The Commissioner of the Australian Federal Police v Pharmacy Depot Hurstville Pty Ltd

The Commissioner of the Australian Federal Police v Pharmacy Depot Hurstville Pty Ltd - [2020] NSWSC 1571 - NSWSC 2019 case summary — Zoe

[3]

PROCEDURAL HISTORY

On 17 April 2015, the Commissioner of the Australian Federal Police ("the Commissioner") brought the primary proceedings against Pharmacy Depot, Yaakop (Jacob) Youssef ("the second defendant") and Hamza Amin Zoghbi ("the third defendant"). The Commissioner sought restraining orders, custody and control orders, and forfeiture orders against the property of Pharmacy Depot, against the second defendant and the third defendant pursuant to the Act.
The second and third defendants were, and at all relevant times have been, the sole directors and shareholders of Pharmacy Depot, a company through which they operated a pharmacy at Westfield, Hurstville, and through which it is alleged they perpetrated a fraud in obtaining in excess of $18 million from the Commonwealth. The relief sought by the Commissioner included an application for forfeiture orders pursuant to s 47 of the Act and pecuniary penalty orders against each defendant pursuant to s 116(1) of the Act.
Restraining orders were made in the primary proceedings pursuant to s 18 of the Act on the basis that the second and third defendant, through Pharmacy Depot, are reasonably suspected of having committed the offences of: 1. obtaining a financial advantage from the Commonwealth by deception contrary to s 134.2 of the Criminal Code Act 1995 (Cth) ("Criminal Code") and/or 2. dealing with money with a value in excess of $100,000 and which is reasonably suspected of being proceeds of a crime contrary to s 400.9(1) of the Criminal Code.
The fundamental allegation underlying the suspected offending was that between about 30 November 2013 and 12 March 2015, the defendants engaged in a systematic and serious fraud on the Commonwealth through the Pharmaceutical Benefits Scheme ("PBS"). It is alleged that the defendants submitted fraudulent PBS claims to Medicare for the supply of Vitaflo brand products in respect of which Pharmacy Depot was paid approximately $18,660,260.95 by the Department of Human Services. Pharmacy Depot allegedly claimed PBS reimbursements for prescriptions of Vitaflo products which were not, in fact, prescribed by a medical practitioner, nor in fact dispensed and supplied by the defendants. The funds obtained from the Commonwealth under the alleged fraud were deposited into the Restrained Bank Account.
Restraining orders were made against various items of property on 17 April 2015. Further restraining orders were made in the proceedings on 8 December 2015, 28 October 2016 and 10 March 2017.
The property restrained on 17 April 2015 included funds in the amount of $9,606,394.97 standing to the credit the Restrained Bank Account, which is the subject of the present application. On 29 April 2015, the Restrained Bank Account was transferred to the custody and control of the Official Trustee pursuant to the orders of the Court.
The suspected offending is now the subject of criminal proceedings against the third defendant. A Court Attendance Notice was filed on 5 July 2018 with respect to the second defendant, but it has not been served as he left Australia in December 2017 and has not subsequently returned.
On 22 November 2017 (more than two years after the primary proceedings were commenced) the second defendant commenced separate proceedings in this Court, seeking the appointment of a provisional liquidator to Pharmacy Depot and orders winding up Pharmacy Depot on just and equitable grounds.
On 4 December 2017, the Court made orders appointing Daniel Frisken as provisional liquidator of Pharmacy Depot. Order 9A was made in the following terms: Notwithstanding any other paragraph of these orders, the Provisional Liquidator is not authorised to take and must not take any step which is inconsistent with or will reduce the level of assets subject to freezing orders made in favour of the Australian Federal Police, without leave of the Court in an application made on 2 business days' notice to the Australian Federal Police.
By subsequent order of the Court on 25 June 2018, Pharmacy Depot was wound up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) and Mr Frisken and Maxwell Prentice were appointed liquidators. On 14 December 2018, Mr Prentice ceased to be a liquidator of Pharmacy Depot and Mr Frisken ("the Liquidator") is now the sole liquidator of Pharmacy Depot.
Pursuant to s 471B of the Corporations Act, the appointment of the Liquidator prevented the Commissioner from taking further steps in these proceedings except with the leave of the Court. The Commissioner filed an application for such leave on 10 April 2018. The Liquidator opposed the granting of leave from 27 April 2018 until September 2018 when he changed his position and consented to leave being granted. The Court granted leave, with the consent of the Liquidator, on 6 September 2018. During the period in which he opposed the granting of leave under s 471B, the Liquidator pursued a separate application against the Commissioner which was determined in the Commissioner's favour: Commissioner of the Australian Federal Police v Pharmacy Depot Hurstville Pty Ltd (In Liquidation) [2018] NSWSC 1284.
The present proceedings initially proceeded by a notice of motion filed 2 October 2018 ("the motion"), in which relief was sought confined to reliance upon to s 24(1)(d) of the Act. That proceeding was listed and heard on 28 May 2019. During the course of the hearing, Pharmacy Depot sought leave to amend the motion to seek relief pursuant to s 24(1)(c) of the Act. That leave was granted on 28 May 2019 and the matter was fixed for a further hearing day on 29 October 2019 to hear argument with respect to the prayers for relief brought pursuant to s 24(1)(c).
In the result, the relief claimed by way of the amended motion was relevantly as follows: 1. An order pursuant to section 24(1)(d) or 24(1)(c) of [the Act] that such funds held in [the Restrained Bank Account], as restrained under the orders of the Court made on 17 April 2015 (and as varied) and transferred to the Official Trustee pursuant to the Act (Orders) as are necessary from time-to-time to meet the payment: a. of the debts incurred in good faith by the liquidators of [Pharmacy Depot] in their capacity as the liquidators of [Pharmacy Depot]; or b. of the remuneration, costs and disbursements of the liquidation of the first defendant; c. be excluded from the Orders. 2. Further or alternatively, an order: a. pursuant to section 24(1)(d) or 24(1)(c) of the Act excluding the sum of $750,000 (or such other amount as the Court thinks fit) from the Orders; and b. that the amount excluded by sub-paragraph a. be transferred to the Liquidators to satisfy the Liquidators' statutory indemnity regarding the remuneration, costs and disbursements of the liquidation of [Pharmacy Depot]. 2A. Further or alternatively, an order pursuant to s 24(1)(c) of the Act excluding the sum of $524,644 from the Orders. 3. Costs.
It is evident from the prayers of relief on the amended motion that Pharmacy Depot seeks a primary prayer for relief ("the first prayer for relief") and two alternative prayers for relief, namely, paras 2 and 2A (which shall hereinafter be referred to as "the first alternate prayer for relief" and "the second alternate prayer for relief", respectively).
The first prayer for relief seeks that the payment of either debts incurred in good faith by the liquidators of Pharmacy Depot or the remuneration, costs and disbursements of the liquidation of Pharmacy Depot be excluded from the Restrained Bank Account. The sum so excluded is to be derived from the expression used in the first prayer for relief "as are necessary from time-to-time to meet the payment".
The first alternate prayer for relief seeks that a specified sum of $750,000 (or such other amount as the Court thinks fit) be excluded from the Restrained Bank Account and there upon transferred to the liquidators to satisfy what is described as the "Liquidators' statutory indemnity" regarding the remuneration, costs and disbursements of the liquidation of Pharmacy Depot.
The second alternate prayer for relief seeks that a specified sum of $524,644 be excluded from the Restrained Bank Account.
The amended motion effectively operates differently to the motion in two ways. First, it calls in aid an additional source of power under the Act for each prayer for relief, namely, s 24(1)(c). Secondly, it brings in the second alternate prayer for relief.
In relation to the second alternate prayer for relief, it should be noted that the prayer relies solely on s 24(1)(c) of the Act; and further, the specified sum of $524,644 represents the sum of the unpaid balance of the provisional liquidation remuneration of Pharmacy Depot ($359,644) and the unpaid balance of the liquidation of Pharmacy Depot ($165,000), as at the date of deposition in the affidavit of Daniel John Frisken, sworn 11 June 2019.

