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THE BELL GROUP LIMITED (IN LIQ) & ANOR v DFC of T & ANOR

Judges:
Wigney J

Court:
Federal Court, Sydney

MEDIA NEUTRAL CITATION: [2015] FCA 1056

Judgment date: 29 September 2015

Wigney J

1. This application raises an important issue in relation to the power of the Commissioner of Taxation ( Commissioner ) to give a notice (commonly called a garnishee notice) under s 260-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) ( the TAA ) to a company which is being wound up, or its liquidator, in respect of the company's tax liabilities. It has been clear, at least since the decision of the High Court in
Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation (2009) 239 CLR 346 ( Bruton Holdings ), that no such notice can be given in respect of the company's pre-liquidation tax liabilities. But can such a notice be given in respect of tax liabilities that relate to income derived by the company after the commencement of the winding up?

2.

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The Bell Group Limited ( TBGL ) and its liquidator, Mr Antony Woodings, seek declarations that notices purporting to be notices under s 260-5 of Schedule 1 to the TAA given by the Commissioner to National Australia Bank Limited ( NAB ) on 14 August 2015 (collectively the Notices ) in respect of tax liabilities of TBGL and Mr Woodings, in his capacity as liquidator of TBGL, are void and of no effect. They also seek an order quashing the Notices. Their primary contention is that the Notices are an attachment against the property of TBGL and are therefore void by reason of s 468(4) of the Corporations Act 2001 (Cth) ( Corporations Act ).

3. TBGL and Mr Woodings also contend, in the alternative, that NAB does not relevantly owe any money to either TBGL or Mr Woodings in his capacity as liquidator of TBGL. Rather, it owes money to Mr Woodings in his capacity as trustee. They submit, on this basis, that the Notices are invalid.

4. The Commissioner resists the declarations and orders sought by TBGL and Mr Woodings. He relies on the fact that the debt the subject of the Notices is a post-liquidation tax liability. His primary contention is that his right to seek a remedy in respect of such liabilities against attachable property of TBGL that is in the control, management or possession of Mr Woodings in his capacity as liquidator, is preserved by s 254(1)(h) of the Income Tax Assessment Act 1936 (Cth) ( ITAA36 ). That provision, in the Commissioner's submission, "trumps" s 468(4) of the Corporations Act. Alternatively, s 468(4) should be read down to accommodate the Commissioner's right to issue a s 260-5 notice in such circumstances. In relation to the alternative argument, the Commissioner maintains that NAB is taken to owe money to TBGL and Mr Woodings by reason of the operation of s 260-5(3) of Schedule 1 to the TAA.

5. The resolution of the principal issue turns on an analysis of the reasoning in Bruton Holdings, the applicability of that reasoning to the scheme in the ITAA36 that relates to post-liquidation tax liabilities of a company being wound up and, more broadly, the proper construction of, and the interaction between, relevant provisions in the TAA, the ITAA36 and the Corporations Act. The resolution of the secondary issue turns on the capacity in which Mr Woodings holds funds on account with NAB.

FACTS

6. The relevant facts are not in dispute.

7. On 24 July 1991, a liquidator was appointed to TBGL and a number of related entities pursuant to orders made by the Supreme Court of Western Australia. Mr Woodings was appointed as an additional liquidator to those companies on 3 March 2000. He became sole liquidator on 21 August 2014.

8. In 2000, TBGL and its related entities commenced proceedings in the Supreme Court of Western Australia against a number of Australian and overseas banks. On 28 October 2008, Owen J found against the banks and ordered them to pay TBGL and its related entities total amounts exceeding $1.5 billion. The monetary relief payable by the banks was increased on appeal by the Court of Appeal of the Supreme Court of Western Australia to over $2 billion.

9. The banks then sought and obtained a grant of special leave to appeal to the High Court. Prior to the hearing of the High Court appeal, however, the banks, TBGL and its related entities, Mr Woodings, in his capacity as liquidator of those companies, and various other interested parties, entered into a Deed of Settlement. The Deed of Settlement provided, amongst other things, for the banks to pay a settlement sum (being $981,865,342.12 plus adjustments relating to interest) to Mr Woodings to be held on trust for TBGL and its related entities in certain specified proportions. The operative provisions of the Deed of Settlement in that regard are clauses 5(l) and (m), which provide as follows:

  • (l) Upon receipt of the Settlement Sum and any additional amount paid to Mr Woodings as contemplated in clause 5(ja), Mr Woodings declares that he holds the Settlement Sum and any such additional amount on trust for each of the Bell Judgment Creditors, in the proportions specified in Annexure R, and the provisions of the Trustees Act 1962 (WA) apply to that trust.

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  • (m) Upon receipt, Mr Woodings will pay the Settlement Sum and any additional amount paid to Mr Woodings as contemplated in clause 5(ja) into an interest bearing trust account or accounts established with an authorised deposit taking institution regulated under the Banking Act 1959 (Cth) to be dealt with by Mr Woodings as trustee in accordance with the Trustees Act 1962 (WA) and Mr Woodings then holds all interest net of fees, charges and taxes earned in that account or accounts on the same trust, for the same parties and in the same proportions as that described in clause 5(l) and those parties will have a vested and indefeasible interest in their proportion of the interest earned.

10. The proportion of the settlement sum held on trust for TBGL was specified in Annexure R as being $5,058,478.50 (plus a share of the adjustment amount).

11. The Deed of Settlement provides for the distribution of the settlement sum by Mr Woodings. For reasons that are unnecessary to go into, however, the funds held on trust have not been distributed, either pursuant to the Deed of Settlement or in the winding up generally. It appears not to be in dispute, however, that at some stage the funds held on trust pursuant to the Deed of Settlement, or some proportion of them, will be distributed to, or for the benefit of, TBGL and its related entities.

