Commissioner of Taxation v Linter Textiles Australia Ltd
[2004] HCATrans 255
[2004] HCATrans 255
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S606 of 2003
B e t w e e n -
COMMISSIONER OF TAXATION
Appellant
and
LINTER TEXTILES AUSTRALIA LTD (IN LIQUIDATION)
Respondent
GLEESON CJ
McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J
HEYDON J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON TUESDAY, 3 AUGUST 2004, AT 10.20 AM
Copyright in the High Court of Australia
MR M.R. ALDRIDGE, SC: May it please the Court, I appear with my learned friends, MR S.J. McMILLAN and MR N. PERRAM, for the applicant. (instructed by Australian Government Solicitor)
MR D.H. BLOOM, QC: May it please the Court, I appear with my learned friends, MS J. DAVIES and MR S.H.P. STEWARD for the respondent. (instructed by Phillips Fox)
GLEESON CJ: Yes, Mr Aldridge.
MR ALDRIDGE: Your Honours, I would like to commence with what has been described in shorthand terms as the rights issue, which is the question of whether or not pursuant to section 80A(1) and 80A(3) the shares continued to carry the rights to exercise one half of the voting power of the company or whether ‑ ‑ ‑
KIRBY J: Could you just help me – I am sorry, finish what you are saying.
MR ALDRIDGE: And whether or not, pursuant to 80A(3), there was the relevant capability or actual control of the company. Sorry, your Honour?
KIRBY J: At the end of your written submissions you make reference to some change in terms of principles, but point out that it was not the law.
MR ALDRIDGE: Yes, your Honour.
KIRBY J: Now, are those principles under statutory authority, or are they some departmental instruction?
MR ALDRIDGE: It is a departmental White Paper information paper, as we understand it, your Honour. It is legislation.
KIRBY J: Does that mean that the Commissioner intends to administer the Act in a different way?
MR ALDRIDGE: No, it means that the Treasury have announced a White Paper for the purpose of presumably drafting some legislative amendments that will take place in the future.
KIRBY J: So all this is in futuro?
MR ALDRIDGE: Yes.
KIRBY J: But does it render the point being argued in the appeal by the Commissioner largely academic except for this case?
MR ALDRIDGE: No, your Honour, we would say not. Firstly, the answer to that would depend on what the legislation is in the future. It is not suggested that that legislation when developed is going to be retrospective, and this principle would apply not only to this case but to other cases in liquidation where there are loss carried forward issues.
KIRBY J: So you were just bringing it to our notice to show this sea change in governmental or Commissioner’s policy within their own thinking on the merits of this issue.
MR ALDRIDGE: Yes, it was a subject the Commissioner felt ought be drawn to the Court’s attention, but says that it does not relevantly change the circumstances in which leave was granted.
KIRBY J: But it does tend to give some support to the Full Court’s view concerning the merits in policy.
MR ALDRIDGE: We would say, perhaps to the contrary of that, your Honour, that it simply accepts what the Full Court said as the position and it proceeds from there, but because the paper is in fairly brief and short form, both possibilities may be correct.
GLEESON CJ: Mr Aldridge, what is the print of the Income Tax Assessment Act 1936 with which we need be concerned?
MR ALDRIDGE: Your Honour, the relevant version of section 80A is attached to our submissions.
GLEESON CJ: I understand that, but my question to you is, because we might want to read 80A in context, what is the print?
MR ALDRIDGE: 1992, your Honour.
GLEESON CJ: Does it have a print number?
MR ALDRIDGE: It does, but I am not aware of it just as I speak. I will ask ‑ ‑ ‑
GLEESON CJ: Could you find it out and let us know?
MR ALDRIDGE: Yes, your Honour, I will.
GLEESON CJ: Thank you.
MR ALDRIDGE: As I said a moment ago, the text of section 80A with which we are concerned has been appended to our written submissions. Section 80A(1) provides that, leaving out appropriate words:
a loss incurred by a company in a year before the year of income shall not be taken into account . . . unless:
(a) the company satisfies the Commissioner; or
(b) . . . the Commissioner considers that it is reasonable to assume;
that, at all times during the year of income, shares in the company carrying between them:
(c) the right to exercise more than one-half of the voting power . . .
were beneficially owned by persons who, at all times during the year in which the loss was incurred, beneficially owned shares in the company carrying between them rights of those kinds –
The focus, therefore, is on shares that carry the right to exercise one half of the voting power, that is, to control the company through the exercise of that voting power. The point is quite a simple one. It is simply that when a company goes into liquidation control over the company is in the hands of the liquidator. The members of the company ‑ ‑ ‑
HAYNE J: That elides about three steps. It may be right as a conclusion restatement but there is an elision of several steps by that assertion and I think you need to take it one by one.
MR ALDRIDGE: Yes. Your Honour, the first step is, of course, that once a company is in liquidation control of the ‑ ‑ ‑
GUMMOW J: Just a minute, under what particular statute is this winding‑up conducted?
MR ALDRIDGE: It is, I think, the Companies Code. Yes, one was under the Companies Code and one was under the Corporations Law. We would submit there is no relevant difference between the two because the general principle still applies that in winding up ‑ ‑ ‑
GUMMOW J: General principle comes out of statutes.
MR ALDRIDGE: Yes, but in each ‑ ‑ ‑
KIRBY J: It is a very annoying thing, I know, but we like to look at the actual terms of what Parliament has provided. So we will have to look at the provision of the Code and the provision of the intervening Corporations Law.
MR ALDRIDGE: Yes, your Honours.
KIRBY J: These are rather ancient events.
MR ALDRIDGE: They are, your Honour. We will identify or take your Honours to those particular provisions shortly. I have asked Mr McMillan to do that. But the point is that on liquidation the control of a company passes to a liquidator because officers of the company lose the power to control the company and the liquidator instead has the control of the company under the statutory affairs. The directors of a company are, of course, not subject to the direct control of shareholders in the sense that members of the company cannot direct the directors as to how to carry out their duties, but they can control the directors by their appointment and removal.
So that ultimately the control of a company vests in the members, or, more correctly, those who have the ability to control a general meeting of the company. For that proposition we rely on what was said by Justice Mason in Kolotex Hosiery(Australia) Pty Ltd v Federal Commission of Taxation (1973) 130 CLR 64 at 77, where it was said:
Central to the concept of control of a company is the capacity to control a general meeting. That capacity rests on majority voting power and it matters not whether the majority voting power is, or is not, attached to shares.
