Deputy Commissioner of Taxation v TMPL Pty Ltd (subject to a Deed of Company Arrangement) (No 2)
[2011] FCA 525
•10 May 2011
FEDERAL COURT OF AUSTRALIA
Deputy Commissioner of Taxation v TMPL Pty Ltd (subject to a Deed of Company Arrangement) (No 2) [2011] FCA 525
Citation: Deputy Commissioner of Taxation v TMPL Pty Ltd (subject to a Deed of Company Arrangement) (No 2) [2011] FCA 525 Parties: DEPUTY COMMISSIONER OF TAXATION v TMPL PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 064 227 505, ANTONY DE VRIES and DAVID SOLOMONS File number: NSD 1034 of 2009 Judge: PERRAM J Date of judgment: 10 May 2011 Catchwords: PRACTICE AND PROCEDURE – Pleadings – statement of claim – application to amend Legislation: Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)
Date of hearing: 10 May 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 22 Counsel for the Plaintiff: Mr M L Brabazon SC with Ms J E Richards Solicitor for the Plaintiff: Australian Taxation Office Counsel for the Defendants: Mr M J Stevens Solicitor for the Defendants: Somerset Ryckmans
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1034 of 2009
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
PlaintiffAND: TMPL PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 064 227 505
First DefendantANTONY DE VRIES
Second DefendantDAVID SOLOMONS
Third Defendant
JUDGE:
PERRAM J
DATE OF ORDER:
10 MAY 2011
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Leave be granted to the Plaintiff to file and serve an Amended Statement of Claim by 4 pm on 11 May 2011.
2.The Plaintiff pay the Defendants’ costs thrown away by reason of the amendments, including the Defendants’ costs on the motion.
3.The Defendants file and serve any Further Amended Defence by 5pm on 17 May 2011.
4.The Defendants file and serve any further evidence in relation to the new allegations contained in the Plaintiff’s Amended Statement of Claim by 5pm on 26 May 2011 (“the further evidence”).
5.The parties file and exchange written outlines of submissions by 5pm on 26 May 2011.
6.The parties exchange any objections to evidence by 5pm on 26 May 2011.
7.The Plaintiff file and serve any written submissions on the further evidence by 2 June 2011.
8.The Plaintiff serve any objections to the further evidence by 2 June 2011.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1034 of 2009
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
PlaintiffAND: TMPL PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 064 227 505
First DefendantANTONY DE VRIES
Second DefendantDAVID SOLOMONS
Third Defendant
JUDGE:
PERRAM J
DATE:
10 MAY 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The plaintiff (“Deputy Commissioner”) applies for leave to file an amended statement of claim. The proceeding is fixed for trial for three days commencing on Tuesday 14 June 2011. In the present form of the proceeding the Deputy Commissioner seeks orders setting aside a deed of company arrangement (the “deed”) entered into by the first defendant, TMPL Pty Ltd (“the company”). The company executed the deed on 7 August 2009, following a meeting of creditors which resolved that it should do so. There were seven creditors present at the meeting and the Deputy Commissioner was one of them.
The Deputy Commissioner was the overwhelming creditor by value and voted against the execution of the deed of company arrangement. The other six creditors – who were minor creditors – voted in favour of it. In those circumstances, the effect of regulation 5.6.21(4) of the Corporations Regulations 2001 (Cth) was to give the chairperson of the meeting a casting vote. The chairperson was one of the second defendants, Mr De Vries.
The effect of the deed is to limit the Deputy Commissioner to proof on a modest pool. The Deputy Commissioner was, as I have said, the overwhelming creditor by value (98.5%), the Commissioner of Taxation having issued amended notices of assessment to the company which totalled in excess of $19 million.
Those amended notices of assessment arose from the Commissioner taking a different view to the company about two sets of transactions in which the company had been involved: the first being the tax treatment of an investment in a film known as Pitch Black; the second relating to the financial disentanglement of the company’s principal director, Mr Michael Triguboff, from his former employment at the financial advisory firm, Lazard Frères. The notices relating to the film Pitch Black were issued on 23 June 2008 and totalled, with penalties, over $4 million. In the surrounding months, the Deputy Commissioner alleges that the company paid away large sums of money: first by way of a dividend of $1.9 million paid to its shareholders who were Mr Triguboff and his wife; secondly, by way of unsecured loans in the form of callable convertible redeemable notes (“CCRNs”) of about $3 million to a related entity, MIR Asia Pty Ltd, which were interest free and not repayable until 2016.