12. Mr Woodings currently holds $300,000,000 paid pursuant to the Deed of Settlement in a NAB term deposit account in the name "ALJ Woodings as Trustee for the Bell Judgment Creditors". This investment matures on 2 October 2015.

13. On 5 August 2015, Mr Woodings, in his capacity as liquidator of TBGL (as head company of a consolidatable group), caused TBGL to elect to form an income tax consolidated group under Part 3-90 of the Income Tax Assessment Act 1997 (Cth) ( ITAA97 ). On 5 August 2015, TBGL and its related entities within the consolidated group entered into a tax sharing agreement for the purposes of Division 721 of the ITAA97. It is common ground that the terms of the consolidation and tax sharing agreement do not bear significantly, or at all, on the validity of the Notices.

14. On 10 August 2015, the Commissioner issued a notice of assessment to TBGL for the 2014 income year under s 167 of the ITAA36. The Commissioner assessed TBGL's taxable income in the amount of $1,029,080,683 and the tax payable by TBGL in the amount of $308,724,204.90. It is unnecessary to detail the basis of the assessment. Suffice it to say that the assessed income related to amounts received in the 2014 income year as a result of TBGL's proceedings against the banks plus interest. TBGL was assessed as the head company of the consolidated group.

15. There was apparently a calculation error in the assessment issued to TBGL. As a result, on 18 August 2015, the Commissioner issued an amended assessment to TBGL. The amended assessment assessed TBGL's assessable income for the 2014 income year as $993,967,829 and the tax payable as $298,190,348.70.

16. Corresponding assessments were also issued to Mr Woodings in his capacity as liquidator of TBGL. Mr Woodings' income for the year ended 30 June 2014, in his capacity as liquidator of TBGL, was assessed as being $993,967,829 and the tax payable as $298,190,348.70. This assessment related to the same income the subject of the assessment issued to TBGL.

17. On 14 August 2015, a Deputy Commissioner of Taxation, as delegate of the Commissioner, issued the Notices to NAB. The notice issued in respect of the debt owing by TBGL ( the TBGL Notice ) initially specified the debt due under the notice as being $308,724,204.90, being the amount of the original assessment. Following the issue of the amended assessment to TBGL, NAB was advised that the amount due under the TBGL Notice had been varied to $298,190,348.70. Nothing turns on this variation. TBGL and Mr Woodings take no point about the fact that the TBGL Notice has been varied.

18. The operative provisions of the notice relating to the debt owing by Mr Woodings, in his capacity as liquidator of TBGL, ( the Woodings Notice ) are as follows:

NATIONAL AUSTRALIA BANK LIMITED, YOU are a third party who

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owes money ("the available money") to ANTHONY L J WOODINGS IN HIS CAPACITY AS LIQUIDATOR OF THE BELL GROUP LTD ("the debtor"), of (or previously of) PO BOX 1940, WEST PERTH, WA 6872 , who, in terms of section 260-5 of Schedule 1 of the Taxation Administration Act 1953 (TAA) has a debt payable to the Commonwealth of $298,190,348,70 .

In exercise of powers conferred on me as Deputy Commissioner of Taxation by delegation from the Commissioner of Taxation under section 8 of the TAA, YOU, NATIONAL AUSTRALIA BANK LIMITED, ARE REQUIRED TO PAY TO THE COMMISSIONER OF TAXATION the sum of $298,190,348.70 or, if the available money is less than $298,190,348.70 , the whole of the available money.

19. The TBGL Notice is in identical terms to the Woodings Notice, save that "the debtor" is described or defined as TBGL, rather than Mr Woodings in his capacity as liquidator of TBGL.

20. Objections have been lodged by both TBGL and Mr Woodings in respect of the amended assessment issued to TBGL and the assessment issued to Mr Woodings respectively.

RELEVANT STATUTORY PROVISIONS

21. The issue concerning the validity of the Notices raises for consideration the relationship and interaction between a number of provisions of the relevant tax legislation, being the ITAA36, the ITAA97, Schedule 1 to the TAA, and the Corporations Act (or the corresponding provisions of the earlier Corporations Law) that apply in relation to the winding up of a company.

Relevant provisions in the tax legislation

22. The relevant tax legislation contains different provisions in respect of the tax liabilities of companies being wound up depending on whether the income in respect of which tax is payable was derived before or after the commencement of the winding up.

23. At the time that a liquidator was first appointed to TBGL in 1991, the relevant provision in relation to pre-liquidation income and associated tax liabilities was s 215 of the ITAA36. That section relevantly provided as follows:

  • (1) Every person (in this section called the trustee ):
    • (a) who is liquidator of any company which is being wound up; or
    • (b) who is receiver for any debenture holders, and has taken possession of any assets of a company; or
    • (c) who is agent for a non-resident and has been required by his principal to wind up the business or realize the assets of his principal;

    shall within 14 days after he has become liquidator, or after he has so taken possession of assets, or after he has been so required by his principal, give notice thereof to the Commissioner.

  • (2) The Commissioner shall as soon as practicable thereafter, notify to the trustee the amount which appears to the Commissioner to be sufficient to provide for any tax which then is or will thereafter become payable by the company or principal, as the case may be.
  • (3) Subject to subsection (3B), if the trustee is a person of the kind referred to in paragraph (1) (a) or (b), the trustee:
    • (a) shall not, without the leave of the Commissioner, part with any of the assets of the company until the trustee has been so notified;
    • (b) shall set aside, out of the assets available for payment of ordinary debts of the company, assets to the value of an amount that bears to the value of the assets available for payment of ordinary debts of the company the same proportion as the amount notified by the Commissioner under subsection (2) bears to the sum of:
      • (i) the amount notified by the Commissioner under subsection (2);
      • (ii) any amount of prescribed tax that the Commissioner is required to notify to the trustee under an Act other than this Act and has so notified; and

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      • (iii) the aggregate of the ordinary debts of the company (excluding any debt in respect of tax or prescribed tax); and
    • (c) is, to the extent of the value of the assets that the trustee is so required to set aside, liable as trustee to pay the tax.