[4]

THE LEGISLATION

A principle issue in the proceedings concerned the proper construction of s 24 of the Act, which is entitled "Allowance for expenses".
The Act is divided into six chapters, of which Ch 1, 2, 5 and 6 are material. In summary, the relevant chapters concern the following: 1. Chapter 1 deals with introductory matters. 2. Chapter 2 deals with "The confiscation scheme", and is divided into the following parts: 1. Part 2-1A of Ch 2 (ss 15A-15S) deals with "Freezing orders"; 2. Part 2-1 (ss 17-45A) deals with "Restraining orders"; 3. Part 2-2 (ss 46-90) deals with "Forfeiture orders"; 4. Part 2-3 (ss 91-114) deals with "Forfeiture on conviction of a serious offence"; 5. Part 2-4 (ss 115-150) deals with "Pecuniary penalty orders"; 6. Part 2-5 (ss 151-179) deals with "Literary proceeds orders"; 7. Part 2-6 (ss 179A-179U) deals with "Unexplained wealth orders". 1. Chapter 5 (ss 314-328) deals with "Miscellaneous" matters. 2. Chapter 6 (ss 329-338) deals with "Interpreting" the Act.
The principal objects of the Act are stated in s 5, in Ch 1 Pt 1-2, and relevantly include: 1. "to deprive persons of the proceeds of offences, the instruments of offences, and benefits derived from offences, against the laws of the Commonwealth or the non-governing Territories": s 5(a); 2. "to punish and deter persons from breaching laws of the Commonwealth or the non-governing Territories": s 5(c); and 3. "to undermine the profitability of criminal enterprises": s 5(da).
In Commissioner of the Australian Federal Police v Hart (2018) 262 CLR 76; [2018] HCA 1 at [32]-[33], Gordon J observed the principal objects of the Act. Her Honour stated: [32] [The Act] is intended to, and does, prevent criminals from enjoying the fruits of their crimes, deprive them of the proceeds of and benefits derived from criminal conduct, prevent the reinvestment of those proceeds and benefits in further criminal activities, punish and deter breaches of laws, and enable law enforcement authorities to trace the fruits of offences. [33] It achieves these objects through a confiscation scheme which provides for orders restraining persons from disposing of or otherwise dealing with particular property, forfeiture orders, automatic forfeiture of property following conviction of a serious offence and pecuniary penalty orders. [Footnotes omitted.]
Gordon J continued (at [64] and [66]) to observe that: [64] The intended reach of s 18 of the [Act] is made clear from the outset: if there are reasonable grounds to suspect that a person has committed a serious offence, a court is able to prohibit the disposal of, and other dealing with, all of that suspect's property (together with property subject to their effective control) irrespective of its connection with the alleged serious offence. The court must make the restraining order even if there is no risk of the property being disposed of or otherwise dealt with and the court may specify that the restraining order covers property that is acquired by the suspect after the court makes the order. After the order is made, it is up to the suspect to establish that the specified property should not be subject to restraint. … [66] The POCA contains procedures for property to be excluded from a restraining order and for a restraining order to be revoked. Consistent with the intended reach of the POCA, the circumstances are limited and the conditions strict. … [Footnotes omitted.]
Section 24(1) is in the following terms: (1) The court may allow any one or more of the following to be met out of property, or a specified part of property, covered by a restraining order: (a) the reasonable living expenses of the person whose property is restrained; (b) the reasonable living expenses of any of the dependants of that person; (c) the reasonable business expenses of that person; (d) a specified debt incurred in good faith by that person. [Footnotes omitted.]
Section 24(2), which outlines the circumstances in which the Court's discretion to grant relief under subs (1) is enlivened, relevantly states: (2) The court may only make an order under subsection (1) if: (a) the person whose property is restrained has applied for the order; and (b) the person has notified the responsible authority in writing of the application and the grounds for the application; and (c) the person has disclosed all of his or her interests in property, and his or her liabilities, in a statement on oath that has been filed in the court; and (ca) the court is satisfied that the expense or debt does not, or will not, relate to legal costs that the person has incurred, or will incur, in connection with: (i) proceedings under this Act; or (ii) proceedings for an offence against a law of the Commonwealth, a State or a Territory; and (d) the court is satisfied that the person cannot meet the expense or debt out of property that is not covered by: (i) a restraining order; or (ii) an interstate restraining order; or (iii) a foreign restraining order that is registered under the Mutual Assistance Act. [Footnotes omitted.]
The references to "person" in s 24 of the Act, in light of the absence of contrary intention, are to be construed to include a body corporate: Acts Interpretation Act 1901 (Cth), s 2C(1). Pharmacy Depot constitutes, therefore, a "person" for the purposes of the Act.