Putting the matter perhaps a little generally, the Deputy Commissioner’s reason for seeking to set aside the deed is: that the company was hopelessly insolvent, a number of transactions following the presentation of the amended assessments deserved investigation at the hands of a liquidator and the intercession of a deed of company arrangement precluded those investigations from taking place. Much of the focus of the Deputy Commissioner’s case consists, as one might naturally expect, of pointing to aspects of the affairs of the company which are susceptible to being painted in a suspicious light. Each such integer adds, so the Deputy Commissioner submits, an additional plank in his case that there are matters warranting investigation by a liquidator.
The grounds for setting aside a deed of company arrangement include those set out in s 445D(1)(e) of the Corporations Act 2001 (Cth) (the deed operates with injustice), s 445D(1)(f) (the deed operates oppressively or is contrary to the interests of creditors as a whole) and s 445D(1)(g) (the deed should be terminated for some other reason). A number of the amendments are not opposed and I make no further mention of them. The amendments which are opposed fall into six categories. The first category consists of amendments to paragraphs 69 and 86 of the statement of claim which, if permitted, would now seek to suggest that there are reasonable grounds to think that the company was insolvent well before it received the amended notices of assessment in June 2008. The Deputy Commissioner’s amendment would seek to contend that the amended notices of assessment had been preceded by an audit process and that in the course of that audit process there had been presented to the company, in the ordinary way, a position paper which made clear that the position of the Commissioner of Taxation was that the company owed substantial amounts of tax. Further, so the Deputy Commissioner submits, those standing behind the company would have known once the audit process itself was put in train that the end position was going to be one which involved the owing of large amounts of tax.
If all of that were to be accepted, the consequence would be that a liquidator might well investigate that matter. Those investigations may result in the discovery that the company was insolvent at a much earlier date than presently appears. In turn, this might impact on recovery actions brought by the liquidator. I accept in principle that this is a sufficiently arguable point to warrant an amendment. During the argument, I did not ultimately apprehend that the defendants took a different view. Their submission instead related to questions of delay and prejudice. Since that submission, in large part, is the same for all of the amendments, I deal with it below.
The second set of amendments related to the insertion of a new paragraph 85A in the proposed statement of claim. Here the amendment, if allowed, would involve an allegation that the company retrospectively altered its financial accounts in ways which changed the amounts of money due between it and its related entities. The argument was that these were such as potentially to amount to related party transactions and hence to be the kind of subject matter requiring investigation by the liquidator. In principle, I accept the feasibility of this amendment.
The third category of amendment related to proposed paragraphs 85B to 85D. These, if permitted, would allege that there had been a crediting by the company against a related party of an amount of $267,657.77 on 30 July 2008 for what appeared to be an “admin fee”. This was, of course, only a month after the presentation of the amended notices of assessment relating to Pitch Black. Again, I accept in principle that this amendment is feasible in the sense that the case disclosed warrants trial.
The fourth category of amendment related to proposed paragraphs 74A to 74C. These paragraphs allege the acquisition of CCRNs, a debt instrument, from a related entity for $3.5 million on 5 May 2008, that is, a date prior to the date of the issue of the amended notice of assessment but after the service of the Commissioner’s position paper. The terms of the CCRNs are alleged by the Deputy Commissioner to be no more favourable to the company than the terms of some other CCRNs it acquired (and which are already alleged in the pleading).
Those terms were: that the loan was not repayable until 2016; interest was not payable on the loan unless the borrower had to pay tax together; and the board of the borrower was able to postpone making payments at all. The gravamen of the allegation is that this transaction is very advantageous to the borrower, but with little perceivable commercial benefit to the company. In principle, I accept that this allegation, if accepted, would further the Deputy Commissioner’s case that the deed should be terminated in order to commit a liquidator to examine the matter.
The fifth category of amendment related to proposed paragraphs 78A to 78C containing allegations regarding a facility agreement entered into by the company with a related entity which was to govern any ad hoc advances made by the company to that entity. Its terms provided for any such advances to be interest free and repayable after eight years (subject to certain acceleration provisions). One such advance was for the sum of $4,047,000. On 19 February 2009, the proposed pleading alleges that that debt was sold by the company to another related entity for a marked down price of $2,077,729. There are obvious questions about the terms of the loans and the circumstances leading to a $2 million write down on the company’s assets. In principal, I accept the Deputy Commissioner’s submission that these amendments are viable.
