Hart & Ors. v. Barnes

Judges:
Anderson J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 25 November 1982.

---

Anderson J.

The Court has before it two summonses under sec. 538 of the Companies (Victoria) Code, the respondent to such summonses being John Craven Barnes, the receiver and manager of Falcon Sportswear Pty. Ltd. (formerly Bi-Trade Pty. Ltd.), duly appointed pursuant to a debenture charge dated 12th September 1979 given by Bi-Trade Pty. Ltd. (a company formerly engaged in making and distributing women's garments) to Mann Pty. Ltd. and by it transferred to Russell Kumar & Sons Pty. Ltd. on 11th March 1981. Falcon Sportswear Pty. Ltd (herein called ``the company'') being in default, the respondent Barnes was appointed receiver and manager by the debenture holder on 10th July 1981.

In the first summons the applicants are Roger Hart, Marion Hart, Margaret Hart, Robert Tait and Gail Tait, and they are aggrieved (a) because of certain payments made by the receiver to or on behalf of the debenture holder in priority to payments which they claim should have been made to them for wages, holiday pay, long service leave and recoupment for group tax and wages paid on behalf of the company, and (b) because of the receiver's failure to pay to them certain amounts claimed by them to have priority over payments to the debenture holder. In the second summons the Deputy Commissioner of Taxation is aggrieved because of the failure of the receiver to pay in preference to other creditors amounts owing in respect of tax instalment deductions made from the wages of the employees of the company and payable to the Commissioner under sec. 221P of the Commonwealth Income Tax Assessment Act 1936

The immediately relevant part of the debenture charge recited that the company:

``DOES HEREBY as beneficial owner CHARGE in favour of the Mortgagee the whole of its assets property and undertaking whatsoever and wheresoever both present and future (including unpaid premiums) for the time and the goodwill of its business and its stock and book debts and freehold and leasehold property and such charge shall constitute as to the Company's present and future goodwill and uncalled and called but unpaid capital book debts relevant agreements securities and proprietary rights from time to time a fixed and specific charge and the

---

ATC 4079

Company hereby as beneficial owner conveys assigns and sets over the same unto the Mortgagee absolutely subject only to the proviso for redemption hereinafter contained and with the intention that as to each and all future book debts relevant agreements securities and proprietary rights the same shall be specifically charged and legal title to the same shall vest in the Mortgagee upon the same coming into existence and as to the Company's goodwill and uncalled and called but unpaid capital this Charge shall constitute a fixed and specific charge and as to the other present and future assets property and undertaking of the Company this Charge shall constitute a floating charge but so that the Company shall not be at liberty to create any mortgage charge or security ranking in priority to or pari passu with this Debenture.''

Clause 3 of the debenture provided that:

``Until the security constituted by this Debenture becomes enforceable as hereinafter provided the Mortgagee shall permit the Company to hold and enjoy all the mortgaged property and to carry on therin and therewith the business or any of the businesses authorised by its Memorandum of Association.''

By an agreement between the debenture holder and the company dated the same day as the debenture charge and intended by the parties to be read with the debenture, the parties agreed pursuant to cl. 6 thereof that:

``Provided that the amount owing shall not have become payable pursuant to the terms of this agreement, the Mortgagor may collect the book debts as provided in the debenture and may employ the proceeds of such collections in its business as it sees fit.''

Upon his appointment as receiver of the company, the respondent proceeded to wind up the business of the company. Book debts to the amount of $10,608.50 were recovered, the sale of stock on hand and various assets realised $35,228.75, and out of these proceeds the receiver in March and April 1982 paid to the debenture holder the sum of $40,000, being the amount secured by the debenture charge, together with $2,499.38 interest and $1,197.90 for legal costs. He discharged certain other obligations of the company, and he received personally $5,174.80 as remuneration as receiver and manager. He was aware at this time of the claims by the applicants in both summonses before the Court.

