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SUPREME COURT OF VICTORIA

Scott (As Liquidator) v Federal Commissioner of Taxation and Anor

[2003] VSC 50

Dodds-Streeton J

5 March 2003 - Melbourne

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Dodds-Streeton J.    

TABLE OF CONTENTS
THE PROCEEDING	2
BACKGROUND	2
THE PLEADINGS	3
THE LEGISLATION	5
UNFAIR PREFERENCES	8
Insolvency	9
The Plaintiff's Evidence of Insolvency	10
CONCLUSION - UNFAIR PREFERENCE	14
POSITION OF THIRD PARTY	14
INDEMNITY UNDER s 588FGA	14
JURISDICTION UNDER s 588FGA	16

The Proceeding

   In this proceeding, the plaintiff, David Henry Scott, as liquidator of Birch Grange Pty Ltd (in liq) (the company), seeks to recover 2 payments of $54,445.51 and $41,670.48 totalling $96,445.51 from the defendant, the Commissioner of Taxation of the Commonwealth of Australia, as unfair preferences pursuant to ss 588FF and 588FA of the Corporations Act 2001 (Cth). The defendant, by third party notice, seeks an indemnity pursuant to s 588FGA from the third party, Peter John Whitford, who, at the date of the payments, was a director of the company, in the event that an order is made against the defendant under s 588FF of the Corporations Act 2001 (Cth).

Background

  2  At the hearing of the proceeding on 27 February 2003, the third party, Mr Whitford, did not appear. It appears from the file that the solicitor previously acting for Mr Whitford sought, and obtained, leave to cease to act for him on 17 February 2003.

  3  Mr Whitford was, at all material times, the sole director of the company and of 2 related companies, Caylen Pty Ltd (in liq) (Caylen) and Complex Electronics Pty Ltd (in liq) (Complex).

  4  The company conducted a security service business which provided protective services to shopping centres. It was wound up in insolvency on 13 October 2000, and David Henry Scott was appointed liquidator.

  5  It was not disputed that on or about 15 July 1999 the company entered into an agreement pursuant to s 222ALA of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936) to pay the defendant its outstanding group tax liability for the year 1998/99 of $390,865.63, by way of instalment. The company also entered into a further agreement pursuant to s 222ALA of the ITAA 1936 to pay Prescribed Payments Tax of $47,323.10 by instalments. Payments were made pursuant to the agreements from November 1999, but, by February 2000, the company defaulted.

  6  Further, it was not disputed that from August 1999 the company, (a "medium remitter" in relation to payment of group tax), under-assessed group tax payable on a monthly basis and failed to pay the "self-assessed" amounts by the due date (that is, on or before the 21st day of the each month).

  7  The company failed to make pay-roll tax payments when due, and failed to make provision for its employee superannuation liability, due in July 2000.

  8  The company also significantly varied its estimate of wages for the July 1999 to June 2000 financial year, resulting in a reduction of WorkCover premiums.

  9  On or about 31 March 2000, the company made the first impugned payment of $54,445.51. On or about 26 April 2000, the company made the second impugned payment of $41,670.48.

The pleadings

  10  By Statement of Claim dated 8 March 2001 the plaintiff alleged that the company was wound up in insolvency pursuant to the order of the Supreme Court and David Henry Scott was appointed liquidator.

  11  It is alleged that on or about 15 June 1999 there was an agreement between the company and the defendant pursuant to s 222ALA of the ITAA 1936, pursuant to which the company agreed to pay the defendant $390,865.63.

  12  It is further alleged that the company paid the defendant the total sum of $96,445.51 by 2 payments of $54,445.51 on 31 March 2000 and $41,670.48 on 26 April 2000 respectively. It is alleged that the payments were insolvent transactions and unfair preferences pursuant to s 588FA(1) of the Corporations Act 2001 (Cth). The relation back day is stated to be 7 September 2000.

  13  The plaintiff seeks orders for payment of $96,155 with interest and costs.

  14  The plaintiff, at the hearing of the proceeding on 27 February 2003, sought, and was granted, leave to file and serve a further amended statement of claim dated 27 February 2003, which deletes the reference to the agreement pursuant to s 222ALA of the ITAA 1936.

  15  By defence dated 9 May 2001, the defendant admits the winding up order and appointment of the liquidator and admits that it received the payments. It does not admit that the payments constituted unfair preferences, and in particular, does not admit the insolvency of the company at the relevant dates. By para 11, it states that the defendant intends to bring a third party application against the director of the company pursuant to s 588FGA of the Corporations Act 2001 (Cth).

