ct Qd/CA). The effect of such an order is to end the administration: s 435C(3)(g). As Santow J observed in Brien v Australasian Memory Pty Ltd (1997) 25 ACSR 1, at 20: "It is entirely in conformity with the statutory scheme that an administration, suspending as it does creditors rights, should not be unduly prolonged. Once the corporate patient proves irretrievably moribund, despite the intensive care of its administrator, acting as corporate doctor, there is no alternative but liquidation." 102 The Corporations Law also provides for the administration of a company to end in a variety of ways, including an order by the Court under s 447A. Such an order can be made, for example, because the provisions of Part 5.3A "are being abused" or "for some other reason": s 447A(2). Clearly enough, an order terminating the administration of a company can be the prelude to the company being wound up in insolvency by the Court pursuant to Part 5.4 of the Corporations Law (as occurred in the present case). 103 Within this framework, the language of s 513A(b) of the Corporations Law is crucial. The paragraph is not expressed to be confined to the case where the company is under administration at the time the winding-up order is made. Had that result been intended, the drafter could, and presumably would, have used the language of s 513A(a). Rather, s 513A(b) is expressed to apply if immediately before the winding up order was made the company was under administration. Whatever the precise temporal limits of this language, it is plainly apt to embrace a case where the very same orders, pronounced at the same time, terminate the administration if the insolvent company and wind up the company. To suggest that these events are anything other than simultaneous is to allow form to triumph over substance. 104 There is nothing odd about this result from the perspective of the policy of the statute. If the administration has not been terminated at the time the winding-up order is made, it is clear that the winding-up will be taken to have commenced at the date the administration began. This will be so notwithstanding that the winding-up proceedings were instituted before the company went into administration. Parliament has deemed it appropriate that the winding-up should be deemed to commence at the later date even though this may have consequences for the relation-back provisions. There is in substance no difference where the administration of the company is terminated and at the same time a winding-up order is made. It is hardly surprising that Parliament should consider it appropriate, in such a case, to adopt the same deemed commencement date for the winding-up. 105 The analysis is not altered by the fact that, in the present case, Hill J made the order terminating the administration of the company because he was told that, unless the order was made, the relation-back period would commence at the time the winding-up application was filed. (What his Honour was told, on any view, was not entirely accurate. Unless the order terminating the administration had the effect assumed by the Commissioner, the relation-back period would commence at the date the administration began, not at the date the winding-up order was made.) His Honour was not invited to and did not consider whether the assumption underlying the Commissioner's request was correct. He made the orders on the faith of what he had been told. 106 The motivation of the party seeking an order does not determine the effect of the order. Nor can it determine the application of a statutory provision to the orders that have been made. The intentions of the Judge making the orders may be important if, for example, the "slip" rule is invoked to correct an error in the form of the orders. But there is no suggestion that the orders made by Hill J were made in error. Nor is there any suggestion that the orders are ambiguous. The question is simply whether, having regard to the orders made on 28 February 1997, the Taxpayer was under administration immediately before the winding-up order was made. The answer is that it was. 107 There may well be an alternative basis for holding that s 513A(b) of the Corporations Law applies in the circumstances of the present case. The winding-up order was made on 28 February 1997, but both it and the order ending the Taxpayer's administration were stayed until 10 March 1997. It is therefore arguable that, for the purposes of s 513A(b), the Taxpayer was under administration at the time the winding-up order was made: Olsen v Nodcad Pty Ltd (1999) 17 ACLC 1167 (S Ct NSW/Austin J), at 1171. However, it is not necessary to decide whether that argument is correct. 108 The result is that the primary Judge correctly concluded that the winding-up of the Taxpayer is taken to have begun on 20 November 1996 and that, subject to the Commissioner's foreshadowed argument that s 218 of the ITAA is inconsistent with s 468 of the Corporations Law, the Third Notice was rendered void by s 468 of the Corporations Law. Section 468(4) of the Corporations Law 109 The Liquidator submitted that the primary Judge was in error in holding, on the authority of Donnelly, that the term "attachment" in s 468(4) of the Corporations Law does not encompass a statutory charge of the kind contemplated by s 218 of the ITAA. For this reason, so the Liquidator argued, the First and Second Notices were invalid. 110 In Donnelly, it was held that "attachment" for the purposes of s 118(1) of the Bankruptcy Act was confined to a curial procedure to enforce a judgment or order: at 448, per von Doussa J; at 466, per Hill J. The Court therefore decided that s 118(1) did not apply to a statutory charge created by s 218 of the ITAA. There is, however, considerable force in the Liquidator's contention that the analysis in Donnelly does not apply to s 468(4) of the Corporations Law. The contention is supported by a number of considerations. 