In the matter of Spitfire Corporation Limited (in liquidation) and Aspirio Pty Ltd (in liquidation)

[2022] NSWSC 340

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Spitfire Corporation Limited (in liquidation) and Aspirio Pty Ltd (in liquidation) [2022] NSWSC 340

Hearing dates:

1 March 2022 and 11 March 2022

Date of orders:

25 March 2022

Decision date:

25 March 2022

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Direction that the parties provide agreed short minutes of order to give effect to this judgment including as to costs within three business days, or otherwise their respective short minutes of order and submissions.

Catchwords:

CORPORATIONS — Winding up — Liquidators — Equitable lien — CORPORATIONS — Winding up — Priorities — Priorities in winding up — TAXES AND DUTIES — Income tax – MORTGAGES AND SECURITIES — Personal Property Securities Act 2009 (Cth) — Circulating asset — Circulating security interest — where company under administration was entitled to research and development tax offsets under the Income Tax Assessment Act 1997 (Cth) — whether research and development tax incentive refunds are subject to a circulating security interest — identifying the true employer for the purposes of Pt 5.6 Div 6 of the Corporations Act 2001 (Cth)

Legislation Cited:

- Corporations Act 2001 (Cth), Pt 5.6 Div 6

- Income Tax Assessment Act 1997 (Cth)

- Personal Property Securities Act 2009 (Cth)

Cases Cited:

- Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; (1993) 112 ALR 627; (1993) 10 ACSR 230; [1993] HCA 15

- Belgravia Nominees Pty Ltd v Lowe Pty Ltd [2015] WASCA 143

- Carter Holt Harvey Woodproducts Australia Pty Limited v Commonwealth (2019) 268 CLR 524

- Commissioner of Taxation of the Commonwealth of Australia v 4 Doonan Street Collinsville Pty Ltd (in liq) (2016) 332 ALR 349; [2016] NSWCA 69

- Commissioner of Taxation v Official Receiver (1956) 95 CLR 300

- Commonwealth v Byrnes (2018) 54 VR 230; [2018] VSCA 41

- Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174; [2011] FCA 1176

- Fire Nymph Products Pty Ltd v Heating Centre Pty Ltd (1988) 14 NSWLR 460

- Golden Plains Fodder Australia Pty Ltd v Millard (2007) 99 SASR 461; [2007] SASC 391

- Gothard, in the matter of AFG Pty Limited (Receivers and Managers appointed) (in liq) v Davey (2010) 80 ACSR 56; [2010] FCA 1163

- Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 52 WAR 90; (2017) 320 FLR 259; [2017] WASC 152

- Hamersley Iron Pty Ltd v Forge Power Pty Ltd (2018) 53 WAR 325; [2018] WASCA 163

- Health Insurance Commission v Peverill (1994) 179 CLR 226

- Kirman v RWE Robinson & Sons Pty Ltd (in liq), in the matter of RWE Robinson and Sons Pty Ltd (in liq) [2019] FCA 372

- Liberty Mutual Insurance Company Australian Branch t/as Liberty Special Markets v Icon Co (NSW) Pty Ltd (2021) 396 ALR 193

- Norman v Federal Commissioner of Taxation (1963) 109 CLR 9

- Pitcher v Langford (1991) 23 NSWLR 142

- Re Amerind Pty Ltd (receivers and managers apptd) (in liq) (2017) 121 ACSR 201; [2017] VSC 127

- Ratcliffe v Watters (1969) 2 NSWR 146

- Re Branded Media Holdings Pty Ltd (in liquidation); Re Brand New Media Pty Limited (subject to a deed of company arrangement) [2020] NSWSC 557

- ReC & T Grinter Transport Services Pty Ltd (in liq) [2004] FCA 1148

- Re DH International Pty Ltd (in liq); Challis v Hoffmann (2017) 121 ACSR 585; [2017] NSWSC 870

- Re Evans; Sweeney v Evans (1995) 61 FCR 556

- Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361

- Re Langdon; Forge Group Ltd (recs and mgrs apptd) (in liq) (2017) ACSR 434; [2017] FCA 170

- Re Mondin; Ex parte Bradshaw (1985) 6 FCR 430

- Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556

- Re RCR Tomlinson Ltd (admins apptd) [2020] NSWSC 735

- Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125

- Strategic Finance Ltd (in liq) v Bridgman [2013] NZLR 650; [2013] NZCA 357

- Sturesteps v McGrath [2010] NSWSC 169

- Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd [1998] FCA 1465

- Utah Construction and Engineering Pty Ltd (1996) 116 CLR 200

- WorkCover Corporation v Jakas (2003) 86 SASR 20

Category:

Principal judgment

Parties:

Katherine Elizabeth Barnet and Damien Mark Hodgkinson in their capacity as joint and several liquidators of Spitfire Corporation Ltd (in liq) and Aspirio Pty Ltd (in liq) (First Plaintiffs)
Spitfire Corporation Ltd (in liq) (Second Plaintiff)
Aspirio Pty Ltd (in liq) (Third Plaintiff)

Representation:

Counsel:
D Krochmalik (Plaintiffs)
M Izzo SC/C Ernst (Interested Party)
J Burnett (Interested Party)

Solicitors:
Mills Oakley (Plaintiffs)
Clayton Utz (Interested Party)
Marque Lawyers Pty Ltd (Interested Party)

File Number(s):

2021/296981

Judgment

Nature of the application and background facts

1. By Amended Originating Process filed on 4 November 2021, the Plaintiffs, Ms Barnet and Mr Hodgkinson in their capacity as joint and several liquidators (“Liquidators”) of Spitfire Corporation Ltd (in liq) (“Spitfire Corporation”) and Aspirio Pty Ltd (in liq) (“Aspirio”) seek directions under s 90-15 of the Insolvency Practice Schedule (Corporations) (“IPSC”) and a declaration as to their claim to an equitable lien arising in the liquidations of those companies. Resilient Investment Group Pty Ltd (“Resilient”) and the Commonwealth of Australia (represented by the Attorney General’s Department) each appeared in the application and were heard under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW). Other interested parties have been notified of the application but have not appeared or sought to be heard on the application.

2. First, the Liquidators seek a direction under s 90-15 of the IPSC that they would be justified in treating amounts received by Spitfire Corporation by way of research and development tax incentive refunds while it was under administration (“R&D Refunds”), totalling $1,989,849.09, as subject to a circulating security interest and, subject to the Liquidators’ claimed equitable lien, using the R&D Refunds to pay any debts or amounts falling within paragraphs (a) and (b) of s 561 of the Corporations Act 2001 (Cth) in priority to any claim of Resilient. Second, the Liquidators seek a declaration that they would be justified in treating Spitfire Corporation as an employer of all of the employees (within the meaning of s 556(2) of the Corporations Act) of the Spitfire Group of companies, with the exception of Mr Laurence Milne, and that those employees are creditors of Spitfire Corporation rather than of Aspirio. I address the scope of the Liquidators’ claim to a declaration as to their lien below.

3. The Liquidators recognise, in their opening submissions that:

“The application for directions concerns the proceeds of research and development tax refunds that are assets in the winding up of Spitfire Corporation and the proposed distribution of these assets to priority creditors. The outcome of this application will affect the priorities in the distribution of funds in the windings up of the Companies in particular as between, on the one hand, employees with outstanding priority entitlements including superannuation (or, at least, the Commonwealth of Australia standing in their place pursuant to its statutory right of subrogation) and, on the other hand, the secured creditor of the Company, Resilient ….”

4. The Liquidators and the Commonwealth agreed a Statement of Facts. Resilient’s position is that it neither consents to nor opposes that Statement of Facts, an approach that advanced neither its position nor the just, quick and cheap resolution of these proceedings. Even if I could not proceed on the basis of the agreed Statement of Facts, by reason of Resilient’s reservation of its position, those facts are established by Ms Barnet’s evidence and not relevantly contradicted by Mr Johnson’s evidence led by Resilient on the application. I refer to that evidence below. The background facts to the application are as follows:

“A.   Background to the Spitfire Group

1   Spitfire Corporation …:

a   was incorporated on 3 November 2014; and

b   has been an unlisted public company since about 10 December 2015.

2   Spitfire Corporation has seven wholly owned subsidiaries as follows:

a   Aspirio …;

b   Spitfire Asset Management Pty Ltd (in liquidation);

c   Spitfire Machines Pty Ltd (in liquidation);

d   Spitfire Operations Pty Ltd (in liquidation);

e   Spitfire Q Pty Ltd (in liquidation);

f   Investar Research Pty Ltd (in liquidation); and

g   Spitfire Money Pty Ltd (which is not in any form of external administration).