  16  By third party notice dated 5 June 2001 to Peter John Whitford, the defendant alleges that Mr Whitford was a director of the company. It alleges that the payments were in partial discharge of group tax liabilities under a remittance provision of the ITAA 1936, namely, s 220AAM. It is alleged that the first payment was credited by the defendant to the company's group tax liability in respect of the period 1 February - 20 February 2000 (the due date being 21 March 2000) and that the second payment was applied and credited to the company's then current group tax liability in respect of the period 1 March 2000 - 31 March 2000 (the due date being 21 April 2000).

  17  The third party notice alleges that if the defendant is found liable to the plaintiff under s 588FF(1) of the Corporations Act 2001 (Cth), then the third party is liable to indemnify the defendant under s 588FGA of the Corporations Act 2001 (Cth). It is further alleged that the amount payable to the Commissioner of Taxation is a debt due to the Commonwealth and payable to the Commissioner under s 588FGA(3) of the Corporations Act 2001 (Cth). The defendant seeks a declaration pursuant to s 588FGA(4) that the defendant is entitled to be indemnified by the third party.

  18  By defence to the third party notice dated 7 November 2001, the third party admits the payments but denies that they constituted an unfair preference or that the company was insolvent at the relevant dates or became so by reason of the payments. He denies that he is liable to indemnify the defendant pursuant to s 588FGA but alleges that if he is liable, he is entitled to rely on the defence of reasonable grounds to expect that the company was solvent.

The legislation

  19  Part 5.7B of the Corporations Act 2001 (Cth) governs the avoidance of transactions antecedent to winding up in insolvency. The following provisions are relevant to the present application:

  20  Section 588FC provides:

   

A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:

 (a)  any of the following happens at a time when the company is insolvent:

 (i)  the transaction is entered into; or

 (ii)  an act is done, or an omission is made, for the purpose of giving effect to the transaction; or

 (b)  the company becomes insolvent because of, or because of matters including:

 (i)  entering into the transaction; or

 (ii)  a person doing an act, or making an omission, for the purpose of giving effect to the transaction.

  21  Section 588FE(2) provides:

   

(2) The transaction is voidable if:

 (a)  it is an insolvent transaction of the company; and

 (b)  it was entered into, or an act was done for the purpose of giving effect to it:

 (i)  during the 6 months ending on the relation-back day; or

 (ii)  after that day but on or before the day when the winding up began.

  22  Section 588FG provides:

   

(1) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that:

 (a)  the person received no benefit because of the transaction; or

 (b)  in relation to each benefit that the person received because of the transaction:

 (i)  the person received the benefit in good faith; and

 (ii)  at the time when the person received the benefit:

 (A)  the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

 (B)  a reasonable person in the person's circumstances would have had no such grounds for so suspecting.

 

(2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company and it is proved that:

 (a)  the person became a party to the transaction in good faith; and

 (b)  at the time when the person became such a party:

 (i)  the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

 (ii)  a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and

 (c)  the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.

 

(3) For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to pay tax, the discharge is valuable consideration provided:

 (a)  by the person to whom the tax is payable; and

 (b)  under any transaction that consists of, or involves, the payment or application.

 

(4) In subsection (3):

    tax means tax (however described) payable under a law of the Commonwealth or of a State or Territory, and includes, for example, a levy, a charge, and municipal or other rates.

 

(5) For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to the Commonwealth, or to the Commissioner of Taxation, that arose under or because of an Act of which the Commissioner has the general administration, the discharge is valuable consideration provided by the Commonwealth, or by the Commissioner, as the case requires, under any transaction that consists of, or involves, the payment or application.

 

(6) Subsections (3) and (5):

 (a)  are to avoid doubt and are not intended to limit the cases where a person may be taken to have provided valuable consideration under a transaction; and

 (b)  apply to an amount even if it was paid or applied before the commencement of this Act.

  23  Section 588F provides:

   

(1) For the purposes of this Part, a company's liability under a remittance provision to pay to the Commissioner of Taxation an amount equal to a deduction made by the company, after 1 July 1993, from a payment:

 (a)  is taken to be a debt; and

 (b)  is taken to have been incurred when the deduction was made.