111 First, s 118(1) of the Bankruptcy Act contains clear textual indications that the word "attachment", as used in that sub-section, means a curial procedure to enforce a judgment or order. For example, s 118(1) refers to "the taxed costs of the execution or attachment". Some of these considerations are present in s 569(1) of the Corporations Law, which is in similar terms to s 118(1) of the Bankruptcy Act. But they are not present in s 468(4) of the Corporations Law. 112 Secondly, the legislative history of s 468(4) of the Corporations Law differs from that of s 118(1) of the Bankruptcy Act. In Donnelly, von Doussa J thought that the language used in the immediate predecessor to s 118(1) supported the contention that a narrow construction of the word "attachment" was intended: Donnelly, at 447-448. By contrast, s 468(4) of the Corporations Law derives from s 163 of the Companies Act 1862 (UK), which is relevantly in almost identical terms. (The text of s 163 of the Companies Act 1862 (UK) is set out in In re Exhall Coal Mining Co Ltd (1864) 4 De G J & Sm 377; 46 ER 964). The reasoning applied by von Doussa J to the construction of s 118(1) of the Bankruptcy Act cannot therefore be applied to the construction of s 468(4) of the Corporations Law. 113 Thirdly, s 468(4) of the Corporations Law applies not only to curial procedures, such as sequestration and execution, but to a non-curial procedure such as distress. As is said in McPherson, The Law of Company Liquidation (4th ed 1999), at 267: "Distress is an extra-judicial process most commonly utilised as a means of enforcing payment of arrears of rent owing under a lease, or payment of outstanding instalments of principal and interest owing under a mortgage…which either expressly confers the right to distrain or contains a provision in terms of which the mortgagor attorns tenant to the mortgagee." The remedy of distress has been abolished or curtailed in Australia (see Sykes and Walker, The Law of Securities (5th ed 1993), at 94, 285-288), but it was in full flower in 1863. In this respect, s 468(4) contrasts with s 118(1) of the Bankruptcy Act which (apart from attachment) refers only to execution, plainly a curial procedure. 114 Fourthly, the predecessors to s 118(1) of the Bankruptcy Act were introduced at a time when the Crown enjoyed priority, either at common law or by statute, for income tax. Hill J observed in Donnelly (at 467) that it could hardly have been contemplated that s 118(1) of the Bankruptcy Act would require the Commissioner to pay over to the trustee in bankruptcy moneys received under a s 218 notice, when the only consequence would be that the trustee would hold the funds to pay to the Commissioner in priority to other creditors. By contrast, s 163 of the Companies Act 1862 and its Australian counterparts predated income tax and other modern forms of taxation. 115 These considerations do not necessarily mean that "attachment", as used in s 468(4) of the Corporations Law, bears its wider meaning of freezing or seizing debts by means of both curial and non-curial processes (Donnelly, at 446, per von Doussa J). It may be significant, for example, that the Common Law Procedure Act 1854 (UK) provided for the first time for an order for the attachment of debts by way of a garnishee order: Donnelly, at 464, per Hill J. The effect of a garnishee order is usually expressed in terms of "attachment" of a debt: In re Stanhope Silkstone Collieries Co (1879) 11 Ch D 160 (CA); Relwood Pty Ltd v Manning Homes Pty Ltd (No 2) [1992] 2 Qd R 197 (Qld S Ct/CA), at 200-201, per McPherson SPJ. It may well be that s 163 of the Companies Act 1862, enacted only a few years later, was intended to be confined to that form of curial attachment. For reasons we shall explain, however, it is unnecessary to resolve this question of construction in the present case. 116 It will be remembered that s 468(4) renders void any "attachment, sequestration, distress or execution put in force against the property of the company after the commencement of the winding up by the Court." (Emphasis added.) It has been held that an attachment in the form of a garnishee order is "put in force" for the purposes of s 163 of the Companies Act 1862 when the order nisi is served on the garnishee: In re Stanhope, at 161-162. As Santow J explained in Blacktown Concrete Services, at 495-496, this is not because the garnishor/judgment creditor thereupon becomes a secured creditor. The garnishor/judgment creditor merely obtains a statutory right in the nature of a lien conferring the right to prevent the garnishee from paying over the debt to the judgment debtor. Nonetheless, this is sufficient to put the attachment in force. 117 As we have noted, the authorities have pointed to the close analogy between garnishee orders and s 218 notices. On the assumption that "attachment" in s 468(4) of the Corporations Law extends to the non-curial form of attachment effected by s 218, the analogy with garnishee orders suggests that the attachment is "put in force" no later than the time at which an interest in the nature of a statutory charge is created over debts due to the taxpayer company. Such an interest is created upon service of the s 218 notice, provided the recipient of the notice is indebted to the taxpayer (even if the moneys are not payable until some time in the future). At that point, the interest of the Commissioner in the debt is no less than that of the garnishor in the debt due by the garnishee to the judgment debtor. 118 At the time the First and Second Notices were served, moneys were due (albeit not payable) by the Debtors to the Taxpayer. For reasons that have been explained, the effect of service of the Notices was to create an interest in the nature of a statutory charge over the debts in favour of the Commissioner. It follows that, to the extent that service of the s 218 Notices had the effect of an "attachment" for the purposes of s 468(4) of the Corporations Law, the attachment was put in force before the commencement of the winding-up. Accordingly, s 468(4) does not invalidate the First or Second Notices.