24. In 2006, s 215 of the ITAA36 was repealed and replaced by s 260-45 of Schedule 1 to the TAA. Section 260-45 operates in relevantly the same way as the former s 215 of the ITAA36. It requires a liquidator to give the Commissioner written notice of his or her appointment as liquidator within 14 days; requires the Commissioner to notify the liquidator of the amount (the notified amount) that the Commissioner considers is enough to discharge any outstanding tax-related liabilities that the company has when the notice is given; and requires the liquidator to set aside, out of the assets available for paying the outstanding tax-related liabilities and any debts of the company which are unsecured and are not required by law to be paid in priority to other debts of the company (the ordinary debts), assets with a value calculated in accordance with a specified formula. The formula is designed to ensure that, in the event that the company's assets available to meet the ordinary debts (including the tax-related liabilities) are insufficient to meet all those debts, the tax-related liabilities will rank equally with other ordinary debts and be paid proportionately in the winding up to the extent of the amount required to be set aside. In this way the section marries up with s 555 of the Corporations Act. The operation of s 555 of the Corporations Act is considered later.

25. The liquidator, in his or her capacity as liquidator, is required by s 260-45(7) of Schedule 1 to the TAA to discharge the outstanding tax-related liabilities, to the extent of the value of the assets that the liquidator is required to set aside. The liquidator is personally liable to discharge the liabilities if he or she does not discharge the tax-related liabilities to that extent, or otherwise contravenes the section.

26. The definition of "outstanding tax-related liability" (in s 995-1 of the ITAA97, which picks up the definition of "tax-related liability" in s 255-1 of Schedule 1 to the TAA), in the context of s 260-45 of Schedule 1 to the TAA, is a liability under a taxation law which has arisen at or before the date the liquidator is appointed (whether or not due and payable at that time) and which has not been paid before that time. It would include tax on income derived before the winding up of the company, even if not then due and payable, but would not include tax payable on income derived after the appointment of the liquidator.

27. Importantly, neither s 215 of the ITAA36, nor s 260-45 of Schedule 1 to the TAA, directly provide for, or require payment of, the company's pre-liquidation tax-related liabilities. They simply require the liquidator to set aside assets sufficient to meet a proportion of those estimated tax-related liabilities and make the liquidator personally liable if he or she fails to discharge the company's tax-related liabilities to the extent of the value of the assets required to be set aside. Nor do either of these provisions deal with the priority of the pre-liquidation tax-related liabilities in the winding up.

28. Liability in respect of tax payable on income derived after the appointment of the liquidator is dealt with separately in the ITAA36, albeit in the context of a provision that deals with agents and trustees generally. Subsection 254(1) of the ITAA36 relevantly provides as follows:

  • (1) With respect to every agent and with respect also to every trustee, the following provisions shall apply:
    • (a) He or she shall be answerable as taxpayer for the doing of all such things as are required to be done by virtue of this Act in respect of the income, or any profits or gains of a capital nature, derived by him or her in his or her representative capacity, or derived by the principal by virtue of his or her agency, and for the payment of tax thereon.
    • (b) He or she shall in respect of that income, or those profits or gains, make the returns and be assessed thereon, but in his or her representative capacity only, and each return and assessment shall, except as otherwise provided by this Act, be separate and distinct from any other.

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    • (c) If he or she is a trustee of the estate of a deceased person, the returns shall be the same as far as practicable as the deceased person, if living, would have been liable to make.
    • (d) He or she is hereby authorized and required to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains.
    • (e) He or she is hereby made personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount that he or she has retained, or should have retained, under paragraph (d); but he or she shall not be otherwise personally liable for the tax.
    • (f) He or she is hereby indemnified for all payments which he or she makes in pursuance of this Act or of any requirement of the Commissioner.
    • (g) Where as one of 2 or more joint agents or trustees he or she pays any amount for which they are jointly liable, each other one is liable to pay him or her an equal share of the amount so paid.
    • (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as the Commissioner would have against the property of any other taxpayer in respect of tax.

29. Section 6 of the ITAA36 defines "trustee" in the following terms:

trustee in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, includes:

  • (a) an executor or administrator, guardian, committee, receiver, or liquidator; and
  • (b) every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability

30. It can be seen that, in some respects, s 254(1) of the ITAA36 operates in a similar fashion to s 215 of the ITAA36 (and now s 260-45 of Schedule 1 to the TAA). Under s 254(1)(d), the liquidator is required to retain out of any money which comes to him or her in his or her representative capacity as a liquidator, an amount sufficient to pay tax which is or will become due in respect of income derived by the company after the liquidator's appointment. The liquidator is personally liable for the tax payable to the extent of any amount that he or she has, or should have, retained under s 254(1)(d).

31. One important difference between the two regimes, however, is that s 254(1)(h) of the ITAA36 specifically deals with the remedies available to the Commissioner in relation to the recovery of the tax payable in respect of post-liquidation income. As will be seen, the terms of s 254(1)(h), and in particular the fact that the remedies the subject of s 254(1)(h) are limited to those against "attachable property", are critical to the resolution of the principal issue in this matter. The expression "attachable property" is not defined.