This section, of course, is somewhat different, in that the requirement is that the voting power be attached to shares ‑ ‑ ‑
HAYNE J: The word “control” does not appear in 80A, does it?
MR ALDRIDGE: No, it does not, your Honour.
HAYNE J: So, what are we to make, if anything, of discussion of concepts of “control” which, in other contexts, have particular significance, such as, for example, determining the relationship of holding company and subsidiary? Must we not begin with the text, applied to an identified company, and work through it – laborious though it may be – step by step?
MR ALDRIDGE: Yes, your Honour. The shares in this particular company need to be shares that carry the right to exercise more than one half of the voting power. There is nothing in the memorandum and articles of this particular company that provided anything unusual or different about the voting rights of the shares, so that there were no special rights attached to the shares. The shares carried voting rights in the ordinary and common way, so that in this particular company, if one held shares carrying the right to exercise more than one half of the voting power, one was able to control the company through the exercise of that voting power.
KIRBY J: You are back to that word “control”.
MR ALDRIDGE: Yes.
KIRBY J: You love that word “control”.
MR ALDRIDGE: Yes, I do, your Honour.
KIRBY J: It is just that the Parliament did not see the same merit.
MR ALDRIDGE: No, it did not, your Honour, and of course, it did use it in in 80A(3) and when I come to 80A(3) your Honours will see we tried to derive some comfort from that in relation to 80A(1) because what we say is that the two subsections are directed at the same end but in a slightly different context and one would expect, by their application, one would get the same result. We would submit that (3) does talk about control and it talks about immediately exercisable control - I am sorry, we would say the correct interpretation is immediately exercisable control - so that the Court would more readily come to the view that in relation to 80A(1)(c) that one is talking about a present right to exercise more than one half of the voting power rather than a right that simply attaches to the shares that, in the event of a general meeting being called, which is perhaps not impossible but would be of no effect if the company was in liquidation, certainly in insolvency.
GUMMOW J: Section 374 of the Code said that on appointment the liquidator was to “take into his custody or under his control all the property”.
MR ALDRIDGE: Yes, your Honour.
GUMMOW J: That is not quite what you are using “control” to mean.
MR ALDRIDGE: No, the talk about ultimately ‑ ‑ ‑
GUMMOW J: It is used in the section in apposition to custody.
MR ALDRIDGE: Yes, but the – I will find the section in a moment, your Honour, I cannot recall it off the top of my head, but there is a corresponding section that the officers of the company lose the ability to control the affairs of the company so that those two sections taken together mean the effective control of the company and its affairs is in the hands of the liquidator. The directors can have no power and the members can have no power to direct the affairs of the company. When the company is in liquidation that is in the hands of the liquidator.
KIRBY J: It just seems axiomatic to me that you have to go back to the Corporations Law as they applied to find out exactly what ‑ ‑ ‑
MR ALDRIDGE: Yes, your Honour. I am not trying to avoid that.
KIRBY J: ‑ ‑ ‑ the liquidator is empowered to do.
MR ALDRIDGE: Yes.
KIRBY J: I think you are waiting for a copy of the laws to be brought in ‑ ‑ ‑
MR ALDRIDGE: Yes, I think we do not have a copy of the Code in Court, your Honour. So I am not trying to avoid that issue, but I had assumed that it was not in issue, that proposition I put, but I certainly wish to assist your Honours by taking your Honours to the sections directly and will do so.
GUMMOW J: The problem is you see, Mr Aldridge, you say not in dispute between you, et cetera, but the proposition you put is at a high level of generality.
MR ALDRIDGE: It is at a high level of generality, your Honour, but ‑ ‑ ‑
GUMMOW J: And, therefore, when you seek to translate that from company law into the tax statute there may be perils involved.
MR ALDRIDGE: I accept that, your Honour. As we see the issue in relation to 80A(1)(c) is whether the rights have to be immediately exercisable, as we say, or whether, as we understand our learned friends to say, one simply looks at the shares to see whether they have the potential right or the hypothetical right to control one half of the voting power, and it matters not whether you can exercise it; the shares continue to carry that hypothetical right, if one looks at the rights that attach to the shares. That is, as we understand, the difference between the two views. At a high level of generality we say ‑ ‑ ‑
HAYNE J: Can you take me back perhaps several stages?
MR ALDRIDGE: Yes.
HAYNE J: I apologise for being so slow, but I need to understand this. The company with which we are concerned is Linter Textiles?
MR ALDRIDGE: Yes.
HAYNE J: It is a wholly owned – or was at relevant times – a wholly owned subsidiary of Linter Group Ltd?
MR ALDRIDGE: Yes, your Honour.
HAYNE J: That is to say Linter Group Ltd was what, the only member of Linter Textiles?
MR ALDRIDGE: Yes. Well, in the terms of the section it certainly had the right to exercise more than one half of the voting power because it held all of the shares.
HAYNE J: Forgive me.
MR ALDRIDGE: Yes.
HAYNE J: Indulge me. I know I am being slow, but I need to be slow.
MR ALDRIDGE: Yes. It was the only member, your Honour.
HAYNE J: It is the only member?
MR ALDRIDGE: Yes.
HAYNE J: It is the only person in the register of members?
MR ALDRIDGE: Yes.
HAYNE J: Thus a company limited by shares, Linter Textiles, has issued shares to one person, Linter Group Ltd. Is that right?
MR ALDRIDGE: Yes.
HAYNE J: The shares which are issued are shares which have, under the memorandum and articles of the company, various rights.
MR ALDRIDGE: Yes.
HAYNE J: Leaving aside questions of liquidation, the rights which attached to the shares held by Linter Group Ltd were rights of a kind described in each of paragraphs (c), (d) and (e), were they not?
MR ALDRIDGE: Yes, your Honour.
HAYNE J: What is the point that now is said to arise because of the intervention of liquidation of Linter Textiles about characterising the shares as carrying between them the various rights described in paragraphs (c), (d) and (e)? I understand there is a question that arises about what is meant by “were beneficially owned”.
MR ALDRIDGE: Yes.
HAYNE J: But what is the point that you are now making about the characterisation of the rights?
MR ALDRIDGE: The point arises more clearly in relation to (c) than in relation to (d) and (e). We would certainly accept that, your Honour, but we would say that the right to exercise is a right that must be existing at all times through the year. That is to say ‑ ‑ ‑
McHUGH J: But you are forced to say the opposite of what seems to be clear enough, that the words “carrying between them” (c), (d) and (e) are not adjectival clauses. Surely that is what they are. They describe the nature of the shares. If they are an adjectival description of the shares, your argument on this point has no legs, has it?