(together, “Spitfire Group”).

3   Spitfire Corporation was the sole shareholder of each of the other companies in the Spitfire Group.

4   The business of the Spitfire Group, prior to its external administration, was developing and acquiring wealth management and share analysis technology platforms, with the aim of building a global financial platform to simplify transacting in global financial markets for its users (“Business”).

5   Spitfire Q and Investar were the only two companies that held any assets as part of the Business.

6   Each of the companies in the Spitfire Group entered into a Tax Sharing Agreement on 10 October 2016, which was said to be effective from 1 July 2015.

7   On 7 August 2020, the First Plaintiffs were appointed as joint and several administrators (“Administrators”) of each of Spitfire Corporation, Spitfire Asset Management, Spitfire Machine and Spitfire Operations. On the same day, the First Plaintiffs were also appointed as liquidators of Aspirio.

8   On 4 November 2020, each of Spitfire Corporation, Spitfire Asset Management, Spitfire Machine and Spitfire Operations executed a deed of company arrangement (“DOCA”).

9   On 19 February 2021, the creditors of each of Spitfire Corporation, Spitfire Asset Management, Spitfire Machines and Spitfire Operations resolved that the DOCA be terminated and, on that date, those companies were wound up. Thereafter, on 25 June 2021, Spitfire Q and Investar were also wound up by the Court on the application of Spitfire Corporation.

10   The First Plaintiffs are the Liquidators of each company in the Spitfire Group (other than Spitfire Money Pty Ltd, which is not in any form of external administration).

B.   Secured Creditor – Resilient

11   On 29 April 2019, Spitfire Corporation and Resilient Investment Group Pty Ltd entered into:

a   a convertible note trust deed (“CNTD”), pursuant to which Resilient subscribed to convertible notes with an aggregate face value of $3,000,000; and

b   a general security deed (“GSD”), pursuant to which Spitfire Corporation granted a security interest over all its present and after-acquired property in favour of Resilient to secure Spitfire Corporation’s obligations under the CNTD.

12   Pursuant to the GSD:

a   the security interest granted by Spitfire Corporation secured the due and punctual payment of the Secured Money (as defined) and the performance by Spitfire Corporation of its other obligations under each Finance Document (as defined) and convertible note;

b   ‘Secured Money’ was defined as:

‘all money which Spitfire is or at any time may become actually or contingently liable to pay to or for Resilient’s account for any reason whatever under or in relation to a Finance Document, whether or not currently contemplated. It includes money by way of principal, interest, fees, costs, indemnity, guarantee, charges, duties or expenses, or payment of liquidated or unliquidated damages under or in relation to a Finance Document, or as a result of a breach of or default under or in relation to, a Finance Document…’; and

c   Spitfire Corporation was entitled (subject to certain exceptions, which are not relevant) to dispose of any circulating asset in the ordinary course of its business.

13   On 2 May 2019 (and amended on 3 May 2019), Resilient registered a financing statement on the Personal Property Securities Register with registration number 201905020063480 with respect to Spitfire Corporation, describing the collateral as all present and after-acquired property.

14   As at 13 September 2021, the debt owed by Spitfire Corporation to Resilient was $1,088,873.23 and interest continues to accrue with respect to that debt under the CNTD.

C.   R&D Refunds

15   As part of the Business, Spitfire Corporation engaged in research and development activities that qualified it to receive a research and development tax offset from the Commissioner of Taxation (“ATO”) at the end of each financial year.

16   Spitfire Corporation made research and development tax incentive applications (“R&D Tax Incentive Applications”) and claimed research and development tax offsets (“R&D Tax Claims”) with respect to each of the financial years ended 30 June 2015, 30 June 2016, 30 June 2017 and 30 June 2018.

17   Spitfire Corporation, under the control of the First Plaintiffs, received a total of $2,024,812.90 by way of tax refunds (“R&D Refund”) following the lodgement of two R&D Tax Incentive Applications and R&D Tax Claims. The R&D Refund is comprised of the following amounts:

a   $1,061,731.91 received by Spitfire Corporation in respect of the financial year ended 30 June 2019 (“FY19 Refund”); and

b   $963,080.99 received by Spitfire Corporation in respect of the financial year ended 30 June 2020 (“FY20 Refund”).

18   The R&D Refund was not obtained because of or by reason of the external administration of Spitfire Corporation. Rather, the entitlement to the R&D Refund stemmed from the nature of the Business (and this entitlement was not otherwise impacted by the fact that Spitfire Corporation was insolvent and / or placed into external administration prior to the lodgment of the R&D Tax Incentive Applications and R&D Tax Claims).

FY19 Refund

19   On 5 August 2020, an income tax return for Spitfire Corporation for the financial year ended 30 June 2019 (including an R&D Tax Incentive Application) had been prepared and signed by [Mr Milne], the Chief Executive Officer and at that time a director of Spitfire Corporation. That return had not been lodged by 7 August 2020 (being the date on which the Administrators were appointed).

20   On 17 August 2020, the Administrators caused Spitfire Corporation to lodge its income tax return for the financial year ended 30 June 2019.

21   On 11 April 2021, Spitfire Corporation (while it was being wound up) received a refund from the ATO in the amount of $1,061,731.91, being the FY19 Return, which was paid into Spitfire Corporation’s liquidation bank account.

FY20 Refund

22   On 25 August 2021, the Liquidators caused Spitfire Corporation to lodge an income tax return for Spitfire Corporation for the financial year ended 30 June 2020 (including an R&D Tax Incentive Application).

23   On 31 August 2021, Spitfire Corporation (while it was being wound up) received a refund from the ATO in the amount of $963,080.99, being the FY20 Return, which was paid into Spitfire Corporation’s liquidation bank account.

D.   Employees of the Spitfire Group

Formal arrangements

24   The Spitfire Group employed 42 employees at different times.

25   Other than Mr Milne (whose employment agreement was with Spitfire Asset Management) and each of [named employees] (whose employment agreements were with Spitfire Corporation), the employment agreements between the various employees of the Spitfire Group were with Aspirio.

26   The employment of each of [named employees] had been terminated prior to the Administrators’ appointment. However, each of those former employees have outstanding entitlements owed to them in their capacity as employees of the Spitfire Group.

27   Under each employment agreement between Aspirio and the various employees of the Spitfire Group, there were various references made to “the Group”, which was defined either as:

The Company [Aspirio] and its related Bodies Corporate, including, but not limited to Aspirio Pty Ltd; or

The Company [Aspirio] and its related Bodies Corporate, including, but not limited to its parent company, Spitfire Corporation Limited…

28   Aspirio (save for in the case of each of Mr Milne, [and named employees] (“Excluded Employees”)):

a   was the entity that was party to the contracts of employment which provided for the payment of pay wages, superannuation and other entitlements to employees of the Spitfire Group;

b   lodged and paid workers’ compensation premiums for employees of the Spitfire Group;

c   reported PAYG for employees in the Business Activity Statements lodged through the ATO portal;

d   logged leave entitlements of the employees through its Xero online accounting software; and

e   was identified as the payer on payslips issued to the employees.

Aspirio’s financial position and dealings with Spitfire Corporation

29   Aspirio maintained one bank account with the National Australia Bank, being account number [omitted] (“Aspirio NAB Account”) and one bank account with Macquarie Bank, being account number [omitted] (“Aspirio Macquarie Account”).

30   Aspirio also maintained Management Accounts for each financial year ended 30 June 2015, 30 June 2016, 30 June 2017, 30 June 2018 and 30 June 2019, namely, Profit and Loss Statements, Balance Sheets, and Cash Flow Statements.

31    As recorded by: the bank statements for the Aspirio NAB Account and the Aspirio Macquarie Accounts; and the Management Accounts, and otherwise more generally, Aspirio:

a   did not conduct any business or undertake any business activities of its own, separate to the Business of the Spitfire Group;

b   had no functions external to the Spitfire Group;

c   did not have any of its own customers or clients;

d   did not have any assets of realisable value;

e   operated at a loss for each of the financial years ending 2015, 2016, 2017, 2018 and 2019;

f   received cash injections from time to time from other companies in the Spitfire Group;

g   did not generate any revenue (other than a small amount of interest from cash at bank and, later, revenue recorded as loan forgiveness with respect to a loan from Spitfire Corporation (which is dealt with below …)); and

h   did not have the ability to generate any revenue and was unlikely to generate any revenue or profit in the future, as it had no customers or clients of its own.

