Euroasian Holdings Pty Ltd v Ron Diamond Plumbing Pty Ltd (In Liq)
[1996] FCA 139
•26 FEBRUARY 1996
CATCHWORDS
CORPORATIONS - application to set aside statutory demand - genuine dispute - trust distributions to applicant - payment direct to secured creditor - whether entitlement to distribution under trust a "debt".
Corporations Law
Income Tax Assessment Act
Commissioner of Inland Revenue New Zealand v Ward (1969) 69 ATC 6050
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669,
Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACLC 1143
Mibor Investments Pty Limited & Ors v Commonwealth Bank of Australia (1993) 11 ACLC 1062
Phoenix Freight Systems Pty Limited v Seko Air Freight Incorporated (1995) 17 ACSR 754
SA Asset Management Corporation v Sheahan (1995) 17 ACSR 569
re: Euroasian Holdings Pty Ltd v Ron Diamond Plumbing Pty Ltd (in liquidation)
(No. VG 3474 of 1995)
Judge: Heerey J
Date: 26 February 1996
Place: Melbourne
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 3474 of 1995
)
GENERAL DIVISION )
IN THE MATTER OF RON DIAMOND PLUMBING PTY LTD
(IN LIQUIDATION) ACN 006 427 686
EUROASIAN HOLDINGS PTY LTD
ACN 005 843 532
Applicant
- and -
RON DIAMOND PLUMBING PTY LTD
(IN LIQUIDATION)
ACN 006 427 686
Respondent
JUDGE: Heerey J
DATE: 26 February 1996
PLACE: Melbourne
MINUTE OF ORDERS
The Court orders that:
The statutory demand dated 22 July 1995 be set aside.
The respondent pay the applicant's costs including reserved costs.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 3474 of 1995
)
GENERAL DIVISION )
IN THE MATTER OF RON DIAMOND PLUMBING PTY LTD
(IN LIQUIDATION) ACN 006 427 686
EUROASIAN HOLDINGS PTY LTD
ACN 005 843 532
Applicant
- and -
RON DIAMOND PLUMBING PTY LTD
(IN LIQUIDATION)
ACN 006 427 686
Respondent
JUDGE: Heerey J
DATE: 26 February 1996
PLACE: Melbourne
REASONS FOR JUDGMENT
This is an application under s 459G of the Corporations Law to set aside a statutory demand which was served on the applicant on 1 August 1995. The debt demanded in the notice was described as follows.
Description of Debt Amount of Debt
Distribution of income for the
year ending 30 June 1994 $168,364.00
Interim distribution 8 August
` 1994 $50,000.00
$218,364.00
The applicant company, Euroasian Holdings Pty Ltd, is the trustee of a discretionary trust called the Ron Diamond Family Trust. That trust is in turn a beneficiary of a trust called the Agricultural Distributors Trust of which Berenleigh Pty Limited is the trustee. The respondent company, Ron Diamond Plumbing Pty Limited, is a beneficiary of the Ron Diamond Family Trust. The respondent is in the process of being wound up. The winding up commenced on 21 August 1992.
The respondent had on 19 May 1988 given a debenture charge of its assets to Westpac Banking Corporation. That charge was in a typical bank debenture form. It charged all the undertakings and assets of the respondent. By clause 18(a) that charge was to operate as a fixed charge in respect of certain kinds of property therein set out and
shall (subject to the covenants conditions prohibitions and restrictions hereinafter contained) operate as a floating security only as regards all other assets hereby charged.
Clause 19 provided that the moneys secured thereby should at the option of the bank become immediately payable in the happening of certain events, including the filing of an application for winding up or the making of an order for winding up. By clause 20 it was provided that the floating charge should automatically crystallise and become a fixed charge upon the occurrence of, amongst other things, any of the events specified in clause 19.
The first of the distributions in question was evidenced by the minutes of a meeting of the directors of the applicant held on 30 June 1994. The minutes note that the company was meeting in its capacity as trustee of the Ron Diamond Family Trust. The following resolution was passed:
... to distribute the balance of the trust income of the Trust to the beneficiaries named below in accordance with the amounts set beside their respective names to be applied in the preferential order shown and the named beneficiaries shall from the date of this meeting be presently, absolutely and indefeasibly entitled to the said amounts (subject to the preferential order of applications) which shall be credited in the books of account of the Trust to the respective beneficiaries pending payment and the beneficiaries shall be immediately notified of their respective entitlements pursuant to this resolution.
