Bruton Holdings Pty Ltd (in Liquidation) v Commissioner of Taxation (No 1)

• Jurisdiction: Australia Federal only
• Judge: French CJ,Gummow,Hayne,Heydon,Bell JJ
• Judgment Date: 26 August 2009
• Neutral Citation: 2009-0826 HCA D,[2009] HCA 32
• Court: High Court
• Docket Number: S158/2009
• Date: 26 August 2009

Bruton Holdings Pty Limited (In Liquidation)

Appellant

and

Commissioner Of Taxation & Anor

Respondents

[2009] HCA 32

French CJ, Gummow, Hayne, Heydon and Bell JJ

S158/2009

HIGH COURT OF AUSTRALIA

Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation

Taxation — Recovery of tax debts — Company deposited moneys with third party — Passage of creditors' resolution for winding up of company — Commissioner of Taxation (‘Commissioner’) issued notice under s 260–5 in Sched 1 to the Taxation Administration Act 1953 (Cth) (‘Administration Act’) requiring moneys held by third party be paid to Commissioner — Whether s 260–5 notice may be issued after commencement of winding up — Whether steps taken by Commissioner void and unenforceable as an ‘attachment’ within meaning of s 500(1) of Corporations Act 2001 (Cth) — Relationship between s 260–5 and s 500(1).

Companies — Winding up — Creditors' voluntary winding up — Whether s 260–5 in Sched 1 to Administration Act applicable — Relationship between s 260–5 and s 260–45.

Words and phrases — ‘attachment‘, ‘property’.

Bankruptcy Act 1966 (Cth), s 118.

Corporations Act 2001 (Cth), ss 5A(2), 9, 468(4), 500(1), 500(2), 501, 555, 569.

Legal Profession Act 2004 (NSW), s 255.

Taxation Administration Act 1953 (Cth), Sched 1, ss 260–5, 260–15, 260–20, 260–45, 260–50.

Representation

S D Robb QC with D R Stack for the appellant (instructed by Nash O'Neill Tomko Lawyers)

A H Slater QC with R L Seiden and E Bishop for the first respondent (instructed by Australian Government Solicitor)

Submitting appearance for the second respondent

ORDER

Appeal allowed with costs.

Set aside the orders of the Full Court of the Federal Court of Australia made on 25 February 2009, and in their place order that the appeal to that Court be dismissed with costs.

1 French CJ, Gummow, Hayne, Heydon and Bell JJ. The ultimate question on this appeal from the Full Court of the Federal Court of Australia (Ryan, Mansfield and Dowsett JJ) 1 may be stated as follows.

2 Shortly before the creditors of the appellant, a company in voluntary administration, resolved that the company be wound up, the first respondent (‘the Commissioner’) issued an assessment assessing the company to tax of more than $7.7 million. After the passing of the resolution for winding up, the Commissioner lodged a proof of debt in the winding up but also issued a notice under s 260–5 in Sched 1 to the Taxation Administration Act 1953 (Cth) (‘the Administration Act’). Section 260–5 appears in a Division which also contains particular provisions dealing with company liquidations. In its terms the notice (‘the s 260–5 Notice’) required the second respondent, a firm of solicitors (‘Piper Alderman’), to pay to the Commissioner money the appellant had deposited with that firm 2. Was Piper Alderman obliged to pay the Commissioner the amount demanded by the s 260–5 Notice from the sum standing to the credit of the company in the firm's trust bank account?

3 The primary judge (Allsop J) granted a declaration that the s 260–5 Notice was void 3. The Full Court allowed an appeal by the Commissioner and the company in this Court seeks the restoration of the orders of the primary judge by the setting aside of the Full Court orders. For the reasons which follow, the appeal to this Court should be allowed.

Chapter 5 of the Corporations Act

4 It is convenient to turn first to provisions of Ch 5 of the Corporations Act 2001 (Cth) (‘the Corporations Act’) which had been enlivened with the passing of the resolution for the creditors' voluntary winding up of the appellant, that is to say, before the issue of the s 260–5 Notice.

5 Section 501 provides for the distribution of the property of a company on its winding up. It provides that:

‘Subject to the provisions of this Act as to preferential payments, the property of a company must, on its winding up, be applied in satisfaction of its liabilities equally and, subject to that application, must, unless the company's constitution otherwise provides, be distributed among the members according to their rights and interests in the company.’