 

(2) In this section:

    remittance provision means any of the following provisions of the Income Tax Assessment Act 1936 (Cth):

 (aa)  sections 220AAE, 220AAM or 220AAR;

 (a)  section 221F (except subsection 221F(12)) or section 221G (except subsection 221G(4A));

 (b)  subsection 221YHDC(2);

 (c)  subsection 221YHZD(1) or (1A);

 (d)  subsection 221YN(1);

    or any of the provisions of Subdivision 16-B in Schedule 1 of the Taxation Administration Act 1953 (Cth).

 

(3) This section is not intended to limit the generality of a reference in this Act to a debt or to incurring a debt.

Unfair preferences

  24  In order to establish an unfair preference in terms of s 588FA, voidable pursuant to s 588FF, a number of elements must be proved.

  25  First, there must be a "transaction" which is widely defined in s 9 of the Corporations Act 2001 (Cth) to include "(d) a payment made by the body".

  26  That requirement is satisfied in the present case. The payments made by the company on 31 March 2000 and 26 April 2000 were not disputed.

  27  Secondly, the transaction must be between the company and a creditor, although other parties may be involved.

  28  That requirement is satisfied. The payments were made by the company to the defendant in its capacity as creditor pursuant to s 220AAM of the ITAA 1936. Section 588F(1) provides that a liability under specified remittance provisions is taken to be a debt, and is taken to have been incurred when the deduction was made.

  29  Section 588F(2)(aa) includes s 220AAM of the ITAA 1936 as a remittance provision to which subs 588F(1) applies.

  30  Thirdly, the creditor must receive more for an unsecured debt than it would receive if the transaction were set aside and the creditor were to prove for the debt in the winding up of the company.

  31  That requirement is satisfied in the present case. The defendant is an ordinary unsecured creditor. The unchallenged evidence of Mr Scott, the liquidator of the company, is that on the basis of his analyses of the moneys that might have been available to ordinary unsecured creditors in the event of liquidation occurring at March 2000, April 2000 or September 2000, a "nil" amount would have been available to ordinary unsecured creditors. The Report as to Affairs for the company shows a deficiency of assets of $1,291,596. The amounts received by the defendant pursuant to the payments therefore exceed the amount that it would have received had the payments been set aside and the defendant had proved in the liquidation.

  32  Fourthly, the transaction must be entered into (or an act done to give effect to it), within the statutorily stipulated time frame. In the case of a payment to a non-related entity, by s 588FE(2)(b)(i) of the Corporations Act 2001 (Cth), the period of 6 months ending on relation back day is specified. Section 9 of the Corporations Act 2001 (Cth) defines "relation back day" in relation to the winding up of a company as:

   

 (a)  If because of Division 1A of Part 5.6, the winding up is taken to have begun on the day when an order that the company or body be wound up was made - the day on which the application for the order was filed; or

 (b)  otherwise - the day on which winding up is taken because of Division 1A of Part 5.6 to have begun.

  33  That requirement is satisfied in the present case. It is not disputed that pursuant to the relevant provisions of Div 1A of Pt 5.6, the relation back day of the company is 7 September 2000. The 6 months period thus began on 8 March 2000. The payments made on or about 23 March 2000 and 26 April are therefore within the preference period.

Insolvency

  34  Fifthly, the company must be insolvent at the date of the impugned transaction or become so by reason of it. The defendant did not admit insolvency and put the plaintiff to its proof.

  35  The plaintiff bears the onus of establishing insolvency in this context.

  36  In the present case, the plaintiff does not rely upon the presumptions of insolvency set out in s 588E of the Corporations Act 2001 (Cth).

  37  By s 95A(1) of the Corporations Act 2001 (Cth), a person is deemed to be solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. By s 95A(2), a person who is not solvent is insolvent.

  38  The most authoritative judicial statement of cash flow insolvency, now reflected in s 95A of the Corporations Act 2001 (Cth), is that of Barwick CJ in Sandell v Porter,^[1] in which his Honour observed:

   

An essential step in making out that a payment is a preference within s 95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.

The plaintiff's evidence of insolvency

  39  In this context, the plaintiff relied on the unchallenged evidence of the liquidator Mr Scott, Mr Hogan and Ms Davies (employees of the liquidators of the related companies, Caylen and Complex), Mr Spitale, the credit manager of the company responsible for the collection of the company's WorkCover premiums, and Mr Gary Fettes, an investigating accountant, who prepared an expert witness statement pursuant to r 44 of the Supreme Court Rules 1986 (Vic).