The claims made by the applicants in the first summons are made under various headings and priority is claimed in respect of them. These claims are for various sums for wages, holiday pay, long service leave and group tax and wages paid on behalf of the company, totalling approximately $38,700. The claim by the Deputy Commissioner of Taxation is for the sum of $15,064 for group tax instalment deductions made by the company before the appointment of the receiver but not transmitted to the Australian Taxation Office. It is sufficient to say that the total claims made by the debenture holder and by persons claiming to be preferential creditors amount to $118,241.88, and the amount realised is somewhere in the region of half that amount.

The primary issue before the Court is a question of priorities, the applicants claiming priority over any claim by the debenture holder and the receiver, and the debenture holder claiming priority in respect of the sum of $10,608.50, being the amount of book debts owing to the company at the time of the appointment of the receiver and recovered by the receiver, as well as an amount of $35,228.75 realised on the disposal of other assets of the company and subsequently entered in the sales journal and debtors' ledger as book debts.

The receiver's contention is that the expression ``book debts'' comprehends not only the sum of $10,608.50, but also the sum of $35,228.75, totalling $45,837.25 which was thereby available to the debenture holder under the debenture, and he has accordingly distributed that sum to the debenture holder in the sum of $40,000 and interest of $2,499.38, and he has used the balance to meet what he claims were some of the costs and expenses of his administration. He bases that contention on what is said by him to be the unusual wording of the debenture in that the debenture is said to provide that all future book debts shall be specifically charged and that the legal title to the same shall vest in the debenture holder upon the same coming into existence. The submission

---

ATC 4080

developed by Mr. Mahony, for the receiver, is that as from the execution of the debenture charge the legal title to all book debts, then in existence or later to come into existence, vested immediately on their creation in the debenture holder, and that when the receiver was appointed it was as trustee for the debenture holder, which already held the legal title to the book debts, that he held the book debts. It will be appreciated that what are claimed to be book debts are both the conventional book debts owing by customers in the ordinary course of trade and what the receiver has chosen to call book debts, being the proceeds from the disposal by the receiver of stock in trade and plant of the company otherwise than in the ordinary course of trade. The applicants concede that the first category are conventional book debts without conceding that anything more than a floating charge was created over them, but they dispute that the second category are properly to be classified as book debts. Mr. Mahony's submission is that the legal title to all of these book debts passed to the debenture holder upon their coming into existence, and as this submission goes to the root of the dispute before me, it has first to be dealt with.

It is to be observed that by the debenture the company purports to charge all its assets, property and undertaking, including its book debts, and that such charge shall constitute as to the company's book debts a fixed and specific charge, and the debenture then proceeds ``and the company hereby as beneficial owner conveys assigns and sets over the same unto the Mortgagee absolutely subject only to the proviso for redemption hereinafter contained and with the intention that as to each and all future book debts... the same shall be specifically charged and legal title to the same shall vest in the Mortgagee upon the same coming into existence''.

The effect of cl. 2 of the debenture and cl. 6 of the companion agreement to which I have referred is that the company may carry on the business and collect the book debts as provided in the debenture and may employ the proceeds of such collections in its business as it sees fit. Until such time as the debenture holder exercises its right to appoint a receiver, the identity of the book debts over which the charge operates would therefore be liable to change according to the payment of book debts and the transaction of the company's business. While the company was observing its obligations under the debenture, the debenture holder could not assert any right over a particular book debt, which would be liquidated upon payment, and the proceeds of the particular transaction would by cl. 6 of the collateral agreement be available to be used by the company in its business as it saw fit. Indeed, if it were otherwise it would mean that there would be brought into existence an ever-increasing fund, being the proceeds of the payment of book debts, which fund, being the property of the debenture holder, would be untouchable by it and equally unavailable to the company. Even without cl. 6 of the companion agreement, it could not sensibly be said that while the company was not in default under the debenture and was allowed under cl. 2 of the debenture to carry on its business, the company could nevertheless not make use of funds received in payment for the goods which it sold. While the business of the company was a going concern, the aggregate of funds representative of the company's book debts would probably fluctuate between extremes. It is for this reason that, in my opinion, it was not open to the company to create the ``fixed and specific charge'' in respect of the company's book debts, each book debt (or many of them) being an evanescent entity to which nothing could attach until the appointment of the receiver. The assertion in the debenture charge that there was created a fixed and specific charge as to the company's book debts and that it was the intention that as to each and all future book debts they be specifically charged and that the legal title shall vest in the debenture holder upon the same coming into existence, cannot be given effect to, for that intention is repugnant to the nature of a charge over a future asset, the disposition of which is still at the will of the company. It cannot sensibly be said that in respect of each present and future book debt of the company the debenture holder obtains a legal title when the fact is that such ``title'' is defeasible and capable of being destroyed by the company which is able to use the proceeds of such book debt in its business without in any way being accountable to the debenture holder for such proceeds. Notwithstanding the brave attempts to define