Effect of the Third Notice on Earlier Notices 119 The Debtors, supported by the Taxpayer, repeated the submissions made to the primary Judge that service of the Third Notice on MHC effectively replaced the First and Second Notices previously served on it. According to Mr Hammerschlag, who advanced this argument, the First and Second Notices were thereby rendered ineffective to create statutory charges in favour of the Commissioner over the debts due by MHC to the Taxpayer. Although it was not entirely clear, Mr Hammerschlag seemed to suggest that the service of the Third Notice produced the consequence that the First and Second Notices were to be treated as though they had never been served. Since the Third Notice, insofar as it effected a disposition of property of the Taxpayer, was void by reason of s 468(1) of the Corporations Law, it followed that the Commissioner was not a secured creditor in relation to any portion of the Debts due by MHC to the Taxpayer. 120 Section 218(1) of the ITAA empowers the Commissioner to serve a notice of the kind identified in the sub-section and provides that the Commissioner "may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice." In form, the Third Notice was styled "AMENDED NOTICE UNDER SECTION 218". The amendment effected by the Third Notice was to substitute a higher amount ($19,536,409.10) for the amount specified in the Second Notice ($15,784,701.26). The covering letter accompanying the Third Notice stated that it did "not operate to revoke the [First Notice or the Second Notice]". Mr Hammerschlag did not suggest that the effect of the Third Notice was to revoke the earlier notices. Rather, he contended that the Third Notice amended the Second Notice and the Commissioner had to stand or fall on the single amended notice. 121 The service of the First Notice created a statutory charge in favour of the Commissioner to the extent of the Taxpayer's then indebtedness to the Commissioner (approximately $11.8 million). The charge was created over the Debts due by MHC to the Taxpayer. The Second Notice amended the First Notice by increasing the amount of the statutory charge by some $4 million, to approximately $15.8 million. The Second Notice did not purport to and did not revoke the First Notice. We agree with the primary Judge that the effect of serving the Second Notice was that the rights and obligations created by the service of the First Notice continued in force and effect except to the extent they were amended by the Second Notice. Accordingly, from the time of service of the Second Notice, the Commissioner was entitled to the benefit of a statutory charge to secure the amount of $15.8 million. 122 A similar analysis applies to the Third Notice, except of course that account must be taken of s 468(1) of the Corporations Law. The Third Notice purported to amend the First and Second Notices, by further increasing the amount of the statutory charge created by the First Notice to $19.5 million. As with the Second Notice, the Third Notice did not purport to and did not revoke its predecessors. Since the purported amendment effected by the Third Notice was void, it could not increase the amount of the statutory charge to which the Commissioner was entitled. But the Third Notice did not affect the operation of the First and Second Notices. 123 It follows that the primary Judge was correct in concluding that, from the time of service of the Second Notice, MHC was under an obligation by virtue of s 218 of the ITAA to pay the Commissioner the amount of $15.8 million if that amount or more was then due (in the sense of due and payable) by MHC to the Taxpayer. Alternatively, if that amount or more became due by MHC to the Taxpayer in the future, MHC was obliged to pay that amount to the Commissioner upon the moneys becoming payable.