  40  The principal evidence relied upon by the plaintiff to establish insolvency was that of expert witness, Mr Fettes. Mr Fettes gave expert evidence that, in his opinion, the company was insolvent both on a balance sheet basis and a commercial or "cash flow" basis from at least November 1999 and throughout the entire preference period.

  41  Mr Fettes deposed that the apparent surplus of assets over liabilities of the company at the relevant period was illusory, as it relied substantially on the recoverability of 2 debts allegedly due from Caylen, recorded in the company's balance sheet. An alleged debt of $337,659 owing by Caylen was described as an advance payment for fees owed by the company to Caylen for administration fees under a service agreement.

  42  However, in Mr Fettes' view, Caylen did not have the ability to repay the debt, as its capacity to do so depended on recovery of other inter-company loans, including a loan of $325,029 to Complex, which itself did not have a capacity to pay. Further, Complex did not record the alleged liability, suggesting that it had been forgiven or repaid.

  43  Mr Fettes concluded that it was highly unlikely that Caylen had the resources to repay the $337,659 from September 1999 or at any time throughout the preference period. He considered that in the absence of repayment, the debt would have been likely to be offset against future administration fees charged by Caylen to the company. Therefore, he concluded that the $337.659 should not be treated as an asset for purposes of assessing the solvency of the company.

  44  Mr Fettes concluded that a further alleged debt of $920,560 said by Mr De Angelis (the company's chief financial controller) to be advanced by the company to Caylen as an advance payment for administration fees, would be likely to be written off following receipt of an invoice from Caylen. The amount should, therefore, not be classified as an asset for the purposes of assessing the solvency of the company.

  45  Mr Fettes also concluded, on the basis of certain specified assumptions, including the write down of the alleged Caylen debts, that the company had a deficiency of assets of $556,619 in November 1999, rising to a deficiency of $1,080,285 in June 2000. As the company had insufficient assets to meet its liabilities after excluding the Caylen debts, and no fixed assets or long term liabilities, Mr Fettes concluded that it also had a deficiency of working capital and was balance sheet insolvent from as early as November 1999 and throughout the entire preference period.

  46  Mr Fettes concluded that the company was also commercially insolvent, or unable to pay its debts as they fell due, from November 1999, and throughout the preference period. It could not meet its current group tax liabilities as they fell due from at least August 1999. The company also apparently understated its self-assessed group tax liability by remitting group tax payments that were substantially less than the actual group tax amounts payable. In his opinion, the company's cash flow was neutral at best. After taking into account its taxation obligations, it had a significant cash flow deficiency.

  47  As at 1 July 1999, a group tax liability of $459,840.52 was shown in the company's balance sheet, which did not take account of tax due for late payment. The company had entered 2 separate s 222ALA Payment Agreements, the principal one being in relation to past due group tax.

  48  The company made no further payments under the payment agreements after January 2000. On its failure to make the required payment on 29 February 2000, the outstanding balance of $264,153.75 became due and payable. The total group tax debt, excluding interest, was $688,994.77, with a balance owing as at 30 June 2000 "per accounts" of $745,946.29.

  49  Mr Fettes concluded that the company was unable to meet its debt to the Australian Taxation Office when the current monthly and arrears group tax liabilities fell due.

  50  The company did have debtor collections and receipts, but they were used to meet business expenses, such as wages bills. Mr Fettes identified other debts due for Payroll Tax and workers' compensation, and an accumulating employee superannuation obligation in respect to its employees. The company reduced the premium payable for WorkCover by varying an estimate of remuneration.

  51  Mr Fettes identified some debts due to the company, representing a further source of funds. However, they were reflected in the receipts into the company's bank account and therefore did not change the expected cash flow deficiency.

  52  Therefore, he concluded that the company was commercially insolvent from at least November 1999.

  53  Mr Scott, the liquidator of the company, gave evidence by witness statement, adopting an affidavit sworn 21 June 2001. He deposed, inter alia, that he agreed with the statements and conclusions of Mr Fettes. He stated that the company's superannuation liability was due and payable in July 2000, but that no provision was recorded in relation to it. The company was, in his opinion, "robbing Peter to pay Paul" as creditors were being paid without regard to its current liability for superannuation contributions.

  54  Mr Scott gave evidence, on the basis of certain assumptions, that the amount available to ordinary unsecured creditors was a "nil" amount and that the amounts received by the defendant as payments, exceeded the amount it would have received in the event of a liquidation.