MR ALDRIDGE: If it is simply a description of the rights that the shares have as opposed to whether you can exercise it, the answer is yes. What we submit is that one derives from the words “carrying . . . the right to exercise” something that is immediately and presently exercisable, that one may be able to exercise it. It may be different in relation to (d) and (e) where one can read:
the right to receive more than one‑half of any dividends that may be paid –
because there is a hypothesis clearly opposed to that, though clause (e) not so clearly:
the right to receive more than one‑half of any distribution of capital –
They pose a hypothesis within themselves. But (c) does not pose a hypothesis within itself, and we submit the exercise of the voting power of shares does not arise in a winding‑up.
HAYNE J: Because, at least in an insolvent winding‑up, there can be no occasion for shareholders’ votes?
MR ALDRIDGE: Yes.
HAYNE J: Is that the argument?
MR ALDRIDGE: That is the argument.
HAYNE J: And there can be no occasion for payment of a dividend in an insolvent winding‑up? Is that a further elaboration of the point?
MR ALDRIDGE: Yes, but the point is less clear because the question is whether “dividends” is read as dividends from profits or dividends in the rare case that an insolvent winding‑up might lead to a repayment of surplus, which does happen in rare cases. The point is most clearly made in relation to (c). Your Honours, that ultimately is the argument. It is a very short point, a very simple point. We say it arises in relation to 80A(1) from the words “carrying . . . the right to exercise”.
GUMMOW J: Yes, but carrying by virtue of what? By virtue of what is in the constitution of the company?
MR ALDRIDGE: Yes.
GUMMOW J: Well, that is fatal for you, is it not?
MR ALDRIDGE: Well, again, I say, if the question is simply, is it a reference to what rights are given to the shares by the constitution, yes, it is fatal to us. We seek to derive from those words an intention that it is immediately exercisable.
HAYNE J: That there would be an occasion for their exercise?
MR ALDRIDGE: Yes.
HAYNE J: A bit of stretch there in the language.
CALLINAN J: Mr Aldridge, I think it is probably right to say that the law is unsettled as to whether directors continue in office when a company goes into liquidation, although I think there is Australian authority that they do. Now, if that is correct, then shareholders may have a right to exercise by voting their shares in favour of a change of directors. So there may be real purpose, there may be real utility still, after liquidation, in the voting power of shareholders. What do you say about that?
MR ALDRIDGE: I am not aware of any instances where there has been such an exercise of power ‑ ‑ ‑
CALLINAN J: It does not matter whether it has happened or it has not happened. The question is could it happen?
MR ALDRIDGE: I think, your Honour, I have to concede what I have said may be wrong to some further consideration. There have been instances where a court has made an order for a termination or a stay of the winding‑up and directed a meeting of members to occur immediately prior to the stay or winding‑up taking effect to elect the board.
CALLINAN J: There may be real utility then after liquidation in owning shares in a company and in the right to exercise a vote in respect of them, and if that is right, it is the end of your argument, is it not?
MR ALDRIDGE: Yes, I think that is probably correct, your Honour.
GLEESON CJ: Does your argument depend upon the winding‑up being a winding‑up on the ground of insolvency?
MR ALDRIDGE: The argument is much easier to make in relation to a winding‑up in insolvency because historically in creditors voluntary windings‑up, in various Companies Acts, there has been a role to play in members. Even under the present Act where the role of members is limited, the liquidator is obliged at the end of the winding‑up to call a general meeting of members and lay his accounts before them ‑ ‑ ‑
GLEESON CJ: Well, suppose a solvent company were being wound up on the ground of oppression, how would the section operate then?
MR ALDRIDGE: There are two positions we put. The first, the preferable position is the section would continue to apply for the reasons that I have outlined earlier, that the control is no longer in the hands of the members, the members cannot direct the liquidator as to how to carry out his functions and they cannot, having appointed the liquidator, cannot remove him.
GUMMOW J: Do not they retain sufficient interest to go to the court to complain of abuse?
MR ALDRIDGE: They have sufficient interest, your Honour, the question is ‑ ‑ ‑
GUMMOW J: .....
MR ALDRIDGE: Yes, they can. They just cannot do it by a meeting, that was all I suggested, your Honour.
GLEESON CJ: What would be the legislative purpose being served by distinguishing between an insolvent winding‑up and a winding‑up of a company that was solvent?
MR ALDRIDGE: Because, your Honours, the benefit of the tax losses in the winding‑up of an insolvent company go to the benefit of the creditors and not the benefit of the ultimate natural persons who stand behind the company, which is what you would ordinarily expect to be the case in a voluntary winding‑up.
The point is made more clearly in relation to 80A(3) where 80A(3) looks at a chain of control and is at pains to point out that standing at the head of the chain from the loss company must be two or more persons - two or more natural persons - who were capable, for example, of controlling the company, so that there is a chain of control from natural persons down to the loss company so that the control flows down the chain and dividends and distributions of capital flow up the chain. That chain is broken when a liquidation occurs because what then happens is the benefits are diverted to the payments of creditors not up and down the chain. That is what we put forward as the rationale, your Honour.
Your Honours, there is little more that I can say in relation to 80A(1). In relation to 80A(3), and I perhaps remind your Honours that 80A(3) applies where subsection (1) would apply, but for the subsection (2) ‑ ‑ ‑
KIRBY J: Could I just ask you to help me on what would be the statutory policy behind your interpretation, which effectively deprives the liquidator of a benefit that would otherwise have accrued and have been advantageous to creditors?
MR ALDRIDGE: Yes.
KIRBY J: Why would Parliament make such a provision, which seems counterintuitive, to the disadvantage of creditors in such a case? It just does not seem to be – I know you can never reason that revenue legislation is entirely rational, but it seems to be counterintuitive to so provide.
MR ALDRIDGE: The ultimate burden of the losses falls at the ultimate end of the chain. The people who ought benefit from the loss carry forward provisions are the people who took the risks in continuing to cause the business lower down the chain to continue operating, so as to earn the profits to set off against the losses. Those shareholders in companies lower down in the chain took the risk that those profits would not be incurred and that further losses would in fact be incurred. There was an economic risk, therefore, to those shareholders and ultimate natural owners, not the creditors. So it is those people who should get the benefit of the loss carry forward provisions, not the creditors, who did not bear that same risk.