32. As already indicated, the Notices were issued under s 260-5 of Schedule 1 to the TAA. Subsections 260-5(1)-(3) provide as follows:

  • (1) This Subdivision applies if any of the following amounts (the debt ) is payable to the Commonwealth by an entity (the debtor ) (whether or not the debt has become due and payable):
    • (a) an amount of a tax-related liability;
    • (b) a judgment debt for a tax-related liability;
    • (c) costs for such a judgment debt;
    • (d) an amount that a court has ordered the debtor to pay to the Commissioner following the debtor's conviction for an offence against a taxation law.

    • Commissioner may give notice to an entity

  • (2) The Commissioner may give a written notice to an entity (the third party ) under this section if the third party owes or may later owe money to the debtor.

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    • Third party regarded as owing money in these circumstances

  • (3) The third party is taken to owe money (the available money ) to the debtor if the third party:
    • (a) is an entity by whom the money is due or accruing to the debtor; or
    • (b) holds the money for or on account of the debtor; or
    • (c) holds the money on account of some other entity for payment to the debtor; or
    • (d) has authority from some other entity to pay the money to the debtor.

    The third party is so taken to owe the money to the debtor even if:

    • (e) the money is not due, or is not so held, or payable under the authority, unless a condition is fulfilled; and
    • (f) the condition has not been fulfilled.

33. The word "entity", which is used throughout s 260-5 of Schedule 1 to the TAA, is defined in s 960-100(1) of the ITAA97 as including a trust. Subsections 960-100(2)-(3) of the ITAA97 provide as follows (excluding notes and examples):

  • (2) The trustee of a trust, of a superannuation fund or of an approved deposit fund is taken to be an entity consisting of the person who is the trustee, or the persons who are the trustees, at any given time.
  • (3) A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity .

34. Subsection 3AA(2) of the TAA provides that an expression has the same meaning in Schedule 1 (to the TAA) as in the ITAA97.

35. In the case of the Notices, the relevant "third party" is NAB. The "debtor" is either TBGL, in the case of the TBGL Notice, or Mr Woodings, in his capacity as liquidator of TBGL, in the case of the Woodings Notice.

36. The Commissioner contends that s 260-5(3)(a) of Schedule 1 to the TAA is relevant in relation to the Woodings Notice because NAB is an entity by whom the money (in the term deposit account) is due or accruing to Mr Woodings as the relevant debtor. In the case of the TBGL Notice, the Commissioner relies on s 260-5(3)(c) on the basis that NAB holds the money on account of "some other entity", being Mr Woodings, for payment to TBGL as the relevant debtor.

37. TBGL and Mr Woodings' alternative argument relies on the fact that the "entity" on whose behalf NAB holds money is Mr Woodings in his capacity as trustee for the Bell Judgment Creditors.

Relevant Corporations Act provisions

38. Given the date on which TBGL was ordered to be wound up, the relevant corporations legislation applicable to its winding up is the former Corporations Law. The provisions of the Corporations Law and the Corporations Act that are relevant to the resolution of this matter are in materially the same terms. For convenience, the Corporations Act will be referred to rather than the Corporations Law.

39. Part 5.4B of the Corporations Act contains a number of provisions relevant to the winding up of a company by court order. Subsection 468(4), which is in Part 5.4B, provides as follows:

  • (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.

40. Subsection 500(1) of the Corporations Act, which was the subject of consideration in Bruton Holdings, is in identical terms to s 468(4), but is in Part 5.5, which deals with voluntary winding up.

41. Division 6 of Part 5.6 of the Corporations Act contains provisions relating to the proof and ranking of claims in a winding up. Section 555, which is within that Division, provides as follows:

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.

42. Subsection 556(1) of the Corporations Act sets out a list of debts and claims that must be paid in priority to all other unsecured debts and claims. It is unnecessary to set out the

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entire list. Subsection 556(1)(a), which sets out the first ranking debts and claims, is in the following terms:
  • (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

43. Subsection 556(2) provides that a liquidator is a relevant authority in relation to a company.

44. Subsection 556(1)(a) is potentially relevant because, in the Commissioner's submission, tax payable in respect of post-liquidation income (in respect of which a liquidator is personally liable pursuant to s 254(1)(e) of the ITAA36, to the extent of any amount that he or she has, or should have, retained under s 254(1)(d) of the ITAA36) would, if properly incurred, be an expense of the liquidator within s 556(1)(a) of the Corporations Act.

45. The Corporations Act does not provide that debts owing by a company to the Commissioner in respect of tax-related liabilities have any priority in the winding up of a company. The statutory priority for income tax payable by a company in liquidation in the former s 221 of the ITAA36 was removed by the repeal of that section by the Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth).

THE DECISION IN BRUTON HOLDINGS

46. The submissions of both TBGL and Mr Woodings, on the one hand, and the Commissioner, on the other, rely on a close reading of the decision and reasons in Bruton Holdings.

47. The relevant facts in Bruton Holdings may be shortly stated. The Commissioner issued an assessment assessing the appellant company to tax of more than $7.7 million. Shortly thereafter, the creditors of the company, which was in voluntary administration, resolved that the company be wound up. After the passing of that resolution, the Commissioner lodged a proof of debt. He also issued a notice under s 260-5 of Schedule 1 to the TAA which required a firm of solicitors to pay the Commissioner money which the company had deposited with that firm.

48. It is relevant to emphasise two things about the facts in Bruton Holdings. First, the company's tax debt was a pre-liquidation tax debt. Second, the winding up of the company was a voluntary winding up, not a winding up by court order.

49. The primary judge in Bruton Holdings granted a declaration that the s 260-5 notice was void. This was reversed on appeal to the Full Court of this Court. The High Court allowed an appeal from the Full Court, thus restoring the primary judge's finding that the notice was void.