The final category of amendments related to proposed paragraphs 78E to 78N which allege certain things about the affairs of a company called Art & Australia Pty Ltd. The amendments suggest that as at 30 June 2007 it had negative assets of $594,676: that is, I would infer, the shareholders’ equity of nil. Between 1 July 2007 and 7 April 2008, the pleading alleges that the company became a creditor of Art & Australia Pty Ltd in the sum of $731,881 which on 7 April 2008 was then converted to equity. The shares constituting the equity did not carry voting rights or the right to receive dividends. The Deputy Commissioner contends that this transaction warrants investigation, presumably on the basis that it appears to have resulted in the assets of the company being depleted for no value. Again, I accept that these amendments are, in principle, viable.
Leaving aside discretionary matters, it follows that the proposed amendments are all real points which, all other things being equal, are sufficiently substantial to warrant consideration. The defendants submit, nevertheless, that leave should be declined on three related bases.
First, it was said that the documents which gave rise to the amendments were given on discovery to the Deputy Commissioner in the middle of last year (except in the case of one document relating to KPMG which had been in the possession of the Deputy Commissioner since December 2007). Secondly, the defendants’ submissions were due in only two days and if the pleading were now to be amended this would throw the timetable out. Thirdly, the defendants were entitled to an opportunity to meet the case put against them. In that regard they submitted that further material might well show that, although the transactions could, having viewed only one side of the story, possibly appear to warrant investigation by a liquidator, an opportunity for them to be heard might well result in that situation being painted in a different light.
For the Deputy Commissioner it was initially put that the amendments had only become obvious when work had begun to be done preparing to meet an affidavit filed on behalf of the defendants by Mr De Vries. That occurred in April of this year. As it happens, Mr De Vries’ affidavit was served on 23 February 2011 so that the time since that date had, in fact, been available for a consideration of the material. Mr Brabazon SC, who, with Ms Richards, appeared for the Deputy Commissioner, submitted that it was reasonable to postpone consideration of the material involved until all of the evidence had been filed on behalf of the defendants. However, I do not think that that can be correct. Work should have been started in February when the affidavit was received. In any event, it is not necessary to resolve that debate which is not, as events transpire, ultimately germane.
During the course of the argument it emerged, as the result of very proper concessions made by Mr Brabazon SC, that nearly all of the documents in question had been available on discovery since in the middle of last year or, in a few cases, towards the end of last year. I accept, as was submitted on the Deputy Commissioner’s behalf, that the list of documents for the defendants was not, in fact, provided until towards the end of last year. Nevertheless, the fact is that the documents, which were the subject of the list, were available prior to February 2011. Mr Brabazon SC submitted that a party might not approach its examination of discovered documents with the same level of acuity as perhaps they might approach the affidavit evidence served by the opposing party. It was to be expected, therefore, that one might not be as alert to fresh arguments therein disclosed.
The point of that submission was to demonstrate that it was understandable that the amendments in question were not formulated until after Mr De Vries’ affidavit was served. It is, I think, understandable that that is so, but I do not think it is an adequate excuse, in terms of delay. All of the material was available much earlier and the amendments could have been formulated had that material been attended to at an earlier stage. That, however, does not entail that the amendments should necessarily be refused.
The subject matter of the amendments is contained within the six categories I have outlined above. The six topics are:
(a)The effect of the beginning of the audit process and the delivery of the position paper;
(b)The retrospective alteration of the company’s accounts to change related parties’ exposures;
(c)The “admin fee” paid on 30 July 2008;
(d)The CCRNs with a value of $3.5 million;
(e)The facility agreement;
(f)The Arts In Australia Pty Ltd debt and subsequent equity conversion.
Justice requires the defendants to be given an opportunity to argue that those six matters, properly understood, do not warrant the suspicions that the Deputy Commissioner presently has and, hence, do not warrant investigation by a liquidator or, concomitantly, the termination of the deed.
The trial is scheduled, as I have said, for 14 June 2011. It seems to me that these six matters are ones which can be attended to by the trial date. It is true that that may involve some inconvenience in terms of late preparation, but the hearing is nearly a month away, the topics are precisely circumscribed and the matters raised by the Deputy Commissioner are of apparent substance. I do not think that the evidential burden which will be cast upon the defendants will be an especially heavy one if indeed they choose to meet the allegations. In those circumstances, in my opinion, it is appropriate that leave to file the amended statement of claim should be granted.
The appropriate course is to grant that leave to the Deputy Commissioner, to leave the present timetable in place and to treat the issues which arise from the amended pleading separately from that timetable, to order the defendants to file any defence to the amended statement of claim within seven days, and any evidence in relation to that pleading within a further 21 days. The submissions by the Deputy Commissioner on the issues arising from the contested amendments are to be prepared seven days before the trial and the defendants may serve their submission in relation to those issues on the day of the trial. The Deputy Commissioner must pay the defendants’ costs by reason of the amendments.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate:
Dated: 10 May 2011
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