GLEESON CJ: Mr Aldridge, I may have misunderstood you, but I thought you said you were moving off 80A(1)?
MR ALDRIDGE: Yes, I was.
GLEESON CJ: You have not put your main argument yet, have you?
MR ALDRIDGE: I am coming to beneficial interest – I was going to deal with that last, your Honour. I was going to deal with these two relatively short points of statutory interpretation first and then come to beneficial ownership, which applies probably to both and certainly to one as the major argument. Subsection (3) applies, it is said, where subsection (1) would apply, but the Commissioner was asked and the Commissioner thinks it reasonable to apply (3) and (3) is often regarded as a tracing provision. Under subsection (3)(a), the relevant test is that:
at all times during the year of income the voting power in the loss company was, either directly or through one or more interposed companies, trustees or partnerships, controlled, or capable of being controlled, by a person not being a company, or by 2 or more persons not being companies –
and so on. In WP Keighery Pty Ltd v Federal Commissioner of Taxation (1957) 100 CLR 66 at 87, it was said that the phrase:
“capable of being controlled” connotes the existence of either one person whose enforceable and immediately exercisable rights enable him to control, or a number of persons whose enforceable and immediately exercisable rights enable them, if they act in concert, to control.
We would say that if one applies that same test to (3), the control there must be control that is immediately enforceable and capable of being immediately exercisable. That is not the position when the company is in liquidation. Our interpretation sits much easier with (3) than with (1), but we say that (3) – one would expect that subsection (1)(a)(c) and (3)(a) would lead to the same result, albeit in the different circumstances postulated by the two sections.
HAYNE J: Again, this fastens on the fact that it is Linter Textiles that is in liquidation.
MR ALDRIDGE: Yes.
HAYNE J: It is not an argument, as I understand it, which fastens on Linter Group Ltd being in liquidation, is that right?
MR ALDRIDGE: Yes, that is so.
HAYNE J: So is this another species of the argument that, there being no occasion for exercise of voting by shareholders ‑ ‑ ‑
MR ALDRIDGE: Yes, your Honour, it is the same argument in relation to a different subsection and, again, because of the use of the words “controllable, or capable of being controlled”, because what was said in Keighery, so this is then of assistance in interpreting 80A(1)(c), because one would expect the application of the two tests but in the different circumstances postulated a similar result.
GLEESON CJ: Are you putting this as an argument in aid of your construction of section 80A(1)(c) or as an independent argument in support of the assessment?
MR ALDRIDGE: Both, your Honour. The agreement reached between the parties when the matter was before Justice Hely was that but for the liquidation the requirements of section 80A(1) and (3) were met.
HAYNE J: Now, this branch of the argument, just to make sure there is nothing said to turn on the fact that Linter Group Ltd is in liquidation, is that right?
MR ALDRIDGE: Yes. Now, the argument to which I would now like to turn is the argument in relation to beneficial ownership, so that when Linter Group Ltd went into liquidation it lost beneficial ownership of its shares for the purposes of section 80A. We accept at the outset, your Honours, as we have done, that if “beneficial ownership” in that section means equitable ownership in the sense that that word is commonly used, then we do not succeed. We do not seek to turn the law of trusts or equity on its head. What we say is that the phrase “beneficially owned” in section 80 has a special meaning, and that special meaning is able to use it for your own benefit, or as you see fit, or to enjoy the fruits of it for yourself.
GLEESON CJ: Special to what, special to the Income Tax Assessment Act?
MR ALDRIDGE: Special to that section in particular. Could I just go back to the question of your Honour Justice Hayne? I think I answered it incorrectly. In relation to 80A(3), but not 80A(1), the liquidation of Linter Group Ltd also breaks the chain of control because the liquidation of either of them breaks the chain of control passing down to the loss company. The first proposition is that one must look at the particular section and construe it. In doing so, we accept, your Honours, that the stated purpose of these relevant amendments was the avoidance of trafficking in loss companies.
GUMMOW J: Do you get any assistance about this from what was said in Dalgety 86 CLR 335 at 342 as to the force of this word “beneficially”, in sections of this kind?
MR ALDRIDGE: I am sorry, I am not aware of that passage, your Honour.
GUMMOW J:
This word serves more naturally the purpose of excluding the case of a holding for the benefit of others than for the purpose of so broadening the meaning –
et cetera.
MR ALDRIDGE: Yes, I think we would get some support from that, your Honour.
GUMMOW J: So what do you say “beneficially” means?
MR ALDRIDGE: Being able to use it for your own benefit as you see fit.
GUMMOW J: And what do you mean by “use”?
MR ALDRIDGE: To sell and apply the proceeds – well, to use the assets in business to make a profit, to apply that profit, to sell the assets and apply the proceeds of those assets as you see fit.
KIRBY J: You say it is inherent in beneficial interest that there must be a right to sell?
MR ALDRIDGE: Yes.
GUMMOW J: And mortgage.
MR ALDRIDGE: Yes. It does not stop someone dealing with the property. It is not suggested that the company cannot deal with its property, and it is axiomatic in a liquidation that the company must be able to deal with its property to realise the property for the payment of creditors. Where it loses its beneficial ownership, we say, your Honours, is that the company must then apply its assets and the proceeds of any assets in trading in accordance with the statutory formula provided by the Companies Acts from time to time. Payment of creditors is a particular priority ‑ ‑ ‑
KIRBY J: Can your answer to me be a general proposition? If the property is held in trust and a person has a beneficial interest in it, I suppose that person can sell that beneficial interest. That is the point you make?
MR ALDRIDGE: Yes.
KIRBY J: Whatever it may be – if it is beneficial – there must be a right to sell it.
MR ALDRIDGE: Yes.
KIRBY J: And you say where the liquidator has intervened, that right is lost.
MR ALDRIDGE: Yes. Well, he can sell it, but he must apply the proceeds in accordance with the statutory formula. The company cannot do whatever it likes with those proceeds. It cannot reinvest them perhaps in another venture. It cannot pay some creditors to the exclusion of others. It must apply those funds in a way which the English courts have described – although it seems to be accepted by them, not in the strict technical sense, as upon a statutory trust.
KIRBY J: Did the point of distinction between Justice Menzies and the English courts turn on any particular provision in the statutes?
MR ALDRIDGE: Yes, we say that was ultimately ‑ ‑ ‑
KIRBY J: Or on the theory of the corporation and its continuing existence.