  55  Mr Hogan, an employee of the liquidator of Caylen, gave evidence that Caylen's Report as to Affairs did not disclose liabilities of $337,659.45 and $920,560.20 owed by Caylen to the company. He also testified that Caylen had no capacity to pay such liabilities. Ms Davies, an employee of the liquidator of Complex, gave evidence that the Report as to Affairs of Complex did not disclose a debt of $164,390.59 owed to the company. Further, she testified that Complex's bank statements for the period 1998 to November 2000 revealed no capacity to pay any sums to the company.

  56  Mr Spitale, an employee of a company responsible for collecting WorkCover premiums, swore a witness statement in relation to the company's underestimation of WorkCover premiums, based on an apparent understatement of the remuneration actually paid by the company.

  57  None of the above witnesses called on behalf of the plaintiff was cross-examined. No aspect of their evidence was disputed by the defendant.

Conclusion - unfair preference

  58  I consider that the unchallenged evidence given on behalf of the plaintiff establishes that the company was insolvent from November 1999 and throughout the preference period, both on a balance sheet basis and in the sense that it was unable to pay its debts as they fell due, pursuant to s 95A of the Corporations Act 2001 (Cth).

  59  All the elements of an unfair preference are therefore established and I am satisfied that the orders sought by the plaintiff pursuant to s 588FF of the Corporations Act 2001 (Cth) should be made.

Position of third party

  60  At the hearing of the matter, the third party, Mr Whitford did not appear and no evidence was led to establish the defence pursuant to s 588FGB(3) pleaded by the third party in his defence. Mr Crutchfield, counsel for the defendant, directed me to extracts of the transcript of Mr Whitford's and Mr De Angelis' public examinations in Federal Court proceeding no V1393 of 2002 held between 25-28 November 2002, which were in evidence. Mr Crutchfield submitted that on the basis of the public examinations, I should be satisfied that the defence under s 588FB(3) of reasonable grounds to expect that the company was solvent was not made out. I have considered the evidence and accept that submission.

Indemnity under s 588FGA

  61  The defendant, in the event that an order is made in favour of the plaintiff, seeks an order pursuant to s 588FGA against Mr Whitford, the third party, indemnifying the defendant.

  62  In Wily v FCT^[2] Hamilton J considered an application for an indemnity pursuant to s 588FGA. He stated that the only preconditions for an order under s 588FGA are:

 (1)  an order pursuant to s 588FF

 (2)  evidence that the person against whom the order under s 588FGA is sought was a director of the company at the time the impugned payment was made.

  63  The third party, Mr Whitford, was a director of the company at the date of the payments.

  64  At the date of issue of the third party notice on 5 June 2001, the reference to the provisions of the ITAA 1936 in s 588FGA(1) of the Corporations Act 2001 (Cth) did not include a reference to s 220AAM of the ITAA 1936, pursuant to which the obligations discharged by the two impugned payments in this case arose.

  65  Rather, at the date of issue of the third party notice, s 588FGA(1)(a) included a reference to the prior equivalent provision to s 220AAM of the ITAA 1936, namely, s 221F of the ITAA 1936. The reference to s 220AAM in s 588FGA(1) was introduced by s 588FGA(1)(aa), which was inserted with effect from 15 July 2001.

  66  For the defendant, it is submitted that the relevant date for the application of s 588FGA in relation to liability under provisions of the ITAA 1936 is the date of the order under s 588FF. Alternatively, it is submitted that reliance could be placed on provisions dealing with re-enacted sections in acts interpretation legislation.

  67  In Wily v FCT^[3] the same issue arose, in that one payment had been received under s 221F of the ITAA 1936, and the rest had been received under s 220AAM of the ITAA 1936, inserted after the filing of the cross claim under s 588FGA. Hamilton J noted that the payments in question were therefore "not in terms specified as payments within s 588FGA at the time the cross claim for their recovery was instituted".^[4]

  68  His Honour accepted that no difficulty was posed, as s 588FGA "takes effect only if and when the court makes an order against the Commissioner under s 588FF and the cause of action arises until the order is made. That being so, the relevant form of s 588FGA is that which is in force at the time the order is made against the Commissioner, which is yet to occur, and not at the time of the commencement of the cross claim".^[5]