32   The manner in which Aspirio satisfied the obligations it had to the employees of the Spitfire Group was as follows:

a   Spitfire Corporation paid money out of its own bank account to (i) employees or their superannuation funds (with respect to wages and other entitlements); (ii) workers compensation insurers (with respect to workers compensation premiums); and (iii) the ATO (with respect to PAYG withholding tax); and

b   amounts paid by Spitfire Corporation were added to the loan balance owing by Aspirio to Spitfire Corporation at any given time, by way of book entry.

33   The books and records of Spitfire Corporation and Aspirio do not disclose an instance where Spitfire Corporation actually transferred money into a bank account held in the name of Aspirio for Aspirio to use that money to pay wages and other entitlements to the employees of the Spitfire Group.

34   The Management Accounts do not contain any evidence of Aspirio charging Spitfire Corporation (or any of the other companies in the Spitfire Group) a management fee or any other amount in connection with being the “employer entity” or providing employment related services to the employees of the Spitfire Group.

35   On 30 June 2019, all of the companies in the Spitfire Group, other than Spitfire Money, entered into a Deed of Forgiveness with respect to each intercompany loan transaction between the companies, with the effect that each intercompany loan was forgiven by the relevant creditor in the Spitfire Group. The forgiven loan balance was recorded as revenue in Aspirio’s books and records and had the effect of eliminating its liability to Spitfire Corporation.

E.   Assets and Claims in the Liquidation of Spitfire Corporation and Aspirio

36   As at the date of filing this application, there was $1,451,463.54 available in the liquidation of Spitfire Corporation, comprised of the balance of the R&D Refund after deducting remuneration that has been approved (although further costs, expenses and remuneration of the Liquidators will reduce this amount somewhat further).

37   As at 19 October 2021, the estimated claims of creditors in the liquidation of Spitfire Corporation was at least $4,142,639.23. Of this amount:

a   $1,088,873.23 represents the debt owed to Resilient;

b   $2,218,617 represents trade creditors; and

c   $835,149 represents related party creditors.

38   The amount of $4,142,639.23 referred to in the preceding paragraph does not include the priority employee creditors of the employees of the Spitfire Group (apart from the Excluded Employees), to the extent that they are found to be creditors of Spitfire Corporation, as opposed to Aspirio.

39   The claims of the employees of the Spitfire Group are currently as follows:

a   $550,650.59 in the liquidation of Spitfire Corporation, of which: (i) $76,439.32 is claimed by the Commonwealth Attorney-General’s Department, which is subrogated to the rights of various employees; and (ii) $474,211.27 claimed by various employees, additional to the Department’s claim; and

b   $1,960,586.54 in the liquidation of Aspirio, of which: (i) $1,038,641.67 claimed by the Department, which is subrogated to the rights of various employees; and (ii) $282,951.50 claimed by various employees, additional to the Department’s claim; (iii) $638,993.37 claimed by various employees for outstanding superannuation charge.

[These amounts are not agreed by the Commonwealth].

40   The claims in the winding up of Aspirio … above are subject to the determination of the true employer of the employees of the Spitfire Group (other than the Excluded Employees) and the Department has reserved its right to increase its claim in the winding up of Spitfire Corporation (in lieu of its claim in the winding up of Aspirio).”

Affidavit evidence

5. The Liquidators rely on the affidavit dated 19 October 2021 of Ms Barnet, one of the Liquidators. Ms Barnet refers to the Liquidators’ appointment as joint and several administrators of Spitfire Corporation and other companies on 7 August 2020, and to the entry of the Deed of Company Arrangement (“DOCA”) in relation to Spitfire Corporation and other companies on 4 November 2020. As I noted above, that DOCA was subsequently terminated and Mr Hodgkinson and Ms Barnet were appointed as liquidators of Spitfire Corporation and other companies on 19 February 2021.

6. Ms Barnet in turn refers to the history of the Spitfire Group, and notes that Spitfire Corporation was the holding company for the Spitfire Group and its main purpose was to invest in its subsidiaries, and its subsidiaries were established for the purpose of developing and acquiring wealth management and share analysis technology platforms, with the aim of building a global financial platform that simplified transacting in global financial markets for its users, and that customers of the business were primarily wealth management and financial planning companies (Barnet 19.10.21 [29]-[30]). Ms Barnet in turn refers to the acquisition, by a subsidiary of Spitfire Corporation, of a share analysis platform in March 2019 and to the functions of that platform. She also identifies the circumstances in which Resilient became a secured creditor of Spitfire, by the entry into the Convertible Note Trust Deed (“CNTD”), and Spitfire and Resilient also entered into the General Security Deed (“GSD”) which secured Spitfire’s obligations under the CNTD. Ms Barnet noted that Resilient registered a financing statement on the Personal Property Securities Register on 2 May 2019, describing the collateral as all present and after-acquired property (Barnet 19.10.21 [37]ff) and there is no dispute as to the validity of that registration.

7. Ms Barnet also addresses Spitfire Corporation’s engagement in research and development activities and its entitlement to receive a research and development tax offset from the Australian Taxation Office (“ATO”) at the end of each financial year, and she identifies the nature of the research and development activities which gave rise to that entitlement. She refers to the administrators’ lodging Spitfire Corporation’s income tax return for the financial year ended 30 June 2019, after their appointment, after which Spitfire Corporation received a refund from the ATO in the amount of $1,061,731.91. She also refers to the Liquidators’ lodgement of Spitfire Corporation’s income tax return for the financial year ended 30 June 2020, after which Spitfire Corporation received a further refund from the ATO in the amount of $963,080.99.

8. Ms Barnet in turn indicates the Liquidators’ view that the tax refunds received in respect of the financial years ended 30 June 2019 and 30 June 2020, being the proceeds of the R&D Refunds are property that is the subject of a circulating security interest within the meaning of s 340 of the Personal Property Securities Act 2009 (Cth) (“PPSA”) for two reasons, (Barnet 19.10.21 [56]) as follows:

(a) First, because clause 3.2 of the GST permits Spitfire Corporation to dispose of any circulating asset in the ordinary course of business, and the obtaining of the R&D Refund was obtained as part of Spitfire’s ordinary business activities prior to our appointment as Administrators (and thereafter Deed Administrators and Liquidators), such that Resilient is taken to have given Spitfire Corporation authority for the transfer of the R&D Refund, in the ordinary course of its business, free of the security interest (within the meaning of s 340(1)(b) of the PPSA); and

(b) Second, because arguably Spitfire Corporation’s entitlement to the R&D Tax Refund falls within the definition of ‘account’ within the meaning of section 340(5)(a) of the PPSA, although this might depend on a determination of whether that entitlement to the tax refund was an existing legal obligation or one which was contingent on various matters (such as the lodgement of the FY 19 Return and the FY 20 Return).

9. Mr Barnet fairly acknowledges that the Liquidators are in doubt as to that position, which depends on the interpretation of s 340 of the PPSA and its application to this case. She also notes that initially the Commonwealth and Resilient agreed that the proceeds of the R&D Refund was property that is the subject of a circulating security interest, but Resilient subsequently changed its position in that regard.

10. Ms Barnet also addresses the position in respect of employees of the Spitfire Group, noting that Aspirio is generally the named employer in relevant employer agreements and that the majority of employment agreements are the same, other than for specific information relating to the named employee. She refers to the terms of those employment agreements, which require employees to provide services to the Spitfire Group and observes that Spitfire Corporation itself had no employees at the time of the voluntary administrators’ appointment. Ms Barnet notes that Aspirio was the entity liable to pay wages, superannuation and other entitlements to employees of the Spitfire Group and also lodged and paid workers compensation premiums for employees of the Spitfire Group, reported Pay As You Go (“PAYG”) tax in business activity statements to the ATO Portal, logged leave entitlements and issued payslips to employees, on which it was noted as the payer.

11. Ms Barnet also addresses the bank accounts maintained by Aspirio and the management accounts prepared by it, and observes that Aspirio did not conduct any business or undertake any business activities of its own, separate to the Spitfire Group’s business; did not have its own customers or clients; did not have any assets of realisable value; did not generate any revenue, other than a small amount of interest and an amount of a loan forgiven by Spitfire Corporation; and did not have the ability to generate revenue or profit in the future. She observes that, where Aspirio had no substantial assets and no revenue, its obligations to meet wages, superannuation, workers’ compensation premiums and the like were funded by company loans from Spitfire Corporation and, in practice, Spitfire Corporation paid monies out of its bank account, and then added those amounts to the loan balance owing by Aspirio to Spitfire Corporation from time to time. She also observes that there is no evidence that Aspirio charged Spitfire Corporation or other companies a management fee or other amount for providing employment related services to employees of the Spitfire Group. She notes that an inter-company loan owed by Aspirio to Spitfire Corporation, and other inter-company loans, were forgiven by a Deed of Forgiveness dated 30 June 2019. She refers to competing views as to whether Spitfire Corporation rather than Aspirio was the “true employer” of employees within the Spitfire Group, a matter which is also the subject of a direction sought in this application, and indicates that the Liquidators have formed the view that Spitfire Corporation is the true employer of employees of the Spitfire Group by reference to specified matters.