MR ALDRIDGE: We say that Justice Menzies and Lord Diplock were at one as to what a company could or could not do with its assets. They described it in slightly different terms. Lord Diplock said it is a statutory trust, or not a trust in the strict sense. Justice Menzies said it is not a trust but there are statutory obligations. But what his Honour seems – this is the point of departure - his Honour said, “I must construe section 85 itself” and it was his construction of that that led him to take a different path to the English authorities, we would submit, not his analysis of what the rights and obligations of a company in liquidation were.
KIRBY J: His Honour was starting in the correct place, namely by analysis of the statute.
MR ALDRIDGE: Yes, and that is ‑ ‑ ‑
KIRBY J: I hate to make that point again.
MR ALDRIDGE: Yes, and that is what we say arises from the words “beneficially owned”. I have to grasp this nettle, your Honours. It is going to be put against us and put against us very strongly that this section is to deal with trafficking in loss companies, trafficking in loss companies really involves a transfer of either legal ownership or equitable ownership in shares so one looks to see whether there has been a transfer between persons, or at the very least a declaration of trust so that the beneficial ownership in the shares has moved from – beneficial interest or equitable interest has moved from one person to another.
That is certainly supported by the explanatory memorandum, but the legislation could have used such words in the section if it had chosen to do so. It could have talked about the transfers in law or in equity. It could have described it in that more limited way, but it chose to put in the test, the requirement, that the shares had to be beneficially owned at all times during the year. So it is not just a comparison of two dates, it is not a comparison of the beginning of the year and the end of the year, or particular dates in the income year and the loss year ‑ ‑ ‑
GLEESON CJ: If this point does not turn upon any difference of principle between what this Court decided in 1970 and what the English courts decided, and it is purely a question of statutory construction, this is a pretty stale piece of cheese, is it not?
MR ALDRIDGE: That may be so, but it is a point of significance to the parties, your Honour. Can I start by taking your Honours to Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167 ‑ ‑ ‑
GUMMOW J: Now, what do you get out or not get out of that case?
MR ALDRIDGE: What I seek to get out of it, your Honour ‑ ‑ ‑
GUMMOW J: Are you just dealing with it pre‑emptively?
MR ALDRIDGE: ‑ ‑ ‑ is that there is a consistent body of authority in England to the effect that upon the making of a winding‑up order in relation to a company, the company ceases to be able to use its assets for its own benefit.
McHUGH J: That is not the point, is it?
MR ALDRIDGE: No, but ‑ ‑ ‑
McHUGH J: I may be a bit slow here, but the question is whether there was beneficial ownership of the shares. It has nothing whatever to do with the assets that the company had.
MR ALDRIDGE: Well, the holding company, one of its assets is shares in the held company, in the subsidiary ‑ ‑ ‑
McHUGH J: Yes.
MR ALDRIDGE: And it ‑ ‑ ‑
McHUGH J: The shares do not cease to exist, do they?
MR ALDRIDGE: No. The question is whether the holding company can use its shares for its own benefit.
McHUGH J: Well, could it sell them?
MR ALDRIDGE: It can sell them, but it cannot use the proceeds as it sees fit. It must apply the proceeds in accordance with the distribution provisions of the relevant Act.
KIRBY J: Can it sell them ‑ ‑ ‑
GLEESON CJ: This point turns on the liquidation of LGL, not the liquidation of the respondent.
MR ALDRIDGE: Yes.
GLEESON CJ: Well, now, if the liquidator decided that LGL’s shares in the respondent should be sold and caused them to be sold, ownership of the shares would pass from whom to whom?
MR ALDRIDGE: Would pass from the company to the purchaser.
GLEESON CJ: From LGL to the purchaser?
MR ALDRIDGE: Yes.
GLEESON CJ: Does that not assume that LGL own the shares?
MR ALDRIDGE: Yes, we do not dispute that LGL owns the shares, your Honour. As I said at the outset, we are not trying to ‑ ‑ ‑
GLEESON CJ: Beneficially owns the shares?
MR ALDRIDGE: Equitably, it owns all the rights that an owner has. I am not trying to avoid your Honour’s question. If one were to say – and it is probably not correct to say it, but if one were to say that ownership comprises a bundle of legal and equitable rights, the company has those rights.
KIRBY J: Have you not just given it away by saying all the rights that an owner has? All the rights that the owner has include the right to secure the benefit of the sale.
MR ALDRIDGE: If I had said that, I said it too early – has all the rights to sell, but he does not have the rights to apply the benefits, and that is where beneficial ownership is lost for the purposes of section 80A.
HAYNE J: But what the liquidator is bound by section 374 to take into custody is all the property to which the company is, or appears to be, entitled. What he has relevantly taken into custody here is an item of property, namely shares owned in the particular company.
MR ALDRIDGE: We are not disputing, your Honours, that the company can transfer proper title in those shares.
HAYNE J: And it then comes, does it not, to the use or perhaps misuse of metaphorical expressions which can be traced to the mid‑19th century at a time when directors where commonly referred to as trustees, notions of trusts in connection with companies were still being worked out. Just pull a few happy little phrases out of past decisions and say “There”, not a particularly satisfying method of reasoning.
GLEESON CJ: And before Salamon’s Case was decided.
MR ALDRIDGE: Your Honour, if the authorities rested just on Oriental Steamship, your Honour ‑ ‑ ‑
HAYNE J: Which can be traced much further back.
MR ALDRIDGE: Yes, yes indeed, your Honour, that would be so, but Ayerst of itself was a case in 1976 which is recent ‑ ‑ ‑
HAYNE J: Yes, the language is there, but what does it mean? What is the concept?
MR ALDRIDGE: And more relevantly, in Mitchell v Carter [1997] 1 BCLC 673, which is on our friends’ list, the court reaffirmed that line of authority at page 686:
The making of a winding-up order divests the company of beneficial ownership of its assets which cease to be applicable for its own benefit. They become instead subject to a statutory scheme for distribution among the creditors and members of the company. The responsibility for collecting the assets and implementing the statutory scheme is vested in the liquidator subject to the ultimate control of the court. The creditors do not themselves acquire a beneficial interest in any of the assets, but only a right to have them administered in accordance with the statutory scheme.