50. Critical to the High Court's reasoning was a consideration of the interaction and relationship between the relevant provisions in Schedule 1 to the TAA and the Corporations Act, in particular ss 260-45 and 260-5 of Schedule 1 to the TAA, and s 500(1) of the Corporations Act. Section 260-45 was relevant because, as earlier noted, the relevant tax debt was a pre-liquidation tax debt. Subsection 500(1) of the Corporations Law was relevant because the winding up of the company was a voluntary winding up.

51. The court summarised its conclusions in relation to the construction of the relevant provisions in the following terms (at [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).

52. The High Court gave detailed consideration to both ss 260-45 and 260-5 of Schedule 1 to the TAA. It characterised s 260-45 as a specific regime for the collection and recovery from liquidators of tax-related liabilities of companies being wound up. Section 260-5, on the other hand, was characterised as a more general provision which operated in a similar way to a garnishee order in respect of tax debts generally. The court concluded (at [17]) that what was disclosed by ss 260-45 and 260-5 of Schedule 1 to the TAA

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was an example of a specific regime (in s 260-45) which, in cases where it applies, excludes more general provisions (including s 260-5), which might otherwise be engaged.

53. This conclusion was reinforced by a number of considerations identified in [19] and [20] of the High Court's reasons:

The conclusion that would otherwise follow from the making of the special provisions for liquidators that appear in s 260-45 (that the Commissioner's general powers under s 260-5 are not available if there has been a resolution passed for the winding up of a company or if an order for winding up by the court or for winding up in insolvency has been made) is at least reinforced, even required, by the application by s 5A(2) of ss 501 and 555 of the Corporations Act to the Crown in right of the Commonwealth.

The conclusion is further supported by the recognition that: (a) the process for which s 260-5 provides falls within the expression "attachment" when used in s 500(1); (b) the emphatic language of s 500(1) ([a]ny attachment … put in force against the property of the company after the passing of the resolution for voluntary winding up is void) is consistent with reading s 260-5 as not extending the Commissioner's general power to give such a notice to the particular circumstances for which s 260-45 makes special provision; (c) before the Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth) (the 1980 Act) and in the period when the Crown retained priority for tax debts it was necessary to provide specially (by s 221(1)(b) of the 1936 Act) that "notwithstanding anything contained in any other Act or State Act" the liquidator of a company being wound up was bound to apply the assets of the company in payment of tax in priority to all other unsecured debts; and (d) the proportionate system established by s 260-45 for liquidations would be subject to adventitious disruption if the circumstance that a third party was indebted to the company gave to the Crown full garnishee rights under s 260-5; the extent of recovery of a tax debt owed by an insolvent company would depend upon the extent to which the assets of the company comprised debts owed by third parties and the speed with which the liquidator gathered them in; once so gathered the debts would be beyond the scope of the notice provisions and within the scheme of Ch 5 of the Corporations Act.

(Footnotes omitted.)

54. The court also addressed the question whether a notice under s 260-5 of Schedule 1 to the TAA was an attachment for the purposes of s 500(1) of the Corporations Act. The primary judge had concluded that a s 260-5 notice is an attachment for the purposes of s 500(1):
Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation (2007) 244 ALR 177 at [57]. The Full Court disagreed and found that s 500(1) was limited to "curial attachments" and that a s 260-5 notice was not an attachment by curial order:
Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472. The High Court overturned that finding and concluded as follows (at [38] and [39]):

An examination of s 500(1), and Ch 5 of the Corporations Act of which it forms part, does not reveal any reason to restrict the meaning of the expression "any attachment" employed in the section and it should be given the meaning explained earlier in these reasons. This extends to curial and non-curial attachments, including those effectuated by notices issued pursuant to s 260-5 in Sch 1 to the Administration Act.

Accordingly, and contrary to the holding by the Full Court, the term "any attachment" in s 500(1) does not have a restricted meaning which would exclude the operation of a valid notice given under s 260-5. That conclusion supports the proposition that, as a matter of construction, the power conferred on the Commissioner by s 260-5 does not extend to the case of a company in liquidation. The tension which would otherwise exist if a provision of one statute avoided a notice issued under another does not arise. As explained earlier, the Commissioner's general powers under s 260-5 are not available if there has been a resolution passed for the winding up

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of a company or if an order for winding up has been made.

THE PARTIES' SUBMISSIONS ON THE PRIMARY ISSUE

55. TBGL and Mr Woodings submitted that the reasoning in Bruton Holdings applied to the Notices notwithstanding that Bruton Holdings dealt with the scheme for pre-liquidation tax-related liabilities in s 260-45 of Schedule 1 to the TAA, as opposed to the scheme relating to post-liquidation tax-related liabilities, and involved the operation of s 500(1), rather than s 468(4), of the Corporations Act. In their submission, neither of those matters provided a relevant or sufficient point of distinction such as to make the reasoning in Bruton Holdings inapplicable to the facts of this case.

56. TBGL and Mr Woodings point to what they say are the emphatic and unequivocal statements in Bruton Holdings (in particular at [10], [19] and [39]) that the power conferred on the Commissioner by s 260-5 of Schedule 1 to the TAA does not extend to the case of a company in liquidation, including where there has been a court-ordered winding up. They also contend that the High Court's reasoning applies equally to the case of post-liquidation tax-related liabilities. That is because post-liquidation tax-related liabilities are also the subject of a specific scheme, being the scheme in s 254 of the ITAA36 and Chapter 5 of the Corporations Act, in particular s 556. That specific scheme excludes the more general provision in s 260-5 of Schedule 1 to the TAA for exactly the same reasons as those given by the High Court in Bruton Holdings in respect of the specific scheme in s 260-45 of Schedule 1 to the TAA.