Voidable Transaction 124 The Liquidator repeated on the appeal the submission made to the primary Judge, that each of the First and Second Notices constituted an "insolvent transaction" of the Taxpayer within four years of the relation-back day (20 November 1996). On this basis, the transaction was voidable and an order could be made under s 588FF(1)(c) of the Corporations Law requiring the Commissioner to pay to the Taxpayer an amount equivalent to the benefits received by him because of the transaction. The statutory provisions relevant to this submission are set out at pars 51-53. 125 The Liquidator argued that the relevant "transaction" was · A tripartite transaction, involving the Commissioner, the recipient of each Notice, and the Taxpayer; and · A composite transaction, comprising the giving of the Notice, by the Commissioner and the giving of authorisation by the Taxpayer to the payment pursuant to the charge. In oral submissions, the Liquidator expanded the "composite transaction" to include any actual payment by the Debtors. 126 The Liquidator relied on the principles expressed by a Full Court in Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281. The Court described the issue in that case as follows (at 282): "'A' contracts with 'B' that in settlement of all claims between them B will, inter alia, make payments both to A and, at A's direction, to 'C'. C is A's creditor and the payment to C, if made and accepted, will result in a partial discharge of A's debt to C. If that payment is made to and accepted by C, can it properly be said that A and C are parties to a 'transaction' deemed an unfair preference by s 588FA of the Corporations Law?" 127 The Court answered the question in the affirmative, disapproving a decision at first instance suggesting a negative answer. The Court's reasoning appears from the following passages (at 288-289): "We cannot agree with his Honour's reasoning for two reasons, one specific, one general. The specific reason is this. In so far as it is suggested that A was not party to the extinguishment of C's debt brought about by B's payment, we note…that A's authorisation of B's payment is necessary to discharge the debt, save in exceptional cases of no present relevance…. In this way A is a party to the extinguishment even if it be said A is not a party to the payment itself. The general reason is that we do not see the language of s 9 (which exemplifies but does not define 'transaction') as precluding a finding of a transaction to which the debtor A is a party merely because that transaction itself is made up of a composite of dealings in not all of which A participates. … While s 9 does not define 'transaction', it does through the process of exemplification typify the forms of conduct or dealing engaged in by a company that will be characterised as a transaction for its purposes - 'a conveyance…of property', 'an obligation incurred', ' a release or waiver' etc. Common to the examples is the characteristic that the conduct or dealing engaged in by the debtor company has the consequence of effecting a change in the rights, liabilities or property of the company itself. We confine our observations for present purposes simply to a course of dealing initiated by a debtor for the purpose of, and having the effect of, extinguishing a debt. It is not apparent to us why it should not be said that, where a debtor so acts and extinguishes a debt, the relevant 'transaction' is the totality of the dealings through which the debtor procures the intended outcome, irrespective of whether one or more of the dealings in the sequence in question does not involve or require the participation of the debtor but does require that of a third party. The transaction, in other words, is the totality of the dealings initiated by the debtor so as to achieve the intended purpose of extinguishing the debt. … We conclude, then, that a course of dealing initiated by a debtor that is intended to, and does, extinguish a creditor's debt can in its totality be a transaction for the purposes of Pt 5.7B of the Corporations Law notwithstanding that the achievement of that end can only be realised through the participation of a third party in a particular dealing (or dealings) within the overall transaction, being a particular dealing (or dealings) to which the debtor is not or may not be a party." (Citations omitted.) 128 It will be apparent that the circumstances of Re Emanuel are different to those of the present case. 129 First, in Re Emanuel,the debtor initiated a course of dealing for the purpose of and having the effect of extinguishing a debt due to a creditor. In this case, the Taxpayer did not initiate any relevant course of dealing. The s 218 Notices were served by the Commissioner upon the Debtors without the consent or (so it can readily be inferred) knowledge of the Taxpayer. As the primary Judge found, the Taxpayer was in no sense a party to any of the s 218 Notices or the service of those Notices on the Debtors. 130 Secondly, in Re Emanuel,the debtor (A) intended to procure the outcome that the creditor's (C's) debt would be discharged by the payment made by a third party (B). In the present case, the Taxpayer had no such intention so far as its debt to the Commissioner was concerned. 131 Thirdly, in Re Emanuel,the debtor (A) authorised the payment by another party (B) to a creditor (C) in order to discharge A's debt to C. In this case, the Taxpayer did not authorise the Debtors to pay the Debts to the Taxpayer. The recipients of the Notices, if they had made payments required by the Notices, would have been deemed by s 218(4) of the ITAA to have acted under the authority of the ITAA. But s 218(4) does not alter the fact that the Taxpayer never authorised the Debtors to make any payments to the Commissioner. On the contrary, s 218(4) of the ITAA is a statutory deeming provision, designed to protect the Debtors against the absence of authority from the Taxpayer. 132 As the Court pointed out in Re Emanuel, s 9 does not define the expression "transaction". It proceeds by a process of exemplification. The Court identified the common feature of the examples as being that the conduct or dealing engaged in by the debtor has the consequence of effecting a change in the rights, liabilities or property of the company itself. This is seen in par (b), which refers to a "charge created by the [company] on property of the [company]". To this must be added the requirement in s 588FA(1) that a transaction is an unfair preference if and only if the company and the creditor are parties to the transaction. 133 In our view, neither the service of the s 218 Notices by the Commissioner nor any payments by the Debtors pursuant to the Notices could constitute a "transaction of the company" within s 588FE(4) of the Corporations Law. A fortiori, the Taxpayer and the Commissioner were not both parties to any relevant transaction. The Taxpayer itself did not engage in any conduct that had the effect of changing its rights, liabilities or property. The only relevant conduct was engaged in by the Commissioner and, if regard is had to any payment pursuant to the Notices, by the Debtors. 134 The charge on the Taxpayer's property came about, not because of any action by it or its officers, but because s 218 of the ITAA had the effect that service of the Notices created a statutory charge over the Debts. This is not a case where the only factor precluding a finding that there was a transaction to which the Taxpayer was a party is the fact that there were composite dealings and the Taxpayer did not participate in all of them. The Taxpayer simply did not participate in any of the relevant dealings.