BeneficiariesAmount or % Preferential
Order of Application
Ron Diamond Plumbing 100% 1
Pty Ltd (in liquidation)
On 8 August 1994 the directors of the applicant met again. The minutes noted that the trust had been notified that it had received an interim distribution of $50,000 from the Agricultural Distributors Trust effective 8 August 1994. A resolution for the distribution of that amount to the respondent was passed in identical terms to the 30 June resolution.
Prior to the making of the resolutions to which I have referred, discussions took place concerning the distributions between Mr John McCormack, a chartered accountant acting on behalf of the applicant, and the liquidator, Mr Giljohann. Mr McCormack deposed that it was agreed at that time that the moneys would be remitted by the applicant to Westpac directly and without any deduction whatsoever.
Mr Giljohann agrees that discussions took place concerning the distributions and of the desire to remit the distributions to Westpac. He swore in his affidavit that he did not agree to that course. As the authorities make abundantly clear, I am not
concerned to try the merits of this dispute; all I can say is that there seems to be a triable issue as to this question of fact. In any event it is common ground that the position of Westpac as a secured creditor was specifically raised prior to any dealings with the moneys the subject of the distribution.
On 21 August 1995 the applicant paid the sum of $119,386 to Westpac. That amount was calculated as follows. The amount payable under the first resolution was $168,346 which, together with the $50,000 payable under the second resolution amounted to $218,346. That is the amount the subject of the demand. However, it was said by the applicant that the amount actually received on an accounting, as distinct from taxation, basis for the 1994 financial year was $69,386 which together with the $50,000 amounted to the sum of $119,386.
As I have said, a number of authorities have stressed that this new regime for the determination of the effectiveness of notices of demand is only concerned with the finding of a genuine dispute and not the resolution of that dispute. I refer to Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACLC 1143, Mibor Investments Pty Limited & Ors v Commonwealth Bank of Australia (1993) 11 ACLC 1062, Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669, and Phoenix Freight Systems Pty Limited v Seko Air Freight Incorporated (1995) 17 ACSR 754.
I think two contentions on behalf of the applicant are sufficient to make out its case that there is a genuine dispute and that the statutory demand ought to be set aside. First, it does seem that any distribution, whatever the amount to which the respondent would otherwise be entitled (and there does appear to be a genuine dispute as to that amount) was caught by the charge of Westpac which had then crystallised.
The position of the secured creditor, Westpac, seems to be closely analogous to that dealt with by the Full Court of the Supreme Court of South Australia in SA Asset Management Corporation v Sheahan (1995) 17 ACSR 569. Doyle CJ said (at 576):
A secured creditor is entitled to exercise its rights under its security notwithstanding the making of an order for the winding up of the company which granted the security. There are some qualifications to this principle, but the right to possession of the asset or assets over which security is granted is not subject to any relevant qualification.
His Honour then refers to a number of current textbooks on company law to which I might add Gough's Company Charges, 2nd Edition, 1996, page 132, where the learned author says:
The right of the receiver to take custody and control are superior to and takes priority over the statutory right and duty of the liquidator to take custody and control.
The short point is that this money was simply Westpac's money, and it is no answer for the respondent to complain about the applicant "unilaterally" deciding to pay it to Westpac.
The second ground which I hold is made out is that there was not a "debt" which the Code requires as the foundation of a statutory demand: s 159E. The resolutions in question did not bring about the relationship between the applicant and respondent of debtor and creditor. Whether or not the respondent may have been "presently entitled" for the purposes of the Income Tax Assessment Act, it seems to be the position that rights of the respondent were enforceable in equity only. I rely on what was said in Commissioner of Inland Revenue New Zealand v Ward (1969) 69 ATC 6050 at 6071. The New Zealand Court of Appeal was dealing with the question whether a resolution for distribution of trust income to beneficiaries amounted to an application of the trust income for the purpose of New Zealand tax law. But relevantly for present purposes McCarthy J said (at 6071):
I believe, too, that it is misleading to speak of debtor-creditor relationship. The rights of the beneficiaries here do not arise out of debt or contract. They arise out of the trusts created by the deed, and the beneficiaries are entitled to invoke the powers of the Court by reason of a new title "consisting of the exercise of the Trustees' discretion in the infant's favour."
For those reasons the application will be allowed. I make an order setting aside the statutory demand dated 22 July 1995.
There will be an order that the respondent pay the applicant's costs including reserved costs.
I certify that this and the preceding six (6) pages are a true copy of the reasons for judgment of his Honour Justice Heerey.
Dated:
Associate
Appearances
Counsel for the applicant: Mr A K Panna
Solicitor for the applicant: Oakley Thompson & Co
Counsel for the respondent: Mr P K Searle
Solicitor for the respondent: Darrer Muir Fleiter
Date of hearing: 26 February 1996
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