12. Ms Barnet also addresses the claims for remuneration by the administrators, deed administrators and Liquidators, matters which are relevant to their claim for a lien in respect of their costs and expenses.

13. The Liquidators also read an affidavit dated 10 February 2022 of their solicitor, Ms Farmer, which refers to the giving of notice of this application to the Commissioner of Taxation and to employees of Spitfire Corporation and Aspirio.

14. Resilient in turn relies on the affidavit dated 11 February 2022 of Mr Johnson, who was formerly the chief executive officer of Spitfire Corporation. Mr Johnson also refers to the structure of the Spitfire Group and the business activities conducted by companies within that Group. He observes that Aspirio held employee contracts for employees of companies within the Spitfire Group other than certain senior executives. He also refers to another entity within the Spitfire Group which was involved in developing asset management software, with approximately 30 people working within that business unit to develop that software. Mr Johnson observes (Johnson 11.2.22 [24]) that:

“Aspirio was the entity that held the majority of employee contracts for the people who worked for the subsidiaries. The employment contracts provided for the payment of wages, superannuation and other entitlements to employees. In terms of operations, having the majority of employees in Aspirio meant that there were greater administrative efficiencies in respect of matters like Human Resources, payroll and payment of taxes.”

15. Mr Johnson’s evidence (Johnson 11.2.22 [29]) is also that Aspirio lodged and paid workers compensation premiums for the large majority of employees of the Spitfire Group, reported PAYG for employees in the business activity statements lodged through the ATO portal and was identified as the payer on payslips issued to the employees. Plainly, Mr Johnson’s evidence that Aspirio “paid” relevant amounts requires qualification, where Aspirio did not have funds available to do so and did not do so other than on two occasions. Mr Johnson also referred to practice by which employees were required to follow directions from managers within relevant business units.

Whether this is an appropriate case for directions

16. As I noted above, the Liquidators seek directions in this application under s 90-15 of the IPSC and refer to the applicable principles as summarised, inter alia, in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 and Re RCR Tomlinson Ltd (admins apptd) [2020] NSWSC 735 (“RCR Tomlinson”) at [6] as follows:

“The Court’s power to give a direction under s 90-15 of the ISPC at least allows the Court to give a liquidator advice as to the proper course of action for him or her to take in a liquidation, and may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion, although it typically will not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision. The power to give directions under this section is wider than its power to give such directions under former s 479(3) of the Act … .”

17. These principles are not controversial. The Liquidators submit that this is a proper case for directions where the issues do not involve business decisions or matters of commercial judgment; the directions sought would provide guidance on complex matters of law arising in a winding up; and the principal creditors of the companies, the Commonwealth and Resilient, have expressed opposing views as to which of them should be afforded priority. I am satisfied that directions may properly be given on that basis.

Whether the R&D Refunds were an asset available for distribution under s 561 of the Corporations Act

18. In dealing with this aspect of the application, I have drawn on a helpful summary of the issues and the parties’ positions which they provided at my request and on their more detailed submissions. It is common ground that there is a dispute between the Commonwealth and Resilient as to whether, as at the date of the Liquidators’ appointment as voluntary administrators of Spitfire Corporation, the R&D Refunds were an asset subject to a circulating security interest available for distribution in accordance with s 561 of the Corporations Act.

19. I now set out the applicable statutory provisions and principles before turning to the parties’ submissions. Section 561 of the Corporations Act relevantly provides:

“561    Priority of employees’ claims over circulating security interests

So far as the property of a company available for payment of creditors other than secured creditors is insufficient to meet payment of:

(a)    any debt referred to in paragraph 556(1)(e), (g) or (h);

(b)    any amount that pursuant to subsection 558(3) or (4) is a cost of the winding up, being an amount that, if it had been payable on or before the relevant date, would have been a debt referred to in paragraph 556(1)(e), (g) or (h); and

(c)    any amount in respect of which a right of priority is given by section 560;

payment of that debt or amount must be made in priority over the claims of a secured party in relation to a circulating security interest created by the company and may be made accordingly out of any property comprised in or subject to the circulating security interest.”

20. It is uncontroversial that the construction of s 561 of the Corporations Act is to be determined by its text read in the relevant context, and that the object of the provision is to limit the proprietary rights of a secured creditor holding a floating charge, so that preferential debts of employees (whose work had contributed to its assets) are paid out of the property subject to that floating charge in priority to those of the chargee, to the extent that non-charged assets were insufficient to meet those debts. In Kirman v RWE Robinson & Sons Pty Ltd (in liq), in the matter of RWE Robinson and Sons Pty Ltd (in liq) [2019] FCA 372 at [45], Banks-Smith J observed that:

“Ordinarily, unsecured creditors have no claim to assets otherwise the subject of a valid and undischarged security until the secured debt is extinguished. Where it applies, s 561 therefore elevates the claim of a priority creditor above the secured creditor so that the priority creditor's claim may be paid out of property the subject of a circulating security interest. Section 561 does not elevate all claims that are accorded priority under s 556(1): the elevation is limited to the claims listed in s 561(a) to (c). Those claims include, relevantly, employee claims.”

21. In RCR Tomlinson at [14], I observed that.

“I should also have regard to the history and object of s 561 of the Act which originates from s 2 of the Preferential Payments in Bankruptcy (Amendment) Act 1897 (UK) and has a long statutory history, with its other predecessors including s 264 of the Companies Act 1929 (UK), s 319 of the Companies Act 1948 (UK), s 292 of the Uniform Companies Act 1961, s 446 of the Companies Code 1981 and s 561 of the Corporations Law. The case law has recognised that the object of predecessors of the section was to limit the proprietary rights of a secured creditor holding a floating charge, so that preferential debts were paid out of the property subject to that floating charge, to the extent that non-charged assets were insufficient to meet those debts: Buchler v Talbot [2004] 2 AC 298 at 305. That approach avoids the prejudice that a company’s employees, whose work had contributed to its assets, would be deferred to the rights of a secured creditor holding a floating charge; see also Stein v Saywell (1969) 121 CLR 529; Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20; (2019) 93 ALJR 807 at [88].”

22. Mr Krochmalik, who appears for the Liquidators, points out that, here, the property of Spitfire Corporation (and Aspirio) is insufficient to meet the claims of unsecured creditors so that s 561 has application if the R&D Refunds are “property comprised in or subject to the circulating security interest” taken by Resilient, for the purposes of that section. Whether the R&D Refunds have that character is to be determined by reference to their nature at the date when the winding up is taken to have commenced, being (in this case) the date on which the administrators were appointed on 7 August 2020 (“Appointment Date”): RCR Tomlinson at [25]; Commonwealth v Byrnes (2018) 54 VR 230; [2018] VSCA 41 at [367].

23. The term “circulating security interest” is in turn defined in s 51C of the Corporations Act as, inter alia, a “PPSA security interest” (as defined) that has attached to a “circulating asset” within the meaning of the PPSA and the term “PPSA security interest” is defined in s 51 of the Corporations Act as meaning a security interest within the meaning of the PPSA. Section 340 of the PPSA in turn defines a “circulating asset” as follows:

340 Meaning of circulating asset

General definition

(1)   For the purposes of this Act, if a grantor grants a security interest in personal property to a secured party, the personal property is a circulating asset if:

(a)   the personal property is covered by subsection (5) (unless subsection (2) or (3) applies); or

(b)   in any other case—the secured party has given the grantor express or implied authority for any transfer of the personal property to be made, in the ordinary course of the grantor’s business, free of the security interest.

…

Current assets

(5)   This subsection covers the following personal property:

(a)   an account that arises from granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided);

(b)   an account that is the proceeds of inventory;

(c)   an ADI account (other than a term deposit);

(d)   currency;

(e)   inventory;

(f)   a negotiable instrument.

Example: An example of an account mentioned in paragraph (a) is an account that is a credit card receivable.

Note:    For the meaning of inventory in this subsection, see section 341.

24. The term “account” used in s 304(5)(a) of the PPSA is in turn defined in s 10 of the PPSA (emphasis added) as follows:

““account” means a monetary obligation (whether or not earned by performance, and, if payable in Australia, whether or not the person who owes the money is located in Australia) that arises from:

(a)   disposing of property (whether by sale, transfer, assignment, lease, licence or in any other way); or

(b)   granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided);

but does not include any of [specified matters].”