It is apparent from considering s 24(1)(a) that the references to "that person" in ss 24(1)(c) and (d) are references to "the person whose property is restrained".
Pharmacy Depot bears the onus of proving the matters necessary to establish the grounds for the order for which it has applied: s 317(1) of the Act. Questions of fact are to be decided by the Court on the balance of probabilities: s 317(2) of the Act.

[5]

PRINCIPLES OF STATUTORY CONSTRUCTION

The principles of statutory construction were outlined by French CJ and Hayne J (with whom Kiefel J agreed in this respect) in Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross; Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Thelander (2012) 248 CLR 378; [2012] HCA 56 at [23]-[26], as follows: [23] It is as well to begin consideration of this issue by re-stating some basic principles. It is convenient to do that by reference to the reasons of the plurality in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (at [47]): "This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy." [24] The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky, "[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute". That is, statutory construction requires deciding what is the legal meaning of the relevant provision "by reference to the language of the instrument viewed as a whole", and "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". [25] Determination of the purpose of a statute or of particular provisions in a statute may be based upon an express statement of purpose in the statute itself, inference from its text and structure and, where appropriate, reference to extrinsic materials. The purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted. It is important in this respect to, as in others, to recognise that to speak of legislative "intention" is to use a metaphor. Use of that metaphor must not mislead. "[T]he duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have". And as the plurality went on to say in Project Blue Sky: "Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the word of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning." To a similar effect, the majority in Lacey v Attorney-General (Qld) said: "Ascertainment of legislative intention is asserted as a statement of compliance with the rules of construction, common law and statutory, which have been applied to reach the preferred results and which are known to parliamentary drafters and the courts." The search for legal meaning involves application of the processes of statutory construction. The identification of statutory purpose and legislative intention is the product of those processes, not the discovery of some subjective purpose or intention. [26] A second and not unrelated danger that must be avoided in identifying a statute's purpose is the making of some a priori assumption about its purpose. The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions. … [Original emphasis. Footnotes omitted.]
The High Court, in recent years, has repeatedly stressed the importance of reading the statutory text having regard to considerations of context and purpose. In SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 ("SZTAL"), the plurality (Kiefel CJ, Nettle and Gordon JJ) said (at [14]): [14] The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected. [Footnotes omitted.]
In SZTAL, Gageler J (who was in the minority but not as to the principles of statutory construction) also observed (at [37]-[39]): [37] Both of those passages have been "cited too often to be doubted". Their import has been reinforced, not superseded or contradicted, by more recent statements emphasising that statutory construction involves attribution of meaning to statutory text. The task of construction begins, as it ends, with the statutory text. But the statutory text from beginning to end is construed in context, and an understanding of context has utility "if, and in so far as, it assists in fixing the meaning of the statutory text". [38] The constructional choice presented by a statutory text read in context is sometimes between one meaning which can be characterised as the ordinary or grammatical meaning and another meaning which cannot be so characterised. More commonly, the choice is from "a range of potential meanings, some of which may be less immediately obvious or more awkward than others, but none of which is wholly ungrammatical or unnatural", in which case the choice "turns less on linguistic fit than on evaluation of the relative coherence of the alternatives with identified statutory objects or policies". [39] Integral to making such a choice is discernment of statutory purpose. The unqualified statutory instruction that, in interpreting a provision of a Commonwealth Act, "the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation"[40] "is in that respect a particular statutory reflection of a general systemic principle". [Footnotes omitted.]
As to context in particular, in Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503; [2012] HCA 55 at [39], the High Court stated: [39] This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text". So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself. [Footnotes omitted.]