57. The Commissioner submitted that the reasoning in Bruton Holdings is inapplicable to the circumstances of this case because the statutory scheme in respect of post-liquidation tax-related liabilities in s 254(1) of the ITAA36 is different to the scheme in s 260-45 of Schedule 1 to the TAA in respect of pre-liquidation tax-related liabilities. The main difference is that, in the Commissioner's submission, s 254(1)(h) of the ITAA36 properly construed specifically provides for or preserves the availability of the Commissioner's remedy in s 260-5 of Schedule 1 to the TAA. As a result, s 254(1)(h) operates to "trump" the more general provision in s 468(4) of the Corporations Act. The Commissioner submitted that this construction of the relevant statutory provisions was supported by authorities, such as
Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 ( Broadbeach ),
Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55, and
Muc v Deputy Commissioner of Taxation (2008) 73 NSWLR 378, which provide support for the proposition that preference is to be given to specific schemes in taxation legislation designed to protect the revenue over more general schemes in the Corporations Law.

58. The Commissioner's alternative submission was that, even if s 254(1)(h) of the ITAA36 did not operate in the way he contended, the word "attachment" in s 468(4) of the Corporations Act should nonetheless be read down so as to permit s 260-5 notices in respect of priority debts. Post-liquidation tax-related liabilities were, in the Commissioner's submission, a priority debt because they would be an expense within s 556(1)(a) of the Corporations Act. Given that priority status, in the Commissioner's submission there is no basis for reading the word "attachment" in s 468(4) of the Corporations Act so as to exclude the giving of a s 260-5 notice to enforce that statutory priority.

CONSIDERATION - ARE THE NOTICES VOID?

59. As in Bruton Holdings, the Notices in issue in this matter are void for two related reasons.

60. First, each of the Notices is an attachment against the property of TBGL and therefore void by operation of s 468(4) of the Corporations Act.

61. Second, that conclusion supports the more general proposition that the power conferred on the Commissioner under s 260-5 of Schedule 1 to the TAA is not available where the relevant "debtor" for the purposes of that section is a company which is being wound up, or its liquidator. That is so even where the relevant debt is for tax payable on income derived after the commencement of the winding up.

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The Notices are an attachment

62. The High Court in Bruton Holdings concluded that a notice under s 260-5 of Schedule 1 to the TAA is an attachment for the purposes of s 500(1) of the Corporations Act. Whilst this finding was, in some respects, secondary to the broader finding concerning the Commissioner's power to issue a notice in respect of a tax debt of a company in liquidation, it was nonetheless an unequivocal and unqualified finding. It applies equally to s 468(4) of the Corporations Act, which is in identical terms. The High Court's conclusions in Bruton Holdings at both [19] and [39] refer to winding up by court order, thus clearly indicating that the court saw no relevant distinction between ss 468(4) and 500(1) of the Corporations Act.

63. The Commissioner in effect accepted that a s 260-5 notice was an attachment for the purposes of s 468(4) of the Corporations Act. He contended, however, that s 468(4) did not operate to render a s 260-5 notice void if the notice related to post-liquidation tax-related liabilities. That is either because s 254(1)(h) of the ITAA36 "trumped" s 468(4), or because s 468(4) should be read down to permit s 260-5 notices in this narrow class of case.

64. Neither contention has any merit.

65. The Commissioner's contention that s 254(1)(h) of the ITAA36 trumps s 468(4) of the Corporations Act is based on an erroneous construction of s 254(1)(h). In simple terms, the Commissioner's construction of s 254(1)(h) is that it gives the Commissioner the same remedies against property under the control of a liquidator as the remedies he has against the property of any other taxpayer. In respect of liabilities that fall within s 254 of the ITAA36, which include post-liquidation tax-related liabilities, property under the control of a liquidator is, on the Commissioner's construction of s 254(1)(h), to be treated in exactly the same way as the property of any other taxpayer. The Commissioner's available remedies against the property of other taxpayers include issuing a notice under s 260-5 of Schedule 1 to the TAA. Therefore the Commissioner contends that s 254(1)(h) specifically provides that the Commissioner can issue a s 260-5 notice to a liquidator in the case of post-liquidation tax-related liabilities.

66. The problem with the Commissioner's construction is that it ignores the word "attachable" in s 254(1)(h) of the ITAA36. The remedies against property in the control or possession of an agent or trustee that are preserved or conferred on the Commissioner by s 254(1)(h) are expressly limited to remedies against "attachable" property. The word "attachable" is not used in the case of the property of other taxpayers. The property under the control of a liquidator is therefore not treated in the same way as the property of any other taxpayer. The property of a company being wound up that is in the control or possession of a liquidator is not "attachable property" because, by reason of ss 468(4) and 500(1) of the Corporations Act, any attachment against such property is void. Therefore s 254(1)(h) does not specifically provide for or preserve the Commissioner's power to issue a s 260-5 notice to a company being wound up or its liquidator.

67. There may be discerned, from the specific inclusion of the word "attachable" in s 254(1)(h) of the ITAA36, a legislative intention to avoid any potential conflict between s 254(1)(h) and provisions, such as ss 468(4) and 500(1) of the Corporations Act, that prevent attachment of certain types of property. Provisions equivalent to ss 468(4) and 500(1) have been in legislation dealing with the winding up of companies since well before the enactment of the ITAA36: see, for example, s 95 of the Companies Act 1899 (NSW). A construction of s 254(1)(h) which allows it to operate harmoniously with ss 468(4) and 500(1) of the Corporations Act is to be preferred to one that potentially puts the provisions of two Commonwealth statutes in conflict, or results in a provision of one statute overriding (or "trumping") a provision in another statute.