---

ATC 4081

the charge given over book debts of the company as a fixed and specific charge and to purport to transfer the legal title in future book debts to the debenture holder, I am of opinion that these objectives cannot be achieved, and that, at most, all that can be given is a floating charge which cannot crystallise until a specific event occurs, namely the default by the company and the appointment of a receiver, and it is only then that the floating charge settles, so to speak, and the rights of the debenture holder can be enforced against such book debts as are then in existence.

In
Re Yorkshire Woolcombers' Association Ltd. (1903) 2 Ch. 284, the situation was in essence almost identical with the present case. There a company, by way of security to guarantors, assigned by deed all its present and future book and other debts to a trustee in trust for guarantors. The deed contained no express provision against possession being taken by the trustee, but declared that the trustee should at any time, if required by the guarantors, give notice of this assignment to the company's debtors, but that it should not be incumbent on the trustee to give notice unless he saw fit, and there were provisions that the trustee might at any time give notice, appoint a receiver and exercise the statutory power of sale, but meanwhile should not be answerable for allowing the company to receive the book debts. It was held that upon the true construction of the deed it was clearly intended that the company should carry on its business in the ordinary way and receive the book debts for that purpose, and that the deed was a ``floating charge'' within the meaning of the English Companies Act 1900. The matter initially came before Farwell J., who at p. 289 said:

``In my opinion, this [the assignment of book debts] is, although the parties have chosen to call it a specific security, nothing more nor less than a floating charge. But when one comes to consider what `specific security' means, in my opinion it is quite clear that anything which takes effect as a floating security is wholly inconsistent with, and is the antithesis of a specific security. A specific security is that which is given on specific property. A charge on all book debts which may now be, or at any time hereafter become charged or assigned, leaving the mortgagor or assignor free to deal with them as he pleases until the mortgagee or assignee intervenes, is not a specific charge, and cannot be. The very essence of a specific charge is that the assignee takes possession, and is the person entitled to receive the book debts at once. So long as he licenses the mortgagor to go on receiving the book debts and carry on the business, it is within the exact definition of a floating security.''

In the Court of Appeal in the course of his judgment, Romer L.J., at p. 295 said:

``I certainly think that if a charge has the three characteristics I am about to mention it is a floating charge: (1) if it is a charge on a class of assets of a company present and future; (2) if that class is one which, in the ordinary course of business of the company, would be changing from time to time; and (3) if you find that by the charge it is contemplated that until some future step is taken by or on behalf of those interested in the charge the company may carry on its business insofar as concerns the particular class of assets I am dealing with.''

In
Governments Stock and other Securities Investment Co. v. Manila Railway Co. (1897) A.C. 81 at p. 86, Lord Macnaghten described a floating security in these terms:

``A floating security is an equitable charge on the assets for the time being of a going concern. It attaches to the subject charged in the varying condition in which it happens to be from time to time. It is of the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes. His right to intervene may of course be suspended by agreement. But if there is no agreement for suspension he may exercise his right whenever he pleases after default.''

Subsequently, when Re Yorkshire Woolcombers' Association Ltd. went to the House of Lords under the name of
Illingworth v. Houldsworth (1904) A.C. 355, and there was affirmed, Lord Macnaghten, at p. 358, after referring to his description of a floating charge in the Manila Railway Co..

---

ATC 4082

case and contrasting ``a specific charge'' with ``a floating charge'', said:

``A specific charge, I think, is one that without more fastens on ascertained and certain property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.''