Whether the R&D Refunds are personal property within the scope of the PPSA

25. The Liquidators identify a preliminary question whether the R&D Refunds are personal property within the scope of the PPSA. They submit that Spitfire Corporation’s entitlement to receive the R&D Refunds is a chose in action and that it is trite law that choses in action are personal property. They recognise that, for the chose in action comprising the R&D Refunds to become money, one or more contingencies also needed to be satisfied, including the lodgement of a tax return claiming those refunds. They also recognise the possibility that a further contingency, the making of an assessment by the Commissioner of Taxation, needed to be satisfied and adopt a neutral view as to that matter. They submit that the fact that there are contingencies before a chose in action becomes money does not prevent that asset constituting a form of “property” and that Spitfire Corporation had a right to claim the R&D Refunds, which existed at the Appointment Date, although it was only realised in the form of money at a later date.

26. The Commonwealth supports the proposition that Spitfire Corporation’s interest in the R&D Refunds was personal property at the Appointment Date, at least on the basis that Spitfire Corporation’s right to the R&D Refunds for the 2018-19 and 2019-20 financial years arose at the conclusion of each relevant income year, when, it contends, the qualifying conditions for the refunds were met. Mr Izzo, with whom Ms Ernst appeared for the Commonwealth, draws attention to the relevant provisions of the Income Tax Assessment Act 1997 (Cth) (“ITAA 1997”) that deal with tax offsets, including tax offsets to which an entity conducting research and development is entitled. He points out that there is no controversy that Spitfire Corporation conducted relevant research and development activities, through its subsidiaries, and was entitled to and received tax refunds arising from the tax offsets for research and development in respect of the 2018-19 and 2019-20 financial years. He submits, and I accept, that Spitfire Corporation had a legal entitlement to the research and development tax offsets at the Appointment Date derived from the ITAA 1997, although the tax returns by which it should claim those offsets had not yet been lodged.

27. Resilient responds that the R&D Refunds were not property of Spitfire Corporation at the Appointment Date and not “personal property” to which s 340(1) of the PPSA should apply. Mr Burnett, who appears for Resilient, also outlines the statutory structure which gives rise to an entitlement to a “tax offset” under the ITAA 1997. Mr Burnett contends that Spitfire Corporation’s claim to the R&D Refunds was at most a right to require the Commissioner of Taxation to perform his duties under taxation legislation, enforceable by public law remedies, which does not create a debt or proprietary right in favour of Spitfire Corporation. He relied on Health Insurance Commission v Peverill (1994) 179 CLR 226 at 242-243 and Commissioner of Taxation of the Commonwealth of Australia v 4 Doonan Street Collinsville Pty Ltd (in liq) (2016) 332 ALR 349; [2016] NSWCA 69 (“4 Doonan Street”) at [75] for that proposition.

28. There is authority that undermines that submission, and the cases on which Mr Burnett relies also provide little support for it. Both Mr Krochmalik and Mr Izzo refer to Federal Commissioner of Taxation v Official Receiver (1956) 95 CLR 300, where Williams J identified the possibility of a claim by a taxpayer against the Commonwealth for a tax refund, observing (at 312) that, if the Commonwealth failed to make funds available to the Commissioner to pay tax refunds, “the only course open to the taxpayer would appear to be to sue the Commonwealth.” Fullagar J there similarly observed that, although the Commissioner is not personally liable to make a tax refund arising from an excess of deductions over the relevant tax liability, an action may lie against the Commonwealth in addition to any public law action against the Commissioner to require the performance of his or her duties. His Honour there also recognised that, although that right was not analogous to an ordinary “debt”, that did not mean that the amount that was payable to a taxpayer was “incapable of being assigned or charged” and, implicitly, the entitlement to that amount constituted a form of property for that purpose.

29. Mr Izzo also submits, and I also accept, that the R&D Refunds are analogous to the entitlements to tax refunds considered in Re Mondin; Ex Parte Bradshaw (1985) 6 FCR 430, where Smithers J summarised the principles which arise from Commissioner of Taxation v Official Receiver above and observed (at 435) that, although the relevant provision did not confer a right to sue the Commissioner on the taxpayer, “[a]n action to recover the excess over tax liability which is revealed in a relevant assessment might be brought against the Commonwealth”, although his Honour also observed that it would seem that no such action could be brought before the submission of the taxation return or possibly the issue of an assessment. His Honour also observed (at 436) that, although the relevant obligation was not enforceable against the Commissioner until the relevant tax liabilities of the taxpayer are established by an assessment:

“At all relevant times the obligation of the Commonwealth to use the money for the recoupment of tax which is payable by the taxpayer and return any balance to the taxpayer existed and was well-defined.”

30. His Honour also observed that:

“An obligation to pay a sum of money in the future, measurable according to the operation of law in relation to such events as may occur before the time for payment, is a chose in action. Such a situation is to be distinguished from one in which there is merely a possibility or expectation: see Norman v FC of T (1963) 109 CLR 9 . And even where the legal process which may be instituted in respect of the amount payable may be limited, as perhaps that in respect of the excess of provisional tax over actual tax liability may be, the right of the taxpayer is still in the nature of a chose in action.”

His Honour then held (at 437) that the right of a debtor in respect of any excess of provisional tax was property, and it was not to the point that it arose out of the provisions of a statute rather than out of a contract or deed.

31. As Mr Krochmalik pointed out in oral submissions in reply, the plurality in Peverill also treated a medical practitioner’s entitlement to make a claim for rebates against the Commonwealth under the Health Insurance Act 1973 (Cth) as property, although also holding that a reduction in the amount of those rebates was not an acquisition of property within s 51(xxxi) of the Commonwealth constitution. Their Honours observed (at 235) that the entitlement to the payment for the relevant service was a valuable “right” or “interest” of a kind which constitutes property for the relevant purpose, although I recognise that Brennan J reached a different view (at 243) on the basis that the Health Insurance Act did not create a debt recoverable in a Court of competent jurisdiction. In Re Evans; Sweeney v Evans (1995) 61 FCR 556 (“Evans”), an entitlement to a refund in the future, measurable according to the operation of law, was also treated as a chose in action and as property, although the taxpayer had not yet lodged the relevant returns, and not a mere “possibility or expectation” in the language of Norman v Federal Commissioner of Taxation (1963) 109 CLR 9.

32. As Mr Izzo pointed out, 4 Doonan Street in turn relates to the treatment of debts recorded in a running balance account under Pt IIB of the Tax Administration Act 1953 (Cth), rather than to the substantive entitlement to a tax refund and establishes no more than that any chose in action of the taxpayer, and any consequential right of property, is not determined by the balance of a taxpayer’s running balance on a particular day before any relevant debits are applied to it. It was not necessary for the Court of Appeal to decide in that case, and it seems to me that it did not decide, any wider question as to whether a chose in action or property right existed in a taxpayer before an assessment was issued.

33. Resilient also submits that the earliest point at time at which Spitfire Corporation could be said to have any “property” arising from the entitlement to receive the R&D Refunds was the date on which the Commissioner issued the relevant assessment under taxation legislation or, alternatively, the date on which payment of the refunds was in fact received by Spitfire Corporation and, until that time, Spitfire Corporation’s interest could be described as a “mere expectancy” only. Mr Burnett relies on Re Langdon; Forge Group Ltd (recs and mgrs apptd) (in liq) (2017) ACSR 434; [2017] FCA 170 at [21] (“Langdon”) and contends that decision is authority that an assessment process under s 170 of the Income Tax Assessment Act 1936 (Cth) “gives rise to no more than an expectancy and does not constitute ‘property’ within the definition s 9 of the Corporations Act”. Mr Izzo responds and I accept that the decision in Langdon is also distinguishable where the refund in that case was the product of the termination of contracts as a result of the appointment of administrators to the company and did not exist prior to the company being placed in administration. The position in that case is entirely different from the position here, where Spitfire Corporation’s entitlement to research and development offsets existed prior to the administration and was neither created by nor affected by it. There is also no analogy between the position here and the right to receive surplus funds considered in RCR Tomlinson above, to which Resilient refers, where the right to receive those surplus funds in RCR Tomlinson was subject to the commercial contingencies and uncertainties to which that judgment referred.

34. Resilient also submits that Spitfire Corporation was under no obligation to claim the relevant deductions that could result in an entitlement to an R&D Refund and any entitlement to a R&D Refund is not automatic but requires the taxpayer to make an application. I do not accept that submission where, as Mr Izzo points out, the statutory regime requires Spitfire Corporation to bring the research and development offset to account in calculating its assessable income.