Conclusion 135 The upshot of our reasons thus far is that, with one qualification, the appeals and cross-appeal from the orders made by the primary Judge should be dismissed. The qualification is that an order will have to be made giving effect to the agreement between the parties relating to interest accrued on the funds paid into Court by the Debtors. 136 As we have explained, we propose to provide an opportunity for the parties to present submissions on what the Commissioner says is the inconsistency between s 218 of the ITAA and s 468 of the Corporations Law. At this stage, therefore, we shall not make orders other than to set the matter down for further argument on the inconsistency question.

I certify that the preceding one hundred and thirty-six (136) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Hill, Sackville & Finn.

Associate: Dated: 23 December 1999 N 336 of 1999: Counsel for the Appellants: Mr D J Hammerschlag

Solicitor for the Appellants: Teece, Hodgson & Ward

Counsel for the Respondent: Mr G Nettle QC with Ms M Gordon

Solicitor for the Respondent: Australian Government Solicitor

N 344 of 1999: Counsel for the Appellants: Mr R A Conti QC with Mr P L Dodson Solicitor for the Appellants: Blake Dawson Waldron Counsel for the First Respondent: Mr G Nettle QC with Ms M Gordon Solicitor for the First Respondent: Australian Government Solicitor Counsel for the Second, Third, Fourth & Fifth Respondents: Mr D J Hammerschlag Solicitor for the Second, Third, Fourth & Fifth Respondents: Teece, Hodgson & Ward Date of Hearing: 23-26 August 1999