  69  Further, his Honour accepted and applied the reasoning of White J in Hillig v FCT^[6] based on s 10 of the Acts Interpretation Act 1901 (Cth) and s 14 of the Acts Interpretation Act 1954 (Qld) that s 220AAM of the ITAA 1936 is in substantially the same form as s 221F, so that "the reference in s 588FGA of the Corporations Act 2001 (Cth) is taken to be a reference to s 220AAM of the ITAA 1936".^[7]

  70  In my opinion, reliance on the reasoning in Hillig v FCT^[8] may be preferable, as it eliminates a difficulty potentially posed by accepting that s 588FGA takes effect only when the Court makes an order against the Commissioner. If payments were received under a particular provision of the ITAA 1936 and a claim under s 588FGA were instituted on that basis, if s 588FGA were subsequently amended to substitute different ITAA 1936 provisions prior to the making of an order under s 588FF, no indemnity under s 588FGA would be available. That may be an unintended outcome.

  71  It is unnecessary to determine that question, as I consider that on the basis of the reasoning in Hillig v FCT, by force of s 10 of the Acts Interpretation Act 1901 (Cth) and s 16 of the Interpretation of Legislation Act 1984 (Vic), any difficulty which might be posed by the absence of reference to s 220AA of the ITAA 1936 in s 588FG is answered. Section 588FGA(1) applies in the present case in relation to the order which will be made under s 588FF in respect of the payments which discharged liabilities under s 220AAM of the ITAA 1936.

  72  Accordingly, I consider that the defendant is entitled to the orders sought against the third party pursuant to s 588FGA.

Jurisdiction under s 588FGA

  73  A final aspect of the present case merits comment. Although the plaintiff's claim is for a total of only $96,155, a writ was issued in the Supreme Court. The explanation for that course is that the defendant requested the plaintiff to institute the proceeding in a superior court, due to doubt as to whether an indemnity in its favour pursuant to s 588FGA can be ordered by an inferior court.

  74  The uncertainty is founded on the reference to a "Court" in s 588FGA, which relevantly states:

   

(1) This section applies if the Court makes an order under section 588FF against the Commissioner of Taxation because of the payment of an amount in respect of a liability under any of the following provisions of the Income Tax Assessment Act 1936 (Cth):

 

… .

  75  Section 9 of the Corporations Act 2001 (Cth) relevantly provides that "court" has the meaning given by s 58AA and "Court" has the meaning given by s 58AA.

  76  Section 58AA provides:

   

Section 58AA. Meaning of court and Court

 

(1) Subject to subsection (2), in this Act:

 

court means any court.

 

Court means any of the following courts:

 (a)  the Federal Court;

 (b)  the Supreme Court of a State or Territory;

 (c)  the Family Court of Australia;

 (d)  a court to which section 41 of the Family Law Act 1975 (Cth) applies because of a Proclamation made under subsection 41(2) of that Act.

 

(2) Except where there is a clear expression of a contrary intention (for example, by use of the expression "the Court"), proceedings in relation to a matter under this Act may, subject to Part 9.7, be brought in any court.

 

Note: The matters dealt with in Part 9.7 include the applicability of limits on the jurisdictional competence of courts.

  77  Section 588FF(1) empowers a "court" to make an order under s 588FF(1)(a)-(j). Inexplicably, s 588FF(1)(i) refers to the "Court," as does s 588FF(3)(b).

  78  I am unable to discern, and counsel were unable to suggest, any reason for confining jurisdiction under s 588FGA to a superior court. On the contrary, convenience would be promoted and costs contained, if an application for indemnity could be made in the same proceeding as the application for orders under s 588FF. Where the amount of an unfair preference is within the jurisdiction of a lower court, the institution of a proceeding in a superior court, in order to ensure jurisdiction under s 588FGA, may have a severe impact on one or more of the parties in relation to costs.

  79  An examination of the Explanatory Memorandum for the Insolvency (Tax Priorities) Legislation Amendment Bill 1993, which introduced s 588FGA reveals no explanation for the reference to "Court" in s 588FGA.

  80  The uncertainty may be the result of typographical error. The apparent absence of any reason for confining jurisdiction under s 588FGA to a superior court, irrespective of the amount of the related preference claim, may be argued to demonstrate that there is no "contrary intention" in terms of s 58AA(2). It is unfortunate, however, that the terms of s 58AA(2) appear to contemplate that the use of the expression "the Court" constitutes a clear expression of a contrary intention to permit a proceeding to be brought "in any court".

  81  The uncertainty has potentially severe and unjust consequences, and should be addressed by the legislature.