35. In reply, Mr Krochmalik submits that “property” is defined in the Corporations Act as “any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action” and recognises the distinction between property, including a chose in action, and a mere expectancy of the kind noted in Norman v Federal Commissioner of Taxation above. He refers to the observation of the Court of Appeal of the Supreme Court of Western Australia in Belgravia Nominees Pty Ltd v Lowe Pty Ltd [2015] WASCA 143 at [6] that:

“A chose in action is a personal right of property which can only be claimed or enforced by action, as distinct from taking physical possession. A mere expectancy is the possibility of a future right.”

36. The Liquidators also refer, in reply, to the authorities noted by the Commonwealth in support of the conclusion that the R&D Refunds were a form of property and note that a corresponding result was reached by the Victorian Court of Appeal in Commonwealth v Byrnes above at [414]-[415].

37. I am satisfied that the R&D Refunds constituted both property, and more than a mere expectancy, and “personal property” for the purposes of s 340(1) of the PPSA as at the Appointment Date for the reasons set out in dealing with the parties’ submissions above. In summary, Spitfire Corporation’s right to require those refunds arose under the applicable statutory regime; as Mr Izzo points out, Spitfire Corporation was obliged to bring the research and development offsets to account in calculating its assessable income, and did not have a free choice whether to claim or require the R&D Refunds to which it was entitled; that right was not subject to contingencies of the kind that I addressed in RCR Tomlinson, where the research and development was done prior to the Appointment Date; and the fact that the returns needed to be lodged to require the refunds in money did not deprive the right to them of the character of property; and it is not to the point that the right to the R&D Refunds was not enforceable against the Commissioner of Taxation personally, where it is analogous to the entitlements considered in Mondin and Evans, and (although this is not necessary to this conclusion) they would likely be enforceable against the Commonwealth as a debt owed by the Commonwealth. It is not necessary to address Mr Izzo’s further submission as to an analogy with the question when a liability to pay tax arises in order to reach that conclusion.

Whether the R&D Refunds are circulating assets under s 340(1)(b) of the PPSA

38. I now turn to the question whether the R&D Refunds are circulating assets under s 340(1)(b) of the PPSA. As I noted above, s 51 of the Corporations Act defines a “PPSA security interest” as a security interest within the meaning of the PPSA. The Liquidators submit that, in order to establish the existence of a circulating security interest over the R&D Refunds, they must fall within either the first category of “circulating asset” as set out in s 340(1)(a) or the second category in s 340(1)(b) of the PPSA. They point out that s 340(1)(a) specifies assets of the type listed in s 340(5) (subject to the exclusions in ss 340(2)-(3), which do not apply in this case) with the result that the two relevant categories of assets here are those described in either s 340(1)(b) of the PPSA (which I address here) or s 340(5) of the PPSA (which I address below). All parties accept that this definition focuses on the nature of the relevant property, rather than the nature of the security interest, although Resilient emphasisers the terms creating the security interest are relevant to the analysis.

39. Both the Liquidators and Resilient accept that, as I noted above, that s 340(1)(b) of the PPSA is directed to assets that the secured creditor has given authority to the grantor to transfer in the ordinary course of business, free of the security interest. The Liquidators accept that this would ordinarily be understood as the type of assets of that would traditionally have been the subject of a floating charge such as book debts and stock in trade. The Commonwealth does not accept this proposition to the extent that it implies any limitation upon the words of s 340(1)(b) of the PPSA, but it is not necessary to address that question. The Liquidators next submit (and the Commonwealth agrees) that s 340(1)(b) of the PPSA requires attention to the contractual provisions governing the security interest, relevantly the GSD, and whether Spitfire Corporation could transfer the R&D Refunds in the ordinary course of business turns on the construction of the GSD. Resilient also accepts that whether personal property is a security interest within the meaning of s 340(1)(b) requires reference to the GSD, and that issue requires consideration to be given to the nature of the property, the nature of the grantor’s business and any other restrictions (contractual or otherwise) on the disposition of the property.

40. Next, the Liquidators point out (and the Commonwealth and Resilient accept) that, by cl 2.1 of the GSD (to which I have also referred above), Spitfire Corporation granted a security interest over all its present and after-acquired property in favour of Resilient, which extends to its assets (cl 2.1(a)) and “anything in respect of which [Resilient] has a sufficient right or interest to grant a Security Interest under the PPSA…” (cl 2.1(b)). Clause 3.2 of the GSD permitted Spitfire Corporation to dispose of a Circulating Asset (as defined in the GSD) in the “ordinary course of its ordinary business”. The Liquidators point out that the term “Circulating Asset” is defined in cl 1.1 of the GSD, which provides an exhaustive list of such assets. It is common ground that the R&D Refunds are not inventory, currency, or items of machinery, plant or equipment falling within paragraphs (a), (b) and (c) of that definition, and could only fall within paragraph (d) of that definition, which refers to “proceeds in the form of money or other consideration of any Trade Debt (as defined) …”.

41. The Liquidators submit that the words “other consideration” need not be understood in the legal sense as an asset to be received as part of a mutual exchanges of promises but should be construed by reference to an ordinary meaning of the word in this context, as a “payment or reward”. They accept that, if the phrase “other consideration” required a connection between the “Trade Debt” and the exchange of something by Spitfire Corporation in return for it, then the R&D Refunds are unlikely to fall within the definition of “Circulating Asset” in cl 1.1 of the GSD, or within 3.2 of the GSD or consequentially to be circulating assets under s 340(1)(b) of the PPSA. Resilient responds that paragraph (d) of the definition of “Circulating Asset” in cl 1.1 of the GSD extends only to “the proceeds in the form of money or other consideration… which are received before an event described in clause 3.3 occurs…” and applies to a narrower range of property than the definition in s 340(5) of the PPSA, and Mr Burnett submits that any “proceeds in the form of money or other consideration” in respect of the R&D Refunds were received after the winding up of Spitfire Corporation, being an event described in cl 3.3 of the GSD. Resilient contends that the R&D Refunds do not fall within subparagraph (d) of the definition of “Circulating Asset” under the GSD on that basis.

42. It seems to me that the reference to money or “other consideration” in the definition of “Circulating Asset” in cl 1.1 of the GSD refers to something derived from the Trade Debt, in the form of money or “other consideration”, and not to the Trade Debt itself. Even if the R&D Refunds are a Trade Debt (which I address below for the purposes of PPSA s 340(5)), I accept Resilient’s submission that no money or other consideration was derived from them at any time prior to the events specified in cl 3.3 of the GSD so as to give rise to a “circulating asset” under cl 1.1 of the GSD, so as to fall within cl 3.2 of the GSD or s 340(1)(a) of the PPSA. The Liquidators’ submission that the R&D Refunds are circulating assets within that paragraph fails at this point.

43. The Liquidators also point out (and the Commonwealth agrees) that cl 3.2 of the GSD permits Spitfire Corporation to dispose of a Circulating Asset in the “ordinary course of its ordinary business”. They contend that there is no reason why the entitlement to receipt of the R&D Refunds could not be assigned, mortgaged or charged for value, and that this would not constitute the disposal of the whole or substantially the whole of the business of Spitfire. Resilient responds, at some length, that the permission contained in cl 3.2 of the GSD is limited to disposal in the “ordinary course of [Spitfire Corporation’s] ordinary business” and that requirement would also need to be satisfied if the entitlement to receive the R&D Refunds were to fall within s 340(1)(b). It submits that a disposal in the “ordinary course of [Spitfire Corporation’s] ordinary business” must be one that is not unusual or exceptional, but must be something ordinarily done in the course of the particular business of Spitfire Corporation: Fire Nymph Products Pty Ltd v Heating Centre Pty Ltd (1988) 14 NSWLR 460 at 464-465. Mr Burnett also points out that the permission granted under the GSD to dispose of assets under the GSD depends on satisfaction of a more onerous standard than that specified in s 340(1)(b), namely “in the ordinary course of its ordinary business”.

38. Resilient also submits that no mechanism has been identified by which any entitlement to receive a tax refund could be disposed of prior to receipt of that refund; any disposal of the entitlement to receive the R&D Refunds would clearly be an unusual or exceptional transaction, and there is no evidence Spitfire Corporation had ever undertaken such a transaction previously; Spitfire Corporation was contractually prohibited from disposing of or charging any entitlement to receive the R&D Refunds, including under the CNTD; and any disposition of the R&D Refunds would have resulted in a disposition of a substantial majority of Spitfire Corporation’s revenue. It also submits that the R&D Refunds were not assets capable of being disposed by Spitfire Corporation in “the ordinary course of its ordinary business”, and therefore fall outside any permission contained in cl 3.2 of the GSD. There is force in the second and fourth of these points, but it is not necessary to determine those issues where I am not satisfied that the R&D Refunds are a “Circulating Asset” for the purposes of cl 1.1 of the GSD so as to fall within s 340(1)(b) of the PPSA. I will address an overlapping issue in respect of s 340(5) of the PPSA below.