There was gratifying unanimity in both the Court of Appeal and the House of Lords where the opinion of Farwell J. was endorsed with that degree of enthusiasm of which an appellate Court is sometimes capable.

The circumstances that the relevant event occurs or act is done which transforms a floating charge into a specific or fixed charge does not alter the nature of the charge for the purpose of the Companies (Victoria) Code, for by sec. 5 of the Code the expression ``floating charge'' is stated to include ``a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge''.

So far, then, as the amount of $10,608.50, the proceeds of the admitted book debts, is concerned, the charge which the debenture purported to give in respect of that amount must necessarily be held to be a floating charge, notwithstanding the language of the debenture. In my opinion, it could not be properly said that the legal title to the fluctuating book debts was in the debenture holder and that the receiver was holding the proceeds of those book debts as trustee for the debenture holder. Such funds were assets of the company to be dealt with by the receiver as proceeds from the realisation of the company's assets. If I am wrong in that view, there can be no doubt, however, in relation to the amount realised on the sale by the receiver of the stock in trade and plant of the company. Book debts are commonly said to be such debts as in the ordinary course of carrying on the business were to be entered in books, although not actually entered, and this definition is borne out by sec. 83 of the Instruments Act 1958, which, so far as relevant, defines ``book debts'' as meaning ``any debt due or to become due at some future date to any person on account of or in connexion with any profession trade or business whether entered in any book or not''. It is clear to me that the amount realised on the sale by the receiver of the stock in trade and plant of the company was not book debts for they were not realised in the ordinary course of the business of the company, but in the realisation of the assets of the company by virtue of the terms of the debenture, and, further, they were, in the debenture itself, specifically distinguished from book debts, for they were therein referred to as ``the other present and future assets property and undertaking of the company'' as to which the debenture created a charge which was specifically stated to ``constitute a floating charge''. Notwithstanding that the proceeds of the sale of the stock in trade and plant were entered in the books, that bookkeeping ploy and the purported designation of them as book debts cannot make them something which in law they are not; and it is clear to me that, whatever else they may be, they are not the proceeds of book debts.

It is convenient at this stage to deal with the Deputy Commissioner of Taxation's claim for unpaid group tax amounting to $15,064. It was not disputed that that amount was owing by the company to the Commissioner, and the Commissioner accordingly claimed, pursuant to sec. 221P of the Commonwealth Income Tax Assessment Act 1936, that he was entitled to priority over all other claims upon the assets of the company recovered by the receiver. Section 221P(1), so far as relevant, provides that:

``Where an employer makes a deduction for the purposes of this Division... from the salary or wages paid to an employee and fails to deal with the amount so deducted [by, in effect, paying it to the Commissioner]... he shall be liable, and where his property has become vested in, or where the control of his property has passed to, a trustee, the trustee shall be liable, to pay that amount to the Commissioner.''

Section 221P(2) then provides that an amount payable to the Commissioner by a trustee in pursuance of sec. 221P(1) ``shall have priority over all other debts, whether preferential, secured or unsecured''. Mr.

---

ATC 4083

Mahony's submission was that, because the legal title to the book debts passed to the debenture holder on such book debts coming into existence and the book debts were therefore and thereafter not the property of the company, the receiver, when appointed, held the book debts as trustee for the debenture holder and not for the company, and no property of the company became vested in or passed to a trustee of the company; accordingly, sec. 221P had no application. As I have rejected such a view, I think the matter is concluded by the decision of the High Court in
F.C. of T. v. Barnes 75 ATC 4262; (1975) 133 C.L.R. 483, wherein it was held that a receiver and manager appointed pursuant to a floating charge over a company's assets was a trustee within the meaning of sec. 221P, and that the Commissioner was accordingly entitled, in priority to other debts of the company whether secured or unsecured, to an amount of tax deducted by the company from wages of its employees.