68. Whilst the effect of this construction of s 254(1)(h) of the ITAA36 is that it effectively has no application in the case of a company in liquidation, that does not militate against its availability. Subsection 254(1)(h) still has significant work to do even if it does not apply to liquidators. That is because the operation of s 254 is not limited to liquidators. It operates in

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the case of all agents and trustees who derive income in a representative capacity, or by reason of their agency. Subsection 254(1)(h) still has work to do in the case of other agents or trustees where attachment of property under their control or management is not prevented by provisions equivalent to ss 468(4) and 500(1) of the Corporations Act.

69. It follows that the preferable construction of s 254(1)(h) of the ITAA36 is that it does not confer any remedy on the Commissioner against the property of a company after the commencement of the winding up of the company because such property is not attachable property. In these circumstances, there is no question of s 254(1)(h) overriding or "trumping" s 468(4) of the Corporations Act.

70. The Commissioner's alternative argument that s 468(4) should be read down so as to permit an attachment by way of a s 260-5 notice in the case of post-liquidation tax-related liabilities appears to rely on two propositions: first, that ss 468(4) and 500(1) of the Corporations Act only operate to render void an attachment if the effect of the attachment is to secure priority in respect of the payment of a debt that is not otherwise a priority debt; and second, that the Commissioner has priority in respect of post-liquidation tax-related liabilities. Neither proposition is correct.

71. As for the first proposition, whilst it may be accepted that a purpose, perhaps the main purpose, behind ss 468(4) and 500(1) of the Corporations Act is to prevent "adventitious disruption" (cf. Bruton Holdings at [20]) of the scheme for the orderly payment of debts and claims in accordance with, inter alia, ss 555 and 556 of the Corporations Act, it does not follow that ss 468(4) and 500(1) of the Corporations Act should be read down as contended by the Commissioner. As noted by the High Court in Bruton Holdings at [20], the language used in those sections is emphatic. The emphatic language cannot be read as permitting an attachment by a creditor, in this case the Commissioner, simply because the attachment is in respect of a debt that is a priority debt. What if there are other creditors with debts that rank equally in terms of priority? The effect of permitting an attachment in those circumstances would be to result in a disruption to the statutory scheme insofar as it also involves proportionate payment of debts that rank equally. The Commissioner would be able to use a notice under s 260-5 of Schedule 1 to the TAA to secure the payment of his debt in full without regard to debts that have equal priority.

72. As for the second proposition, it is not strictly correct to say that the Commissioner has priority in respect of post-liquidation tax-related liabilities by reason of s 556(1)(a) of the Corporations Act. Subsection 556(1)(a) gives priority to expenses incurred by, relevantly, a liquidator, in preserving, realising or getting in property of a company, or in carrying on the company's business. By reason of s 254(1)(e) of the ITAA36, a liquidator is personally liable for the tax payable in respect of post-liquidation income to the extent of any amount that he or she has, or should have, retained under s 254(1)(d) of the ITAA36. If the liquidator, for whatever reason, does not discharge the company's tax-related liabilities from its available assets, but instead personally pays (or is required to personally pay) that amount, it might well be regarded as an expense in getting in property of the company or carrying on its business:
Pace v Antlers Pty Ltd (in liq) (1998) 80 FCR 485 at 504G. The liquidator would have priority in recovering that expense by reason of s 556(1)(a) of the Corporations Act. That does not mean, however, that the Commissioner has priority in respect of post-liquidation tax-related liabilities.

73. In any event, that expense would not rank any higher than other expenses incurred by the liquidator that might also fall within s 556(1)(a) of the Corporations Act. Where there are a number of claims and debts that are priority debts under s 556(1)(a), but insufficient assets to meet them all, the debts and claims that rank equally are met proportionately. The proportionate system of entitlement would be subject to potential disruption if the Commissioner had full garnishee rights in relation to post-liquidation tax-related liabilities in those circumstances.

74. The Commissioner's alternative argument is therefore rejected. There is no basis for reading down s 468(4) of the Corporations Act to permit s 260-5 notices in respect of

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post-liquidation tax debts as contended by the Commissioner.

75. It follows that a s 260-5 notice is an attachment for the purposes of s 468(4) of the Corporations Act. A s 260-5 notice that relates to a post-liquidation tax-related liability does not avoid the operation of s 468(4) because it is a remedy specifically provided for or preserved by s 254(1)(h) of the ITAA36. Nor can s 468(4) be read down to permit such an attachment even if the Commissioner has some level of priority in respect of post-liquidation tax-related liabilities. The Notices are therefore void by reason of s 468(4) of the Corporations Act.

No power to issue the Notices

76. The High Court's conclusion in Bruton Holdings that the power conferred by s 260-5 of Schedule 1 to the TAA does not extend to a company in liquidation is expressed three times (at [10], [19] and [39]) in clear, unequivocal and unqualified terms. Whilst the court's reasons in arriving at this conclusion depend heavily on the existence of the specific scheme in s 260-45 of Schedule 1 to the TAA, nevertheless that reasoning is equally capable of applying to the specific scheme that applies in the case of post-liquidation tax-related liabilities.

77. As already indicated, s 260-45 of Schedule 1 to the TAA is based on the former s 215 of the ITAA36, which is the applicable provision in the circumstances of this case. The specific scheme established by s 215 was to impose upon the liquidator a duty to set aside a certain amount of money pending final administration. Questions of priority and preference were ultimately to be determined by other provisions of the law, primarily in the Corporations Act:
The Federal Commissioner of Taxation v The Official Liquidator of E.O. Farley Limited (in liq) (1940) 63 CLR 278 at 288, 290, 296, 311 and 327;
Bank of New South Wales v The Commissioner of Taxation of the Commonwealth of Australia (1979) 145 CLR 438 at 451-452.