The term ‘property’ is defined in s 9 as meaning:

‘any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action’.

6 Section 555 of the Corporations Act gives further content to the requirement of s 501 that, on winding up, the company's property is to be applied ‘in satisfaction of its liabilities equally’. It provides that:

‘Except as otherwise provided by this Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately.’

7 Section 500 of the Corporations Act regulates execution and civil proceedings against a company or its property after the passing of a resolution for voluntary winding up. Sub-sections (1) and (2) of s 500 provide:

Section 468(4) applies to a winding up by the court and is relevantly in the same terms as s 500(1). These provisions have an ancestry which commences with s 163 of the Companies Act 1862 (UK) (‘the 1862 Act’) 4.

• ‘(1) Any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up is void.

• (2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.’

8 Section 5A(2) of the Corporations Act provides that, subject to some exceptions that are not presently material, the provisions of Ch 5 of the Corporations Act regulating winding up, which include ss 500, 501 and 555, bind the Crown in right of the Commonwealth.

The critical issue

9 This is whether, after the passing of the resolution for the winding up of the appellant, the property of that company, which, subject to ‘preferential payments’ 5, must be applied in the manner prescribed by ss 501 and 555 of the Corporations Act, could be diminished by the subsequent engagement of s 260–5 in Sched 1 to the Administration Act. The answer to that question requires consideration both of the relationship between the two statutes of the Commonwealth and also of the relationship between provisions of the Administration Act.

10 These reasons will demonstrate that the Commissioner's general power to issue a notice under s 260–5 is not available if a liquidator has been appointed to a company. In that latter circumstance, only the more particular provisions of s 260–45 of the Administration Act are engaged. That being so, there is no disruption of the operation of Ch 5 of the Corporations Act, and, in particular, no attachment to be rendered void by s 500(1).

The Administration Act

11 Something further should now be said respecting the provisions of Div 260 in Sched 1 to the Administration Act, beginning with the notice provisions in s 260–5 and then turning to s 260–45. The heading to Div 260 speaks of ‘[s]pecial rules about collection and recovery’ of tax.

12 A notice under s 260–5 gives the Commissioner the right to recover from a third party an amount that the third party owes or may later owe to a taxpayer who is indebted to the Commonwealth for tax. It is established that the remedy given to the Commissioner by s 260–5 is available in respect of revenue obligations, which are given the character of ‘debts’ by force of the Administration Act itself 6 and without prior curial determination.

13 The third party is obliged to pay the Commissioner what is demanded by the notice; failure to comply with the notice is a criminal offence 7. Section 260–5(3), read with s 260–15, provides, in effect, that the Commissioner has the right to give to the third party a valid receipt and discharge for money paid in compliance with the notice.

14 In these respects, a notice under s 260–5 operates in the manner in which, in Hall v Richards8, Kitto J described a garnishee order as operating to attach a debt. Kitto J said:

‘Such an order, though not working an assignment or giving the judgment creditor any proprietary interest in the debt, yet gives him positive rights with respect to it which a creditor having no more than a judgment does not possess; not merely a negative right to prevent the judgment debtor from accepting payment of the debt or disposing of it, but positive rights for the recovery of what is owing on the judgment, namely a right to give a valid receipt and discharge for the money, and a right in case of non-payment to obtain execution against the garnishee: In re Combined Weighing and Advertising Machine Co9.’

15 The provisions in s 260–5 and following have an ancestry beginning with s 50A of the Income Tax Assessment Act 1915 (Cth) 10 and including s 218 of the Income Tax Assessment Act 1936 (Cth) (‘the 1936 Act’). In Bluebottle UK Ltd v Deputy Commissioner of Taxation11 the Court described s 218 of the 1936 Act as containing ‘statutory garnishee provisions’. Earlier, in FJ Bloemen Pty Ltd v Federal Commissioner of Taxation12, Mason and Wilson JJ spoke of ‘the

garnishee power in s 218’, and in Clyne v Deputy Commissioner of Taxation13, Mason J remarked upon the ‘quite striking’ similarity between s 218 and the rules of court respecting garnishee orders.

16 Section 260–45 deals specifically with collection and recovery of tax liabilities of companies from liquidators. Section 260–45 provides that the Commissioner must notify 14 the liquidator of the amount the Commissioner considers is enough to discharge any outstanding tax-related liabilities of the company. The section further provides, in effect, that the liquidator is...