I now turn to deal with the claims made by the five applicants in the first summons who claim priority under various headings; namely wages, holiday pay, long service leave and recoupment for group tax and wages paid on behalf of the company. The issues before me are not concerned with amounts, some of which may readily be determined, some of which may require some further inspection of the company's books; and it is only for the purpose of indicating the nature of the claims I set out the amounts allegedly involved in the first summons before me. Thus, Roger Hart is claiming a total of $5,143.22, made up of $1,099 for wages, $1,560 for holiday pay and $2,484.22 for long service leave. Marion Hart is claiming $350 for wages. Margaret Hart is claiming $19,513.08 for group tax paid on behalf of the company. Robert Tait is claiming a total of $13,197.56, made up of $890 for wages, $1,768 for holiday pay and $10,439.56 for group tax and wages paid on behalf of the company. Gail Tait is claiming $596 for wages.

The priority of the payment of wages and other employee remuneration is governed in this case by sec. 331 of the Companies (Victoria) Code, the relevant provisions of which section are as follows:

``331(1) Where -

• (a) a receiver is appointed on behalf of the holders of any debentures of a company that are secured by a floating charge, or possession is taken or control assumed, by or on behalf of the holders of any debentures of a company, of any property comprised in or subject to a floating charge; and
• (b) at the date of the appointment or of the taking of possession or assumption of control (in this section referred to as the `relevant date') -
  • (i) the company has not commenced to be wound up voluntarily; and
  • (ii) the company has not been ordered to be wound up by the Court,

the following provisions of this section have effect.

(2) The following debts or amounts shall be paid out of the property coming to the hands of the receiver or other person taking possession or assuming control in priority to any claim for principal or interest in respect of the debentures:

• ...
• (c)... third, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 441(e) or (g) or section 445.''

Section 441(e) and (g) provides as follows:

``441. Subject to the following provisions of this subdivision, in the winding up of a company the following debts shall be paid in priority to all other unsecured debts:

• ...
• (e) fifth, wages in respect of services rendered to the company by employees before the relevant date, but not exceeding $2,000 in respect of any one employee;
• ...
• (g) seventh, all amounts due on or before the relevant date to or in respect of an employee of the company (whether remunerated by salary, wages, commission or otherwise), in respect of leave of absence, being amounts due by virtue of an industrial instrument;.''

---

ATC 4084

``Industrial instrument'' is defined in sec. 5 as meaning:

``(a) a contract of employment; or

(b) a law, award, determination or agreement relating to terms or conditions of employment.''

Section 445 is as follows:

``445. Where a payment has been made by a company on account of wages, or in respect of leave of absence under an industrial instrument, being a payment made out of money advanced by a person for the purpose of making the payment, the person by whom the money was advanced has, in the winding up of the company, the same right or priority of payment in respect of the money so advanced and paid, but not exceeding the amount by which the sum in respect of which the person who received the payment would have been entitled to priority in the winding up has been diminished by reason of the payment, as the person who received the payment would have had if the payment had not been made.''

These sections I have recited clearly state the rights of employees of the company to priority in respect of payment of moneys that can be shown to be owing to them for wages and also under an ``industrial instrument'' which gives them entitlements as to holiday pay and long service leave. So far as wages are concerned, there is a limit of $2,000 in respect of each employee, though there is no such limit in respect of payments under an ``industrial instrument''. Likewise, under sec. 445, persons who have paid money to the company in order that the employees may be paid their wages and entitlements under an industrial instrument are assimilated to those of employees under sec. 441(e) and (g), and such persons have the like rights and priorities as employees, and are, so far as money advanced to pay wages is concerned, subject to the same limitation that not more than $2,000 may be claimed in respect of any one employee. So far as claims made by the claimants as employees of the company are concerned, both as to wages and holiday pay and long service leave, it is a matter of proof of these entitlements to the satisfaction of the receiver who, if he does not act fairly and reasonably, may be brought to the Court again under sec. 538 of the Code by the aggrieved person. None of these claims for wages is over $2,000. Such claims for holiday pay and long service leave as may be established have no $2,000 limit imposed on them. These claims, under sec. 441(e) and (g), upon being established, have priority over all claims other than that of the Deputy Commissioner of Taxation.

The claim made by Robert Tait in respect of money paid to the company for payment of wages of employees of the company is a claim under sec. 445, with the limitation of $2,000 in respect of each employee. His entitlement to the priority which is afforded by sec. 441(e) and 445 is, it seems to me, simply a matter of investigation and proof.