[6]

OVERVIEW OF PHARMACY DEPOT'S POSITION

Pharmacy Depot's case proceeded on the basis that the central issue in the present application stems from the intersection of two Commonwealth statutes, namely, the Act and the Corporations Act and, it was contended, the lack of contemplation by each statute as to the existence of the other. As to the latter issue, counsel for Pharmacy Depot, Mr E Hyde, contended: What is in contest is how my client, the court-appointed liquidator, can and will be paid for the work that he is required to undertake pursuant to the obligations under the Corporations Act. And it really is the intersection between the duties and obligations which are imposed upon my client, the [L]iquidator, and the intersection with the [Act] and in effect the sort of unedifying fight between two competing bodies as to access to a bundle of money. That is the underlying issue behind the notice of motion: a means by which my client seeks to have set aside from the restraining orders a set of funds by which it can draw upon when it's entitled to, say, draw upon to in effect meet its obligation and expenses and pay himself, and whether that money should be available to the [L]iquidator or, alternatively, on the Commissioner's point of view, that money should not be available to be accessed by the [L]iquidator. … That is why we say it's an intersection between two separate statutory regimes that the Federal Government has put in place, neither of which contemplate the existence of the other.
The affidavit of the Liquidator detailed that, as at the date of deposition, the available company property wholly consisted of cash funds in the amount of $265,135.63, which was insufficient to meet the total sum of the unpaid balance of the provisional liquidation and the unpaid balance of the liquidation, as at 11 June 2019, which amounted to $524,644.
Pharmacy Depot raised related issues concerning the construction of each piece of legislation.
It may be noted that, the parties agreed that, pursuant to s 24(2)(ca) of the Act, the Court may not make an order under s 24(1) of the Act for expenses or debts which relate to legal costs in connection with proceedings under the Act or proceedings for an offence against a law of the Commonwealth, a State or a Territory.

[9]

"Incurred"

The Court's power under s 24(1)(d) is constrained by the temporal element that results from the presence of the word "incurred". It is plain that the subsection regards the allowance out of property covered by a restraining order for debts that have already materialised (that is, "incurred"). It follows that the subsection does not apply to any debt that is yet to be incurred.
Counsel for Pharmacy Depot contended that subpara (a) of the first prayer for relief is drafted to ensure that a debt ultimately will be incurred. That is, the relief sought by subpara (a) is a prospective order that does not seek to transfer out a sum of money, but varies the restraining order to ensure that monies are available from time to time to meet the debts which are incurred.
Further, Pharmacy Depot submitted that s 24(1)(d) of the Act "doesn't say that such an order can only be made following the incurring of a debt.": see s 24(1)(a) and (b) of the Act, which set a regime whereby reasonable living expenses can be paid out of restrained property (those provisions were relied upon to support that submission).
In Australian Leisure and Hospitality Group Pty Ltd v Director of Liquor Licensing [2012] WASC 463 at [22], Hall J said: [22] … If it is intended that a word in a statute will be used in a specific way that may not accord with ordinary usage such an intention is generally reflected in a definition in the statute. Absent such a definition, the ordinary meaning should prevail unless there is something in the context to suggest that another meaning is intended: Statutory Interpretation in Australia, Pearce & Geddes, (7th ed) [4.8] and the cases there cited.
In SZTAL, Edelman J said (at [94]): "where a statute employs a term in its ordinary sense, there can be no warrant for the extension of the meaning beyond its ordinary sense".
It is plain that the word "incurred" contained in s 24(1)(d) of the Act is the past tense form of the verb "incur". The word "incurred" should therefore be given its natural and ordinary meaning. That is, its meaning should not be extended to debts that have not already been made. By the provisions of subs (1), the legislature establishes a procedure for the exclusion of property from a restraining order in four distinct circumstances. The fact that para (a) and (b), within that subsection, provide regimes that afford an allowance from restrained property for the future expenditure of a person (or their dependants) does not deny the natural and ordinary meaning of "incurred" for the purpose s 24(1)(d): SZTAL at [14]. The immediate context of the statutory provisions in s 24(1)(a) and (b) of the Act do not, therefore, warrant an alteration to the ordinary use of the word "incurred" found in s 24(1)(d) of the Act. The Court is not empowered, pursuant to s 24(1)(d), to make an order allowing the release of restrained property to meet prospective debts, such as those which are, "from time-to-time", sought by the first prayer for relief.