So it is not just an ancient, an old principal, it is a ‑ ‑ ‑
GUMMOW J: If you go to the next page, you will see the explanation of Oriental Inland Steam Co, namely that the litigation in India, there is an interference with the English winding-up. It could have been restrained by an anti-suit injunction, and it is in that context that they latched onto this notion of - used this word ‑ ‑ ‑
HAYNE J: But they latched onto it from earlier decisions concerning rights of set-off where there was a concern about the mutuality, so you trace it back to the Delhi bank case and cases like that which are set-off cases. You find this language deployed in particular contexts, may or may not have been apt to the context, simply plucked from the context and applied generally. It is not a particularly satisfactory form of reason.
MR ALDRIDGE: But it is, your Honour, an established form of reasoning that has been applied in a variety of cases in England, including finance statutes cases, but not just limited to them, so that when one comes to look at “beneficially owned” in the present statute, there is the argument that that was the sense in which that word was being used, because it picks up the ills suggested by our learned friends that the statute was directed to ‑ ‑ ‑
GUMMOW J: That is what I wanted to ask you. When does this expression first come into the Act?
MR ALDRIDGE: This section came in with 80A in 1964.
HAYNE J: And therefore came in in light of Avon Downs and the “beneficially held” discussion, “beneficially held” as referring to the register of members. We have moved away from who is on the register to some other concept. What other concept have we moved to, if not to a concept of proprietary interest?
MR ALDRIDGE: We would say the concept is wider than that, because our interpretation of “beneficially owned” picks up and includes, but takes further, those concepts. So it does do that, but it does it in a slightly wider way.
GUMMOW J: Anyhow, you want to take us to a purple passage in Ayerst.
MR ALDRIDGE: Well, I do not need to take your Honours to the purple passages ‑ ‑ ‑
GUMMOW J: The lightning will strike and it will all be clear.
MR ALDRIDGE: Perhaps at page 177G – again, there is the use of the word “trust”, which has been criticised in ‑ ‑ ‑
GUMMOW J: Just look at the beginning of E. That is just not right, “The functions of the liquidator are thus similar to those of a trustee”. Trustees conserve assets, they do not flog them off.
HAYNE J: You hope.
MR ALDRIDGE: You hope. Your Honour, it would probably be easier for me if Lord Diplock had not used the word “trust” and “trustee” so often, I accept that. It tends to obscure the problem rather than highlight it, because we do not try and suggest that a company becomes a trustee for the creditors upon the winding‑up.
McHUGH J: Your difficulty lies in the fact, does it not, that no order was made under section 374(2) of the Code, vesting the property of the company in the liquidator?
MR ALDRIDGE: That is so, your Honour.
McHUGH J: And because that is so, the respondent still owned the shares in the subsidiary, could sell it. True it is that the liquidator under section 374 was then under an obligation to take the proceeds, if the shares were sold, into his custody, but does not that analysis show that the respondent beneficially owned the shares? It could sell them and get the proceeds.
MR ALDRIDGE: It shows, your Honour, that it had equitable ownership in the shares, in the sense that there was no other entity with an equitable interest in those shares.
McHUGH J: It had more than equitable ownership.
MR ALDRIDGE: It had full legal ownership, I accept that, your Honour. I do accept it is not correct to talk about ownership being a bundle of legal and equitable rights, because the owner is the owner. But I say that for the purpose of trying to distinguish that between beneficial ownership, because otherwise the words “beneficial ownership” can be used in two contexts. There is one, the context we contend for, and another, the one that perhaps equity lawyers would use themselves, as a synonym for “equitable ownership”. What we are saying is that beneficial ownership in this section is not a synonym for equitable ownership. It bears the meaning that has been the subject of the discussion of the cases in Ayerst and Mitchell v Carter and the others.
McHUGH J: But beneficial ownership depends on context. I mean, I might be the beneficial owner of a leasehold, although there are all sorts of obligations and all sorts of prohibitions and restrictions on what I can do with it.
MR ALDRIDGE: Of course, in one sense a liquidation of a company is analogous to the trusts of the kind that were mentioned by the Full Court in their judgment: an executor holding property where he cannot use the property for his own benefit, but there is no class of persons who have a beneficial interest in that property; they simply have a right to require the executor to carry out his duty. Similarly, a trustee in bankruptcy, and, similarly, charitable trusts. So there are cases where a person has all of the rights of ownership, but cannot use that for his own benefit, yet there is no other person who can be said to be the beneficial owner.
What we are putting, we would submit, is not a concept that is unknown to the law. We are simply saying this is yet another example of what is sometimes described as an anomalous case of a “trust”. It is in that league of “trusts”, for want of the better word, and therefore it is not as strange as might at first appear. The law does accept those possibilities. Some of them are indeed described as trusts, although there is no person who is a beneficial owner of the property of that trust at that particular time. The only difference in a company in relation to a winding‑up is that the company continues to be the legal owner of the property; it is not vested in someone else. But in this present case, we say it makes no difference.
KIRBY J: Have you looked to see whether under the tax laws in the United Kingdom or the United States or elsewhere there are analogous provisions similar to this?
MR ALDRIDGE: Mr Perram conducted a search. We could not find anything that we thought was of assistance on this issue, your Honour.
KIRBY J: So we are out here on our own on this?
MR ALDRIDGE: Yes. The closest you get in the UK is Ayerst itself, that finance statute.
HAYNE J: Can I suggest to you that the argument that you advance seems to begin by embracing a meaning of “beneficially” that is exemplified by Dalgety – that is, the word “beneficially” is used to exclude the case of holding for the benefit of others – but that the step you must then take is to introduce that concept of “beneficially” in an otherwise well‑recognised expression, “beneficial ownership”. One can understand holding an asset – other than a share, where holding a share has a particular meaning – one can understand holding an asset for the benefit of others. But owning a share for the benefit of others? How do the two marry?
MR ALDRIDGE: One could, for example, instead of selling a share simply declare that one was holding that share on trust for someone else. That would, under both interpretations of the word, be a divesting of the beneficial ownership. It need not be limited to what is on the register. There need not be a transmission or a transfer at law. There can be a change in the beneficial ownership by a declaration of trust. That declaration of trust could, for example, be in favour of a charitable trust where there is no particular person who then becomes the beneficiary, but the person has still lost the beneficial interest; they can no longer use it for their own benefit.