78. The scheme established by s 254 of the ITAA36 in many respects operates in a similar way to s 215, albeit that s 254 applies to agents and trustees generally, not just liquidators. In the case of a liquidator, s 254(1)(d) requires the liquidator to "retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains." Like s 215, the section does not expressly deal with questions of payment, priority or preference. Such questions are less likely to arise in the case of the amount required to be retained under s 254(1)(d), because a liquidator who receives post-liquidation income on behalf of the company is likely to retain a sufficient amount to meet any subsequent tax liability in full. Nevertheless, if such questions of priority do arise, they are to be determined by other provisions, in particular s 556 of the Corporations Act.

79. It follows that the reasoning in Bruton Holdings, insofar as it involved consideration of the regime in s 260-45 of Schedule 1 to the TAA in respect of pre-liquidation tax-related liabilities, is equally applicable in cases which involve the scheme in s 254 of the ITAA36 in relation to post-liquidation tax-related liabilities. There is no relevant distinction between the two statutory schemes. Both require the liquidator to set aside amounts to meet expected tax debts, but leave questions of payment and priority to the Corporations Act. In each case, the specific statutory schemes in the tax legislation exclude the general provision in s 260-5 of Schedule 1 to the TAA, which applies in the case of all tax debts.

80. Authorities such as Broadbeach do not ultimately support the Commissioner's contention that the power to issue a s 260-5 notice to recover outstanding tax-related liabilities should be given preference to s 468(4) of the Corporations Act. That is because the relevant specific schemes in the taxation legislation that relate to the recovery of tax from a company being wound up are in s 215 of the ITAA36 (and now s 260-45 of Schedule 1 to the TAA) (in the case of pre-liquidation tax liabilities) and s 254 of the ITAA36 (in respect of post-liquidation tax liabilities). These specific schemes exclude the operation of the more general provision in s 260-5 of Schedule 1 to the TAA which applies to all tax liabilities. Neither of the specific schemes that relate to companies in liquidation relevantly conflict with ss 468(4) or 500(1) of the

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Corporations Act such as to give rise to the sorts of considerations referred to in Broadbeach.

81. It follows that the Commissioner had no power to issue the Notices in this matter.

THE CAPACITY ISSUE

82. Given the conclusion that has been reached in relation to the primary issue, it is strictly unnecessary to consider TBGL and Mr Woodings' alternative or secondary argument. Nevertheless, it is possible to deal with this argument shortly.

83. TBGL and Mr Woodings contend that the Notices are either invalid, or are not engaged, because the funds held in the relevant NAB term deposit account are owed or payable to Mr Woodings in his capacity as trustee for the Bell Judgment Creditors. They contend that, by reason of the definition of "entity" in s 960-100(1) and the terms of ss 960-100(2) and (3) of the ITAA97, Mr Woodings is taken to be a different entity, in that capacity, to the entity that he is when he acts in his capacity as liquidator of TBGL.

84. This argument has some merit in the case of the Woodings Notice. The debtor in the Woodings Notice is described as Mr Woodings in his capacity as liquidator of TBGL. NAB does not owe money to Mr Woodings in that capacity. It holds the money in the relevant term deposit account for Mr Woodings in his capacity as trustee. In that capacity, Mr Woodings is taken to be a different entity by reason of s 960-100(3) of the ITAA97. None of the paragraphs of s 260-5(3) of Schedule 1 to the TAA operate to deem NAB to owe money to Mr Woodings in his capacity as liquidator of TBGL.

85. The Commissioner relies on s 260-5(3)(a) of Schedule 1 to the TAA. That paragraph does not apply, however, because NAB is not an entity by whom money is due or accruing to Mr Woodings in his capacity as liquidator of TBGL.

86. It follows that if, contrary to the conclusion that has been reached, the Woodings Notice was not void by reason of s 468(4) of the Corporations Act, it would nevertheless have no application to the relevant NAB term deposit account.

87. In the case of the TBGL Notice, however, where the debtor is TBGL, s 260-5(3)(c) of Schedule 1 to the TAA would appear to operate so that NAB is taken to owe money to TBGL as the relevant debtor. That is because NAB holds the money on account of "some other entity" (namely Mr Woodings, in his capacity as trustee for the Bell Judgment Creditors) for payment to TBGL, as the relevant debtor.

88. Under the terms of the Deed of Settlement, Mr Woodings, in his capacity as trustee for the Bell Judgment Creditors, is required to pay amounts held by him on trust to, inter alia, TBGL upon the occurrence of certain specified events. Even though the money is not payable unless various conditions spelt out in the Deed of Settlement are fulfilled, the effect of ss 260-5(3)(e) and (f) of Schedule 1 to the TAA is that NAB is nonetheless taken to owe the money to TBGL.

89. In these circumstances, if, contrary to the conclusion that has been reached, the TBGL Notice was not void by reason of s 468(4) of the Corporations Act, it is not invalid as contended by TBGL and Mr Woodings. It relevantly applies to the NAB term deposit account, despite the fact that the account is held in the name of Mr Woodings in his capacity as trustee of the Bell Judgment Creditors.

CONCLUSION AND DISPOSITION

90. TBGL and Mr Woodings have succeeded in demonstrating that the Notices are void, either by reason of s 468(4) of the Corporations Act, or because the Commissioner's power to issue a s 260-5 notice is not available if a liquidator has been appointed to the company whose property would be attached by the notice. They are accordingly entitled to declarations that the Notices are void and of no effect, and an order that the Notices, or the decision to issue them, be quashed. TBGL and Mr Woodings are also entitled to their costs in bringing this application.


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