So far as the money advanced by Robert Tait and Margaret Hart for payment of group tax is concerned, there was no agreement before me either as to entitlement to be recompensed or as to amount. Mr. Mahony, for the receiver, submitted that the money was money paid to the company for the purpose of paying tax and was not paid for the purpose of paying tax and was not paid for the purpose of paying wages, whereas Mrs. Moshinsky, for the applicants, argued that it was for the payment of wages out of which money was taken to pay tax. I think a consideration of some of the sections of the Income Tax Assessment Act 1936 determines the matter. Division 2 of Pt. VI of that Act provides for the ``Collection by Instalments of Tax on Persons other than Companies'' and is a code specifically designed to collect income tax payable by persons in employment by instalments which are collected by employers on behalf of the Commissioner of Taxation.

Section 221C(1) provides for the making of regulations which prescribe rates of deductions to be made by employers from payment of salaries or wages that employees receive or are entitled to receive in respect of a week or part of a week. Section 221C(1A) provides that:

``Where an employer pays to an employee salary or wages, the employer shall, at the time of paying the salary or wages, make a deduction from the salary or wages at such rate (if any) prescribed in accordance with sub-section (1) or (1AA) as applicable.''

---

ATC 4085

Various other sections deal with alternative means of paying to the Commissioner the tax so deducted by payment of the money to the Crown or by the purchase of tax stamps (see, for example, sec. 221F, 221G and 221H). Where the employer fails to make the deductions he is required to make from the salary or wages of an employee, he is liable to a penalty (sec. 221C(1A)), and the Commissioner may sue and recover from the employer the amount he has failed to deduct (sec. 221N), and where such deduction has been made but not paid to the Commissioner, the Commissioner may likewise sue (sec. 221R). These and other sections clearly indicate that the deduction for tax is made, the employer paying in full the appropriate salary or wages, but retaining out of the salary or wages an amount appropriate to the tax for which the employee is liable in respect of his salary or wages. Where an employer has paid the employee his salary or wages without making the appropriate deduction, it is the employer whom the Commissioner may sue, not the employee, and the employer may then recover from the employee the amount of tax which he has been required to pay (sec. 221N). In my opinion it is clear that the payment of money to the company by Margaret Hart and Robert Tait for the purpose of paying the tax instalments from the wages or salary of an employee of the company is payment by the company ``on account of wages'' within the meaning of sec. 445 of the Companies (Victoria) Code. It may appear that payment of group tax by Robert Tait and Margaret Hart were made direct to the Commissioner, and so discharged the obligation that the company had to pay money which had been deducted from wages or salaries. It is immaterial that the money went directly to the Commissioner and not first to the company and then to the Commissioner, as appears to be the claim by Margaret Hart, a photostat of whose cheque dated 18th March 1981 for $19,513.08 was produced and was payable to the Commissioner of Taxation. Of course, since, in my view, moneys paid to the company or on behalf of the company to meet its obligations under the Income Tax Assessment Act are paid on account of wages or salary within sec. 445 of the Companies (Victoria) Code, the limit of $2,000 imposed by sec. 441(e) of the Code in respect of any one employee is relevant, both in respect of money paid to the company for wages and to the Commissioner direct for wages in the form of tax.

The conclusions to be drawn from my findings are that the only charge effected by the debenture was a floating charge over the whole of the assets of the company. Priority in payment of debts appears therefore to be:

• (1) First priority, the debt for group tax owing to the Deputy Commissioner of Taxation.
• (2) Second priority, equally -
  • (a) salary or wages, and
  • (b) money paid to the company on account of salary or wages and group tax,

  with the limitation of $2,000 in respect of the aggregate under (a) and (b) in respect of any one employee.

• (3) Third priority, holiday pay and long service leave due under an industrial instrument.