[10]

"In good faith"

Secondly, the Court may only exercise its discretion under s 24(1)(d) of the Act if satisfied that the "debt" that is to be the subject of the order was "incurred in good faith".
The Commissioner submitted, and I accept, that it is impossible for the Court to be so satisfied, as to the question of "good faith", where the Court is asked to make an order that "from time-to-time" the Liquidator be entitled to draw on the funds if he, rather than the Court, considers he has incurred debts in good faith or to set aside a separate fund out of the funds from which the Liquidator can decide to draw his remuneration, costs and disbursements without any judicial determination of whether they are "a specified debt incurred in good faith by [Pharmacy Depot]". The effect of such an order would render the Liquidator, rather than the Court, the exerciser of the discretion inherent in s 24(1) of the Act without an understanding of all of the circumstances of the proposed expenditure, nor independent consideration of it. Phrased differently, it would give the Liquidator a prospective licence to decide what debts will fall into the category of not merely debts, but debts incurred in good faith. If it is assumed that an identical application came before the Court, but by a corporation as opposed to a liquidator, its granting would provide the corporation the power to determine when funds could be taken out of restrained property carte blanche.
Such a course is not permissible under s 24(1)(d) of the Act, as it would have the effect of the Court delegating to the Liquidator the discretionary power vested in the Court.
Further, there is a real question as to whether future expenses incurred in the liquidation of Pharmacy Depot could be said to be incurred in good faith for the purposes of s 24(1)(d) of the Act. From the date of his appointment as provisional liquidator, the Liquidator has been aware of the restraining orders with respect to the Restrained Bank Account and other property. The Liquidator has been aware that the Commissioner seeks forfeiture orders pursuant to s 47 of the Act and pecuniary penalty orders against Pharmacy Depot pursuant to s 116(1) of the Act. The Liquidator also had knowledge that criminal proceedings were on foot against the third defendant and that the second defendant had left the jurisdiction. In those circumstances, there is, at the least, a possibility, that the conviction-based forfeiture regime under the Act may ultimately be engaged.
The Liquidator was on notice that the Commissioner intends to proceed to obtain such orders and sought leave pursuant to s 471B of the Corporations Act to enable that to take place (leave which the Liquidator initially opposed but eventually consented to). The Liquidator must therefore have been aware that there is a real likelihood that, among other property, the Restrained Bank Account will not be available to the Liquidator in the liquidation of Pharmacy Depot.
Senior Counsel for the Commissioner submitted that, with respect to those circumstances, the question arises as to whether expenses incurred, for which the Liquidator does not or will not have funds to meet without recourse to the Restrained Bank Account, can be said to be expenses incurred in good faith. That is especially so given that, pursuant to s 545(1) of the Corporations Act, "a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property". Thus, I consider that, if the property that is available to the Liquidator as at 11 June 2019, being total cash funds of $265,135.63, is insufficient in order to meet the expenses in the winding up, the Liquidator is under no obligation to incur any further expenses.
I will briefly deal with the submissions of Pharmacy Depot as to good faith. It was submitted by Pharmacy Depot that as the Liquidator was appointed by and subject to the control of the Court, the notion "that an officer of the Court would do something that is, in effect, in bad faith is an easy comfort that can be provided". If a situation of a so called "rogue liquidator" were to arise, "there is a mechanism by which those liquidators are personally liable for expenses which are wrongly incurred". Those submissions did not touch upon the issue of the Court delegating its power pursuant to s 24 of the Act as to the determination of whether a debt was incurred in good faith. In any event, I reject Pharmacy Depot's submission that the good faith requirement under s 24(1)(d) of the Act is met by virtue of the liquidators having been appointed by the Court alone. Further, Pharmacy Depot's submission concerning the protections against misconduct, in that a liquidator can be held personally liable for wrongly incurred expenses, is misconceived. The fact that there is a scheme to hold liquidators whom conduct themselves in bad faith does not operate in the converse to satisfy the good faith requirement under s 24(1)(d).
In Secretary, Department of Education, Employment, Training and Youth Affairs v Prince (1997) 152 ALR 127 at 130, Finn J stated "the formula 'good faith' derives its meaning from its particular context" and continued: The significance of the statutory context in which the formula is used is in the illumination it gives as to what is that required state of affairs. It has correctly been observed that the term "good faith" (or its now less fashionable Latin equivalent "bona fide") is a protean one having longstanding usage in a variety of statutory and, for that matter, common law contexts.
The requirement of "good faith" must be construed by reference to the principal objects of the Act (see s 5 above), including, relevantly in s 5(a), "to deprive persons of the proceeds of offences, the instruments of offences and benefits derived from offences". That object is affected by a Court making a forfeiture order under Part 2-2 of the Act: Commissioner of the Australian Federal Police v Elzein (2017) 94 NSWLR 700; [2017] NSWCA 142 at [11] (per Basten JA, with Beazley ACJ agreeing).
It is uncontroversial that one of the principal objects of the Act would be undermined if a person whose property is the subject of a restraining order was able to incur debts in the knowledge that those debts could only be paid out of the property the subject of the restraining order. It follows that a debt so incurred does not meet the requirement of "good faith" in s 24(1)(d), properly construed in the context of the Act, as the incurring of such a debt would unduly and deliberately circumvent the objects of the Act.
I note that Senior Counsel for the Commissioner submitted that to enable fraudsters or money launderers, who perpetrate their offending through a captive company vehicle, to circumvent confiscation of the proceeds and instruments of their crimes by using the apparatus of voluntary liquidation years after assets are restrained would not be consistent with the requirement that an allowance only be made for debts incurred by the company in good faith. Given the conclusions I have reached it is unnecessary to make a determination as to that submission.
For the above reasons, I find that to incur a debt in the expectation that the debt will be met out of the restrained property is not to incur the expense "in good faith" for the purposes of s 24(1)(d) of the Act. Thus, the Court cannot, in accordance with s 24(1)(d) of the Act, make orders in terms of the first prayer for relief or the first alternate prayer for relief.