Whether the R&D Refunds are circulating assets under s 340(1)(a) of the PPSA

45. I next turn to the question identified by the Liquidators and pursued by the Commonwealth whether the R&D Refunds are circulating assets under s 340(1)(a) and s 340(5) of the PPSA. Mr Izzo rightly points out and I accept that the analysis for the purposes of s 340(1)(b) (which I addressed above) and s 340(5) of the PPSA (which I address here) is not the same, because the definition of Circulating Asset in cl 1.1 of the GSD includes a requirement that the asset be “proceeds in the form of money or other consideration” and that is not required by s 340(5) of the PPSA.

46. The Liquidators recognise (and the Commonwealth and Resilient agree) that only the assets of Spitfire Corporation of a type that could fall within s 340(5)(a) of the PPSA are relevant to this application. The term “account” is defined in s 10 of the PPSA as (i) a monetary obligation that (ii) arises from (iii) either (A) disposing of property or (B) granting a right or providing services (iv) in the ordinary course of a business of granting rights or providing services of that kind. The term “monetary obligation” is not defined in the PPSA and the Liquidators submit that phrase is satisfied where there is an “existing legal obligation” to pay “an identifiable monetary sum to the company on an ascertainable date” but not where there is a “potential claim … which might or might not arise depending on the actions of a third party”. The Liquidators take a neutral position on whether the entitlement to receipt of the R&D Refunds satisfies that test.

47. The first question is whether the R&D Refunds constitute a “monetary obligation” for the purposes of the definition of account in s 10 of the PPSA. Resilient refers to in Strategic Finance Ltd (in liq) v Bridgman [2013] 3 NZLR 650; [2013] NZCA 357 (“Strategic Finance”), where the New Zealand Court of Appeal considered the concept of a “monetary obligation” as it appears in the definition of “account receivable” in s 16 of the Personal Property Securities Act 1999 (NZ) (“PPSA NZ”), which refers to “a monetary obligation that is not evidenced by chattel paper, an investment security, or by a negotiable instrument, whether or not that obligation has been earned by performance”. White J (delivering the judgment of the Court) there observed (at [54]) that a monetary obligation:

“means an existing obligation imposed on, or assumed by, one party to pay a certain amount of money to the other party on a specific or ascertainable future date. An obligation of this nature will involve an existing liability on the part of the first party which is legally enforceable by the second party.”

48. His Honour noted (at [55], [57]), by reference to observations in Mann on the Legal Aspect of Money, that such an obligation will include debts as traditionally understood and executory obligations of a monetary character but does not include a possible liability to pay an unidentifiable sum at an unascertainable future date. His Honour also observed (at [59], [62]) that a monetary obligation would not be established where future performance was required for that obligation to come into existence, since a purely contingent claim does not give rise to a monetary obligation. His Honour summarised that conclusion at [83] as follows:

“In this context a “monetary obligation” is an existing legal obligation on another party to pay an identifiable monetary sum to the company on an ascertainable date. The obligation must be legally enforceable by the company [at the relevant date] on the basis that the other party has an existing liability to make the payment.”

49. Mr Burnett submits that this description provides an appropriate description of the elements of an “account”. Mr Izzo responds and I accept that the Court of Appeal there found that “[t]he existence of the GST arrears and the right of set off meant that the Commissioner was not under a legally enforceable obligation to make the GST refund payment” (at [99]) and that case does not determine whether an existing right to a tax refund is a monetary obligation existing before an assessment is issued.

50. The decision in StrategicFinance was in turn referred to by Gilmour J in Langdon, which concerned a tax refund received by receivers following the termination of Forge’s construction contracts. Gilmour J there held that the tax refund and corresponding chose in action was not an account for the purposes of s 10 of the PPSA nor or a circulating asset for the purposes of s 340 of the PPSA, because the tax refund and corresponding chose in action arose only after the ordinary course of Forge’s business had ceased, adopting a similar approach to that taken in Strategic Finance concerning a GST payment that had been made by mistake after the relevant company went into liquidation. The Liquidators and the Commonwealth submit, and I accept, that this case is distinguishable from Langdon, where (as I noted above) the relevant refund there arose from a post-insolvency contractual termination and would never have come into existence in the ordinary course of Forge’s business; by contrast, here, the right to the R&D Refunds arose from the ordinary business activities of Spitfire Corporation before its external administration and was not affected by its later appointment of administrators and its subsequent winding up.

51. In Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 52 WAR 90; (2017) 320 FLR 259; [2017] WASC 152 (“Forge 1”), Tottle J (at [247]-[250] and [254]-[257]) in turn referred both to the ordinary meanings of the concept of “account” and “monetary obligation” and to the decision in Strategic Finance. His Honour observed (at [250]) that:

“The ordinary meanings of the words ‘account’ and ‘monetary obligation’ support the view that for the purposes of the PPSA an ‘account’ requires that there be an existing binding legal obligation to pay an ascertainable amount of money at some ascertainable future time arising from the disposal of property, the granting of a right, or the providing of services in the ordinary course of a business of granting rights or providing services of that kind.”

52. His Honour also referred (at [260]) to Strategic Finance and held that a “monetary obligation” was:

“an existing legal obligation on one party to pay an identifiable monetary sum to another on an ascertainable date arising from the disposing of property or the granting of a right or providing services in the ordinary course of granting rights or providing services of that kind subject to the specified exceptions”.

53. His Honour also observed (at [261]) that:

“I consider that a claim for payment for services provided pursuant to an agreement is capable of constituting a monetary obligation provided that the agreement contains a mechanism for ascertaining the amount to be paid and the payment date. If there is a legally enforceable obligation and a corresponding existing liability to make payment then it is immaterial that enforcement by court proceedings is required or that a court is required to resolve a dispute as to the amount to be paid or the payment date. Contractual claims of this nature may be contrasted with a right to claim damages in tort or equity, which the court in Strategic Finance held did not constitute monetary obligations. In the case of a right to claim damages in tort or equity a legally enforceable obligation and corresponding liability does not arise until judgment. By way of contrast, a legally enforceable contractual obligation and corresponding liability arises when there is performance in accordance with the terms of the contract.”

54. His Honour held (at [265]) that the claims described in the judgment as “progress claims” were “accounts” within the meaning of s 10 of the PPSA, where they were claims for debts in amounts governed by the contracts, or alternatively claims for contractual damages where the loss comprised identifiable monetary sums and interest. His Honour also held that the “securities claims” in issue in that case were not accounts within the meaning of s 10 of the PPSA, because they were not claims for identifiable monetary sums due by ascertainable dates arising from the disposing of property or grant of rights in the ordinary course of business. The Court of Appeal took a different view in Hamersley Iron Pty Ltd v Forge Power Pty Ltd (2018) 53 WAR 325; [2018] WASCA 163 (“Forge 2”) at [197]-[198]. The Court there held that an obligation to repay the money received as a result of a wrongful call on a performance guarantee was an account.

55. The Liquidators and the Commonwealth also refer to the first instance decision in Re Amerind Pty Ltd (receivers and managers apptd) (in liq) (2017) 121 ACSR 201; [2017] VSC 127 and on appeal in Commonwealth v Byrnes above at [415]. The Court of Appeal of the Supreme Court of Victoria there considered whether “pre‑appointment tax refunds” were circulating assets for the purposes of s 433(3) of the Corporations Act, which has the same underlying purpose as s 561 of giving priority to employees’ claims over the claim of a party secured by a circulating security interest: Carter Holt Harvey Woodproducts Australia Pty Limited v Commonwealth (2019) 268 CLR 524 at [51], [58] (Kiefel CJ, Keane and Edelman JJ) and [111], [120]-[121] (Gordon J). The Court of Appeal also there observed that the receipt of a tax refund, after the appointment of the receivers, was an “account” for the purposes of ss 340(5)(a) where:

“… Amerind was owed money by the Commissioner of Taxation as a result of overpayments of tax before the appointment date. The unchallenged evidence of Mr Byrnes was that the other receipts were all derived from circumstances and transactions that arose before the appointment date. As such, they were accounts arising from providing services in the ordinary course of business, within s 340(5)(a) of the PPSA and therefore circulating assets.”