The two summonses before me are under sec. 538 of the Companies (Victoria) Code and are issued on behalf of persons aggrieved by acts, omissions or decisions of the receiver. The acts, omissions or decisions of the receiver involve his receiving out of the assets of the company an amount of approximately $67,000 (although that is an indefinite figure), which is insufficient to pay all the company's debts, and his decision to pay and his paying to the debenture holder $40,000 and interest and other sundry amounts in preference to payments to which by law he should have given priority, are thus omissions by him to make priority payments in the order of priority hereinbefore set out. The Court may confirm, reverse or modify the act or decision of the receiver or remedy the omission as the case may be, and make such orders and give such directions as it thinks fit. The Court accordingly does those things within its power to procure the result that the foregoing reasons for judgment indicate should eventuate. Specifically, in the Deputy Commissioner of Taxation's summons, the Court orders the receiver to pay to the Commissioner of Taxation the sum of $14,064, claimed as group tax owing to the Crown in right of the Commonwealth. So far as the other summons is concerned,

---

ATC 4086

the Court orders that the receiver pay, in accordance with the priorities hereinbefore set out, such amounts as, after due enquiry, he is satisfied are owing to the persons claiming to be entitled to payment on the basis of the priorities claimed.

There was insufficient evidence before me to make any decisions as to amounts owing to the several claimants, and, indeed, the exercise before me was not for the purpose of determining how much each claimant was entitled to, but for the purpose of determining priorities, and that is all (with the exception of the Commissioner's claim) that I have purported to do. The amounts proper to be paid to the claimants may be determined by a more intensive investigation of the company's affairs than seems to have been made at this stage.

The receiver has erred in the payments he has already made without due regard to the priorities as I have determined. During the course of the hearing it was said that the receiver stood to be indeminified in the event that payments which he has made were made without regard to the priorites which he should have observed and which I have stipulated. No doubt he will look to that indemnity to reimburse him in respect of payments he is required to make consequent upon my orders. With hindsight, it might have been wiser to seek a ruling of the Court before making the payments which were made.

His Honour: Now the question of costs.

[After discussion as to costs and interest.]

His Honour: I will deal with the last matter first, the question of interest, and this is more particularly in relation to the first summons by the Taits and the Harts. These proceedings are brought to remedy a grievance, the complaint being that moneys which should have been held to them was paid elsewhere. The amount so paid out by the receiver was in the region of $45,000, a little over $45,000. The Harts and the Taits amount to round about $38,000, though what they may in the aggregate be entitled to may be less. It is not known what the total assets of the company realised. The total amount may or may not be sufficient to satisfy the claims of the Taits and the Harts. These proceedings before me are not for the purpose of protecting the whole of the fund, but for determining the rights of the Harts and the Taits and the Deputy Commissioner of Taxation. To order interest to be paid by the respondent on the basis that the money paid to the debenture holder, if invested by the receiver, would have augmented the fund would be going beyond the issues raised in the summonses before me, and I do not intend to order interest.

So far as costs are concerned, I see nothing different in this case from any other case where the general rule is that the costs follow the event. The receiver, acting for the debenture holder, paid moneys to the debenture holder at a time when he was aware of the claims of the Taits and the Harts and the Commissioner. He was aware of these claims and he saw fit nevertheless to pay out in March and April 1981 to the debenture holder.

As I said, it would have been preferable for the receiver to have approached the Court for directions if he had doubts as to the meaning of the debenture, rather than, having raised the question with the Deputy Commissioner of Taxation, then paid out the money before the question was resolved. Furthermore, as I see it, there was a complete disregard of the claims by the Harts and the Taits, not in relation to amounts, but as to their rights to have certain payments, if established, made out of the funds of which he had control.

The orders as to costs are that the respondent in each summons pay the taxed costs of the applicants and I certify for counsel.

[Upon application by Mr. Mahony.]

His Honour: Yes. Well, I have indicated my findings and so far as costs are concerned the respondent in each summons is to pay the taxed costs of the applicants and I certify in each case for counsel. I grant leave to appeal to the respondent in each case and extend until 21st December 1982 the time within which notice of appeal may be given.

So far as the summons in which the Commissioner of Taxation is the applicant, I grant a stay of execution in that matter until 21st December 1982 and if by that date notice of appeal is given then I extend the say of execution pending the hearing of such appeal or until further order.

I grant all parties liberty to apply as they may be advised.