[11]

Remuneration

The first alternate prayer for relief sought the past and future remuneration of the liquidators.
A liquidator is entitled, pursuant to s 60-5 of Sch 2 - Insolvency Practice Schedule (Corporations) of the Corporations Act ("the IPS"), to receive remuneration for "necessary work properly performed".
The quantum of such remuneration is determined by resolution of the creditors, by a committee of inspection or by the Court: s 60-10 of the IPS. I note that those provisions replaced the former s 473(3) of the Corporations Act.
Pharmacy Depot submitted, in reliance upon ss 443D, 443E and 443F of the Corporations Act, that a liquidator generally has a right of indemnity out of the assets of the company for debts he or she incurs, in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers. Those provisions, however, are inapplicable to this application as they relate only to voluntary administrators rather than liquidators.
A liquidator's remuneration is given a high priority in the order of distribution of assets of a company. That priority is provided by s 556(1) of the Corporations Act, which relevantly provides: 556 Priority payments (1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims: (a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business; … (dd) next, any other expenses (except deferred expenses) properly incurred by a relevant authority; (de) next, the deferred expenses; …
Section 556(2) sets out the definitions for the provision and relevantly provides: 1. a "relevant authority" includes a liquidator or provisional liquidator of a company; and 2. "deferred expenses" include "expenses properly incurred by a relevant authority, in so far as they consist of … remuneration, or fees for services, payable to the relevant authority…".
Further, "the remuneration, costs and expenses incurred by a liquidator in preserving, recovering and realising a fund on behalf of others would generally be paid out of, and are secured by an equitable lien over, the relevant fund": In the matter of Dungowan Manly Pty Ltd (in liq) (2015) 105 ACSR 648; [2015] NSWSC 491 at [85] (per Black J). Such a lien, however, is not presently relevant, as it cannot be said that that the Liquidator preserved, recovered or realised the funds in the Restrained Bank Account.
In Wellnora Pty Ltd v Fiorentino (2008) 66 ACSR 229; [2008] NSWSC 483 ("Wellnora") at [20], Barrett J (as his Honour then was) considered the right of a liquidator to remuneration: [20] In the case of a liquidator, satisfaction of the entitlement to remuneration is a matter dealt with exclusively by s 556. For the purposes of that section, the liquidator's remuneration is part of "deferred expenses" and takes its position accordingly on the scale of priorities the section creates. A liquidator has no right to payment apart from that which flows from s 556. In every case, of course, winding up will be in progress at all times during the liquidator's tenure. [Emphasis added.]
The facts of Wellnora involved an application to set aside a statutory demand on the ground that there was a genuine dispute as to existence of debt for remuneration of an administrator of a deed of company arrangement ("DOCA") owed by the company that was subject to the DOCA.
A deed administrator has an equitable right to indemnity and lien in respect of his or her remuneration and expenses. It was submitted to Barrett J, and his Honour agreed, that "the sole right was to have the particular property applied towards meeting remuneration". His Honour concluded that: "The proposition that that right was a proprietary right which did not entail a debt as such is so strongly arguable that there is obviously a genuine dispute as to the existence of any such debt" (at [32]). His Honour also made reference to the position of a trustee (at [29]): [29] The concept of an entitlement to be reimbursed or indemnified out of identified property is of long standing in the law of trusts. Lord Eldon said of a trustee in Worrall v Harford (1802) 8 Ves 4; (1802) 32 ER 250 that it "flows from the nature of the office, whether expressed in the instrument or not, that the trust property shall reimburse him all the charges and expenses incurred in the execution of the trust". A trustee, of course, holds trust property. The entitlement to be reimbursed or indemnified out of it is given effect to by means of an equitable interest in the whole of the trust property: Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226. There is, for obvious reasons, no concept of the trustee being indebted to himself for charges and expenses properly incurred in the execution of the trust. [Emphasis added.]
A liquidator has an entitlement for expenses, including remuneration as "deferred expenses" to be paid in priority to unsecured debts and claims. However, such an entitlement does not give rise to a relationship of debtor and creditor as between the company in liquidation and the liquidator. The entitlement to be reimbursed out of the property of the company is not a debt incurred by the company. Such entitlement depends for its existence on the operation of statutory provisions, in particular s 60-5 of the IPS and s 556 of the Corporations Act, not upon the existence of a debtor/creditor relationship. There is no legal obligation on Pharmacy Depot to pay money to the Liquidator which may be enforced as such. In The King v Brown (1912) 14 CLR 17 at 25, Griffith CJ observed: When money is paid by one person to another to be retained by him until the happening of a given event and no longer, an implied obligation arises to repay it when that event happens. This may be called a "trust" in one sense. But it is none the less a legal obligation to pay the money, and may be enforced as such. I do not know any definition of debt that does not include such an obligation. [Emphasis added.]
As Pharmacy Depot is under no legal obligation to pay the Liquidator, it follows that the Liquidator's remuneration is not "a specified debt incurred in good faith by [Pharmacy Depot]". Thus, there is no entitlement under s 24(1)(d) of the Act for that remuneration to be met out of the Restrained Bank Account as property subject to a restraining order.
Pharmacy Depot submitted that, unlike s 58A of the Bankruptcy Act 1966 (Cth), "there are no provisions in the Corporations Act which gives priority to State of Federal Proceeds of Crime/Criminal Property Confiscation proceedings". The Commissioner submitted that s 58A of the Bankruptcy Act is not relevant in present proceedings and, therefore, there is no tension between the Act and the Corporations Act. I accept the Commissioner's submission, in that respect, for the following reasons. The terms of s 58A of the Bankruptcy Act are of no assistance to Pharmacy Depot. In bankruptcy, the property of the bankrupt vests in the trustee in bankruptcy pursuant to s 58 of the Bankruptcy Act. Section 58A(1) simply provides that such vesting does not apply to property the subject of a restraining order or a forfeiture order as at the date of bankruptcy. Such a provision is not necessary in the case of a corporate liquidation because the property of the company in liquidation always remains that company's property until distribution. It does not vest in the liquidator. The absence of a similar provision in the Corporations Act does not assist Pharmacy Depot.
It follows from the above considerations that s 24(1)(d) of the Act, does not empower the Court in the circumstances of this matter to grant, to the extent that section is relied upon, the first prayer for relief or the first alternate prayer for relief sought by Pharmacy Depot.