Your Honours, once one accepts that there is ultimately no difference – although different words are used between the analysis by Justice Menzies in Franklin’s, and Lord Diplock as to the rights and obligations and effect of a liquidation, the question then really comes down to ultimately what does this word mean in the section. We pray in aid the English cases and the phrase itself to support the contention that “beneficially owned” means able to use for its own benefit. Those cases are ultimately going to be of assistance to your Honours in coming to that view or not. It is a much more difficult argument to make without the assistance of those cases. I am not trying to evade your Honour’s questions, but again this case, as it has progressed through, is crystallised. It really is a fairly simple question, and do those cases inform and assist on the construction of this section or do they not? We say they do.
KIRBY J: That is why I ‑ ‑ ‑
GUMMOW J: What does section 17 of the Finance Act 1954 deem? Was that section of a similar nature to this?
MR ALDRIDGE: No. It is a different section in that references to ownership in the section about carrying on a trade include references to “beneficial ownership”. It is set out in the first page of Ayerst. The phrase “belongs to the same persons as the trade or such an interest belonged to at some time within a year before the change”. So that the phrase there is “belonged”, and then subsection (6) says:
(a) references to ownership shall be construed as references to beneficial ownership -
so one gets “belonged” in a beneficial sense.
KIRBY J: You said at the outset that essentially your argument is quite a simple one really.
MR ALDRIDGE: Both arguments ultimately are, yes, your Honour.
KIRBY J: But that is so if you take a view of statutory construction, that it is a matter of focusing the mind on the word.
MR ALDRIDGE: Yes.
KIRBY J: But the problem is that in other spheres this Court has said in Bropho and in Project Blue Sky and I think the Bankstown Case that you have cited ‑ ‑ ‑
MR ALDRIDGE: Yes.
KIRBY J: ‑ ‑ ‑or that maybe Mr Bloom has cited, you have to see how the Act fits together. You do not just focus on the word.
MR ALDRIDGE: Yes, we accept that, your Honour, and I do not cavil, as I have said, with the fact that the explanatory memorandum talks about trafficking in loss companies. It does not, but there is nothing I can point to in the explanatory memorandum that supports what we say. The answer we endeavour to put to that, your Honour, is that ultimately one must construe the words of the section aided by the explanatory memoranda but not construe the explanatory memoranda itself.
KIRBY J: I do not have a problem with that, I understand that argument. But I still have a problem in seeing why Parliament would have provided in this way as a matter of policy. Mr Bloom makes a point that this results in, arguably, a seriously unjust application of the Act in cases where, because of the supervening liquidation, the benefit that would otherwise have accrued to the corporation and the creditors is lost. So I am just trying to see how you reconcile your interpretation with a rational interpretation of the Act if you had seen these words in their context.
MR ALDRIDGE: We would say the question, perhaps, that ought be asked is, why should the creditors gain the benefit of the loss carry forward provisions?
KIRBY J: Because that is what they would have gained but for the supervening liquidation.
MR ALDRIDGE: They may or may not have gained it ‑ ‑ ‑
KIRBY J: And that the purpose of the liquidation, at least as I understand the overall policy of liquidation, is to ensure that there is gathered in all the benefits of the corporation to the advantage of creditors. They are not losing, they are being protected.
MR ALDRIDGE: All of the assets of the company that are properly available.
KIRBY J: Exactly.
MR ALDRIDGE: But the creditors were not the persons who took the risk of supporting the company through its loss years. They were others.
KIRBY J: Yes, but they are the people who are in the position of danger at the moment of the liquidation. The general policy of the law is to protect them from that danger and the risks that it involves and to get in the assets to ensure that they can be covered as well as may be. Now, your theory of the Act strikes a lethal blow at that, as far as the creditors are concerned, in this respect.
MR ALDRIDGE: Yes, it does, your Honour.
KIRBY J: That seems inconsistent with the theory of liquidation.
MR ALDRIDGE: It is, but it is consistent with this Act, because this Act requires there to be half of the voting power and the right to receive half of the dividends and half the right of any dividend of capital to be owned by a person or group of persons throughout the loss years. So there is a focus on who are the owners under (1) or the ultimate beneficial owners under (3).
GLEESON CJ: The difficulty I have with the rationalisation you offer is that in the case of a limited liability company it is usually the creditors, much more than the shareholders, who support the company and take the risk.
MR ALDRIDGE: Yes, that does occur, but the focus of this section is to look at a majority of people who in the loss year and the income year are the people who we say bore the burden. They are ones who are entitled to the benefit. One derives that intention from subsections (c), (d) and (e) of (1) and (a), (b) and (c) of (3), because that is the limitation that the legislature has put on the loss carry forward position. For example, one could fail either of those tests by a very small margin. For example, 51 shares as against 49 would be a failure or a pass on that and the creditors would either get the benefit of it or miss out from that. So it is impossible to discern an intention that creditors are always to benefit. Creditors will only benefit where this section is made out.
KIRBY J: But that is self‑fulfilling.
MR ALDRIDGE: It is circular, but ‑ ‑ ‑
KIRBY J: I am just mindful of what Justice McHugh said in Kingston v Keprose and what the Court said in Bropho and what we have done so many times. We are not looking just at the words, we are looking at how the Act is supposed to – what its purpose is.
MR ALDRIDGE: Yes, and we have heard ‑ ‑ ‑
KIRBY J: I think that applies to the Tax Act. As far as I am concerned, it is just another federal Act.
MR ALDRIDGE: All I can do now is repeat myself, your Honour, that is the way we say it fits together. It derives from those words. There is nothing, unfortunately, in the explanatory memorandum which makes it clear why the words “beneficially held” were chosen, but, because they were chosen, and, we say, were chosen in preference to words that would have more aptly fitted with the concept of transfer of interest – the more limited meaning contended for by our friends – something more must have been intended. When one then looks to assistance for what more was intended, in the cases, one finds it in the English cases. Otherwise, it is difficult to see what else was intended.
GLEESON CJ: Well, the words “beneficially owned” appear twice in the relevant part of the provision and by way of a comparison. You are comparing who beneficially owned the shares during the loss year with who beneficially owned the shares at the time in question. So it is directed to the possibility of change.
MR ALDRIDGE: We accept it is directed to the possibility of change. We say it is not limited to that possibility, because obviously, if one transfers one’s shares at law or in equity, one loses the right to have those shares for one’s own benefit, and one of the cases referred to before Court was Wood Preservation where there was a conditional sale of shares where the condition had not been met. The Court of Appeal found that the seller had lost beneficial ownership of the shares in the sense that he could not use them for his own benefit, but because the condition had not been fulfilled, an equitable interest had not passed to the purchaser, so there was a case where there had not been a transfer of equitable interest, but there had been a loss of the right to use one’s shares for one’s own benefit. So in answer to your Honour the Chief Justice’s question, yes, it does pick up the transfer, but it does so by using a wider word that we submit picks up other things as well.