[12]

SECTION 24(1)(c): THE REASONABLE BUSINESS EXPENSES OF THAT PERSON

In their supplementary written submissions, Pharmacy Depot submitted: Generally, a liquidator has a right of indemnity from the assets of the company with respect to their approved remuneration as set out in section 556(1) of the Corporations Act 2001 (Cth). As is made clear by section 556(2)(b), the remuneration of a liquidator or provisional liquidator is a deferred expense of the company. As can be seen from the affidavit of [Daniel John Frisken sworn 11 June 2019] …, the approved remuneration expenses relates to work undertaken by the liquidators which is substantially unrelated to the proceedings under the [Act]. As the company only has $265,135.63 in its bank accounts as at 11 June 2019, the Court would be satisfied that the company cannot meet the approved remuneration expenses out of the property of the company that is not the subject of the Orders.
In supplementary oral submissions, Pharmacy Depot submitted: 1. The term "business expense" is not defined under the Act. 2. Where there is no clear indication as to what that term of the Act means, the Court should have regard to the Corporations Act, as both legislative schemes are Commonwealth statutes. 3. Thus, s 556(2)(b) of the Corporations Act provides that the remuneration of a liquidator or provisional liquidator is a "deferred expense" of the company. 4. "Deferred expenses" is defined by s 556 of the Corporations Act, extracted above at [67]. That definition ought to be applied in construing the phrase "reasonable business expenses" as it appears in s 24(1)(c) of the Act. 5. The Act should not be construed in a way which would otherwise impinge upon the entitlement of a Court‑appointed liquidator to be paid remuneration in undertaking the appointment under the Corporations Act. 6. By drawing a comparison between a liquidator and a director of a company, the expression "business expense" under s 24(1)(c) of the Act does not attract its ordinary meaning. In essence, Pharmacy Depot contended that, akin to a director, the role of a liquidator, subject to some exceptions in the Corporations Act, is to assume control in relation to the affairs and management of the company. The corollary of that observation, as contended by Pharmacy Depot, is that the payment of a liquidator is no different to a payment which would be made to a director. That is, payments made to a director, by way of salary or otherwise, are an expense of the business and, therefore, the same can be said of liquidator remuneration.
In summary, the Commissioner submitted: 1. The objects of the Act must be considered in construing s 24(1)(c). 2. The expression "reasonable business expenses" operates to constrain the circumstances when an allowance from restrained property may be made. 3. A liquidator's remuneration is not an "expense" as Pharmacy Depot is not legally obliged to pay the Liquidator. 4. Further, the word "business" cannot be ignored in construing s 24(1)(c) of the Act. Accordingly, the Liquidator's remuneration is not an expense which was incurred in the operation of business.

[13]

Conclusion: s 24(1)(c)