GLEESON CJ: It really comes to a question, does it not, whether the fact of liquidation is a form of discontinuity with which the legislation was concerned?
MR ALDRIDGE: Yes, your Honour. Your Honours, we have endeavoured to set out our position otherwise in the written submissions, and I think I have covered the points that we wish to cover. I am not trying to run away from your Honours, but the point ultimately is a very simple one because one realises there is no great disconformity about the approach of what a liquidator can and cannot do. Unless there is anything I could assist your Honours further ‑ ‑ ‑
KIRBY J: Do you want to send in a note when you have had time to think of the consequences of the Code and the law for the matters that you have argued?
MR ALDRIDGE: Yes, your Honour.
GLEESON CJ: Thank you, Mr Aldridge. Yes, Mr Bloom.
MR BLOOM: If your Honours please. If I might deal with the issues in the reverse order to the way in which my learned friend dealt with them, and that is to deal first of all with the liquidation of the parent company, LGL, and the loss of, or said to be loss of its beneficial ownership of its property by virtue of its liquidation, but could I take your Honours to section 80A as it stood in the year of income, that is, 1992. Your Honours will see that the obligation on the company is to satisfy the Commissioner that at all times during the year of income, that is, post-liquidation, shares in the company carrying between them the rights were beneficially owned by persons.
So the first assumption is that we are dealing with shares of which it can be said, in the year of income, after liquidation, they are beneficially owned by persons carrying those rights, and one then asks whether those same shares or shares carrying those same rights were owned by the same person in the earlier year, that is, before liquidation. So, inherent in the way the section operates is an assumption that one can identify shares carrying those rights beneficially owned by somebody, not nobody, but somebody, in the year of income, and that is after liquidation.
Your Honours, the history of the provision and the extraneous materials to which one is permitted to go, in our respectful submission, support two conclusions, one relevant to each issue. The first is that bankruptcy of individuals was intended to be and was dealt with specifically from early times but that the liquidation of companies was not intended to be a disqualifying factor. That goes more to the second issue, the winding‑up of LTAL. But relevant to the first issue, the winding‑up of the parent, the section will only deprive a company of the benefit of its carry forward losses if there has been a change in identity of the beneficial owners of the shares carrying the relevant rights between the two years.
Your Honours, we have prepared a folder of the relevant antecedents and extraneous material and if I could I ask your Honours to go it.
KIRBY J: Does the appellant have these or are you holding them back to the very last minute?
MR BLOOM: It seems that we were, your Honour, but it is not as if they have not had them before.
KIRBY J: That does not seem the usual co‑operation that we know you are always responsible for, Mr Bloom.
MR BLOOM: Your Honour, I do not know why they have not had them in this form, but they have certainly had them and they have been agitated at both levels below and it is not as if they are new.
HAYNE J: It is most unfortunate, I would have thought, Mr Bloom, most unfortunate. This is not the Magistrates Court at Moonee Ponds, you know, Mr Bloom.
MR BLOOM: Yes, your Honour.
KIRBY J: I agree with Justice Hayne.
MR BLOOM: Yes, your Honour, I am sorry. I think we have all just expected that it had happened, your Honours, without realising that it had not. Your Honour, the first is section 80(4) behind tab 1 of the 1936 Act. It is on page 176:
Notwithstanding any other provision of this section, where a taxpayer has prior to the year of income been adjudicated bankrupt, or, not having been adjudicated bankrupt, has been released from any debts by the operation of the Bankruptcy Act 1921‑1933, no loss incurred by him prior to that adjudication or release shall be an allowable deduction.
So bankruptcy is specifically dealt with. Then in the 1944 Act there is inserted section 80(5) and (6) which were the sections with which Justice Menzies was dealing in Franklin’s Selfserve. That is at page 31 behind tab 2:
Section eighty of the Principal Act is amended by adding at the end thereof the following sub‑sections –
and then they are set out. The explanatory memorandum for the Bill for that Act appears behind the next tab and at the page at the bottom numbered 47 under the heading “EXPLANATORY NOTE” at the bottom of the page it says:
Section 80 of the Principal Act provides, inter alia, that the business losses incurred by the taxpayer in the four years next preceding the year of income shall be allowed as a deduction in arriving at the taxpayer’s taxable income of the year of income.
Sub‑section (4) of that section, however, provides that if a taxpayer is adjudicated bankrupt, any loss incurred by him prior to that adjudication shall not be an allowable deduction. This subsection, however, does not apply to companies ‑ ‑ ‑
GUMMOW J: Where is that?
MR BLOOM: This is at the bottom of page 47, your Honour, behind tab 3. It is the explanatory memorandum for the Bill for the Act which inserted subsections (5) and (6).
HEYDON J: I do not think so.
MR BLOOM: And we have not committed that sin as well.
CALLINAN J: Capital gains were not taxable then, were they?
MR BLOOM: Capital gains were not taxable then, your Honour, no, except under the provisions of section 26A as it stood.
CALLINAN J: Does that make any difference that this is a capital gain?
MR BLOOM: No, your Honour, because a capital gain is taxed by treating the net gain as assessable income and bringing it into the ordinary income in that fashion. So, as your Honours see at page 47 at the bottom:
This subsection, however, does not apply to companies because section 5 of the Bankruptcy Act excludes companies from the operation of the Bankruptcy Act.
So there is a sort of a warm assurance given by the legislature to the public at that point that these provisions, 80(5) and 80(6), in effect, will not apply to companies because although 80(4) is in there dealing with bankrupts it does not apply to companies.
Then over the page, page 20 at the top and page 48 at the bottom, the second paragraph, which goes to the purpose:
There is in existence evidence showing that in order to avoid income tax, some people are acquiring the shares of companies which have sustained losses in previous years and have ceased to carry on business but have not formally gone into liquidation.
. . .
Whilst a company is an entity separate and distinct from its shareholders, the shareholders are the real owners of the business carried on by the company and there is no justification for the allowance of a loss sustained by an entirely different set of shareholders ‑ ‑ ‑
GLEESON CJ: Thank you, Mr Aldridge. We will reserve our decision in this matter and we will adjourn until 10.15 tomorrow morning.
AT 2.35 PM THE MATTER WAS ADJOURNED
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