Properly construed, s 24(1)(c) of the Act can only extend to expenses which Pharmacy Depot had "reasonably" incurred in the operation of the "business" it conducts. Such a construction is necessary to give the express terms "business" and "reasonable" work to do and reflects the principal objects of the legislative regime, such as depriving the person of the proceeds of offences against laws of the Commonwealth and the provision of confiscation and restraining orders made in respect of such offences: s 5(a) and (g) of the Act.
I note, in that respect, in construing s 24(1)(c) of the Act, the Court must have regard to the principal objects of the Act. The observations of the High Court in Commissioner of the Australian Federal Police v Hart (per Gordon J) at [32] and [66] (extracted above) and [25]-[26] are apposite.
I note that "reasonable business expenses" is a form of words utilised in various proceeds of crime legislative schemes to limit the circumstances in which an allowance may be made out of restrained property. See for example, Confiscation Act 1997 (Vic), s 14(4)(b); Criminal Assets Confiscation Act 2005 (SA), s 27(1)(c); Criminal Property Confiscation Act 2000 (WA), s 45(e); Criminal Proceeds Confiscation Act 2002 (Qld), ss 34(1)(a), 93Q and 126(1)(a); Crime (Confiscation of Profits) Act 1993 (Tas), s 26(3); Criminal Property Forfeiture Act 2002 (NT), ss 46(1)(e) and 49(3); Australian Federal Police Act 1979 (Cth), s 49C(1)(a).
It is true, as mentioned earlier that, pursuant to the s 556 of the Corporations Act, a liquidator has an entitlement to be paid remuneration. That entitlement is given a high priority in the order of distribution of company assets.
However, Pharmacy Depot, as a business, has not incurred the remuneration of the Liquidator (whether as provisional liquidator or liquidator), and is not under any legal obligation to pay the Liquidator which may be enforced. Therefore, remuneration claimed by the Liquidator as provisional liquidator and liquidator does not constitute "the reasonable business expenses of [Pharmacy Depot]" as is required by s 24(1)(c) of the Act.
There is a clear and well-recognised distinction between a liquidator's remuneration and expenses properly incurred. In Kardiasmenos v Pioneer Management Pty Ltd [2010] NSWSC 683 at [39], Barrett J (as his Honour then was) stated: [39] … The distinction between a liquidator's remuneration and expenses a liquidator incurs is a clear and well-recognised distinction: see, for example, Venetian Nominees Pty Ltd v Conlan (1998) WAR 96, Onefone Australia Pty Ltd v One.Tel Ltd [2008] NSWSC 1335; (2008) 69 ACSR 290 and, in recent days, Re Timeshare Resort Club Ltd [2010] FCA 673. The liquidator's remuneration is the reward he receives for performing his function. It is his or her fee or recompense. In a court-ordered winding up such as the present, the right to remuneration is conferred by s 473(2) of the Corporations Act. There is no expectation that the liquidator meet any expenses of the administration out of that remuneration. The liquidator's right in respect of expenses properly incurred is a separately existing right to have those expenses paid out of the assets of the company. That right arises from s 556(1), to be discussed presently. It is a right quite distinct from the right to remuneration. …
Thus, as "the reward he receives for performing his function", a liquidator's remuneration is not incurred in the operation of a business conducted subject to his or her external administration, but as a consequence of the statutory regime of the Corporations Act, in particular s 60-5 of the IPS and s 556.
Section 556 of the Corporations Act, as earlier mentioned, concerns priority payments in the winding up of a company. That contrasts markedly to the limited circumstance wherein an allowance may be made out of restrained property, pursuant to s 24(1)(c), within the confiscation scheme of Ch 2 of the Act. The provisions of the Corporations Act and the Act, therefore, clearly deal with different subject matter. It follows that the Corporations Act operates cohesively with the Act. Thus, the phrase "deferred expenses" contained in s 556 of the Corporations Act does not factor into construing the meaning of "reasonable business expenses" contained in s 24(1)(c) of the Act.
Pharmacy Depot did not elaborate upon its submission that liquidator's remuneration is comparable to the director's pay and, therefore, similarly, the unpaid remuneration of the Liquidator constitutes an "expense" pursuant to s 24(1)(c) of the Act.
Pharmacy Depot's submission was premised upon the similarity as between the roles of director and liquidator when they are perceived through the prism of company control.
Such a comparison underscores Pharmacy Depot's observation that payment to a director, whom controls a company's management and affairs, constituted an expense of the company. Consequently, Pharmacy Depot contended that a liquidator's remuneration, too, constituted a company expense.
It is unnecessary to make a determination as to that submission given my earlier conclusions and the lack of development of Pharmacy Depot's submission. However I note that, in my view, Pharmacy Depot's analogy between liquidators and directors goes no further than merely observing that those roles share a common feature. That is, a liquidator and director both, in some sense, control the management and affairs of a company.
However, whilst the comparison highlights the commonality of "control", it does not address key differences that exist between a liquidator and a director. One difference is the differing purpose of both roles. That is, a director controls the management and affairs of a company, for the benefit of its shareholders, while solvent. Conversely, a liquidator controls the management and affairs while the company is being wound up and has a duty to all the creditors.
Ultimately, it seems to me that the utility of Pharmacy Depot's submission, with respect to the similarity between liquidators and directors, is nugatory.
Finally, whilst it is clear that, as mentioned earlier, corporations are captured by the expression "that person" for the purposes of s 24(1)(c) of the Act, the same cannot be said with certainty as to whether a company in liquidation is capable of constituting "that person".
The parties agreed that s 24(1)(c) of the Act did extend to the operation of a business in liquidation. However, in light of my finding that the Liquidator's remuneration is not a "reasonable business expense", it is ultimately unnecessary to determine that question.
Ultimately, Pharmacy Depot has not discharged its onus of proving that the remuneration sought by the provisional liquidator and the Liquidator constituted, pursuant to s 24(1)(c) of the Act, the "reasonable business expenses of that person" (i.e. Pharmacy Depot). Accordingly, the Court's discretion to make an allowance was not enlivened and the application, insofar as reliance is placed upon s 24(1)(c) of the Act by the first prayer for relief, the first alternate prayer for relief and the second alternate prayer for relief, should be dismissed.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (17 paragraphs)

Parties

Legislation Cited (13)

Cases Cited (23)

Cited By (2)