56. I subsequently undertook a detailed review of Australian and international case law concerning the concept of “monetary obligation” in the definition of account in RCR Tomlinson above at [34]ff, on which I have drawn for this shorter review of the case law. I observed (at [77]-[78]), in dealing with the “Surplus Proceeds” at issue in that case, that:

“First, it seems to me that the term “monetary obligation” must retain something of its character in general usage, and a potential claim in respect of the Surplus Proceeds which might or might not arise depending on the actions of a third party, while of a monetary character, had no element of “obligation” about it. If a claim of that character were treated as a “monetary obligation”, there would be no principled basis on which to exclude other contingent claims which might or might not arise.

Second, it seems to me that I should give weight to the analysis of the concept of “monetary obligation” and “account receivable” in Strategic Finance, although it is not binding on me, where that decision is a considered analysis of the broadly similar concepts in s 16 of the PPSA NZ and was reviewed at length and without disapproval in Forge 2, although not on point as to the matters in issue in that case. The Surplus Proceeds do not satisfy any of the requirements there identified for a “monetary obligation”, since they were not an existing legal obligation (at the Appointment Date) on a Principal (which had not then called on the Bonds or received their proceeds) to pay an identifiable monetary sum to the company on an ascertainable date or at all, and a Principal did not then have (and, absent a call on the Bonds, would never have) an existing liability to make the payment. Third, the concept of “account” in s 10 of the PPSA seems to me to have at least its core meaning in common with that of “account receivable” in s 16 of the PPSA NZ, as recognised in the academic commentary to which I have referred above. The Surplus Proceeds are so contingent in character that they would not properly fall within that concept or any expansion of it that can reasonably be drawn from the use of the simpler term “account”.”

57. Mr Izzo also refers to that observation and submits that Spitfire Corporation’s entitlement to the R&D Refund represented an existing legal right to an identifiable sum of money as at the Appointment Date, although the relevant tax returns had not been lodged and (deemed) assessments had not yet been made.

58. Resilient responds that the R&D Refunds were not an “account” for the purposes of s 10 of the PPSA and s 340(5)(a) of the Corporations Act because, at the Appointment Date, the Commissioner of Taxation was not under any obligation to pay an identifiable sum of money to Spitfire Corporation on an ascertainable date, and the Commissioner’s statutory duty to perform his functions under the taxation legislation is not properly characterised as a “monetary obligation.” I do not accept this submission, given the case law to which I have referred in paragraphs 47–56 above, where Spitfire Corporation’s claim against the Commonwealth for research and developments offsets arising prior to the Appointment Date was such a claim. Resilient also submits that any obligation on the part of the Commissioner of Taxation to make payment to Spitfire Corporation in respect of the R&D Refunds was dependent on the Commissioner of Taxation issuing the relevant assessment, and this had not occurred at the Appointment Date. I also do not accept that submission, given the statutory provisions to which Mr Izzo referred, and the fact that the obligation in respect of the R&D Refund is properly treated as enforceable against the Commonwealth although not the Commissioner of Taxation personally for the reasons I noted above. Mr Burnett also submits that the R&D Refunds are analogous to the “surplus proceeds” identified in RCR Tomlinson above at [77], being an entitlement “which might or might not arise depending on the actions of a third party” and “which had no element of obligation about it”. I do not accept that submission, where Spitfire Corporation had both a statutory entitlement to the R&D Refunds, enforceable against the Commonwealth as noted above, and an obligation to claim that entitlement in its returns.

59. The Liquidators also address the question whether the “account” “arises from” the provision of services in the ordinary course of a business of providing services of that kind, and submit that the relevant causal nexus is satisfied. In opening submissions, they point out that:

“It is important to recognise that the R&D Tax Refunds were obtained as a consequence of Spitfire Corporation’s (or the Spitfire’s Group’s) business activities—and specifically its research and development activities (including design and development of investor directed portfolio Services, multi-currency multi-asset portfolio modelling, and real time pricing feeds)—which qualified it to lodge an application for a research and development tax incentive and then to receive a research and development tax offset (which it had sought and obtained since the 2015 financial year). …

The R&D Refund was not obtained because of or by reason of the external administration of Spitfire Corporation; rather, the entitlement to receipt of the R&D Tax Refunds stemmed from the nature of its business activities (and this entitlement was not otherwise impacted by the fact that Spitfire Corporation was insolvent and / or placed into external administration prior to the lodgement of the tax returns containing the applications for a tax rebate). …”

60. The Liquidators also submit that the entitlement to the R&D Refunds arose from Spitfire Corporation’s ordinary business of providing services in that those research and development activities are central to the development of the services to be utilised by the customers of the Spitfire Group, for example, by using the Merlin platform. The Commonwealth supports this submission and also submits that the “account” here arose from the provision by Spitfire Corporation of services to its customers in the 2018-19 and 2019-20 financial years. The Commonwealth points to the evidence that the rights and services which the Spitfire Group provided to its customers included access to software which was marketed as innovative, and refers to references in the application for the R&D Refunds to Spitfire Group’s business objectives of providing cutting edge technology solutions and innovation (Ex L6, 7); references in that application to the continued development of the financial platform with the inclusion of new features as part of the Merlin technology offering (Ex L6, 7-8); the fact that the Spitfire Group used Merlin software as its wealth management platform (Johnson [19](a)(i)(C); [19](d)(i)(A)); and a press release (Ex R1) which refers to Spitfire Corporation’s dedication to transforming technology solutions available to the financial services industry, providing a “core solution” which was a total wealth and single ecosystem digital platform and continually innovating; and the duties of employees including championing the continuous improvement of the company’s software development process and practices (Ex L1, 384).

61. Resilient contests the proposition that any entitlement to receive the R&D Refunds arose from “providing services… in the ordinary course of providing services of that kind.” Mr Burnett submits that there is no established factual connection between any services provided by Spitfire Corporation and any research and development activities which could give rise to an entitlement to receive a tax refund; that, even if that factual connection was established, any entitlement to receive the R&D Refunds arises from incurring deductible expenses for the purpose of the taxation legislation and not from Spitfire Group’s providing services; that any entitlement to receive the R&D Refunds does not arise in the “ordinary course” of providing services; and that that entitlement arises from processes under the relevant taxation legislation, which have no necessary connection with any “services” provided by Spitfire Corporation.

62. The Commonwealth and the Liquidators respond to Resilient’s submission that the R&D Refund arose, not from the provision of services in the ordinary course of business but from the operation of the taxation legislation, by pointing out that the language of s 340(5)(a) of the PPSA requires only that the account arise from the provision of services that are in the ordinary course of business. Mr Izzo submits, and I accept, that Resilient’s submission that the refund did not arise because Spitfire Corporation granted rights or provided services, but rather because it became entitled to claim a deduction, neglects the fact that it was claiming that deduction because it was undertaking research activities in order to provide services to its customers. Mr Izzo also points out that s 340(5)(a) of the PPSA does not require that the refund itself arise in the ordinary course of business, where the relevant services are provided in the ordinary course of providing services of that kind. He observes that, in Forge 2 above at [198], the Western Australian Court of Appeal rejected an argument that the proceeds of a wrongful call on bank guarantees did not arise in the ordinary course of business because Forge was in the business of construction work and not deriving income from the provision of bank guarantees. He submits and I accept that Spitfire Corporation’s obligation to pay tax (and its entitlement to refunds of tax) as a result of conducting business and earning income in the ordinary course is analogous to Forge’s need to provide bank guarantees in the course of doing construction work. He also points out that, in Commonwealth v Byrnes above at [415], the Victorian Court of Appeal accepted that money owed to the taxpayer company by the Commissioner of Taxation as a result of overpayments of tax before the appointment date was an account arising from providing services in the ordinary course of business within the meaning of ss 10 and 340(5)(a) of the PPSA, and Resilient’s approach is inconsistent with that decision.

60. I am satisfied, on the agreed facts and the evidence to which I have referred, that the “account” constituted by the R&D Refunds at least “arise[s] from” the provision of research and development services that were conducted by the subsidiaries that undertook research within the Spitfire Group for the benefit of all companies within the Spitfire Group, in the business of providing services of that kind for the benefit of the companies in the Spitfire Group that traded with customers, and the ultimate benefit of external customers of the Spitfire Group who used its products and services. I also accept that the R&D Refunds arose in the ordinary course of Spitfire Corporation’s business, although it seems to me that the point may be put more precisely by recognising that the relevant research and development services were provided in the ordinary course of the business of the subsidiaries that undertook research, again for the benefit of the companies within the Spitfire Group that traded with customers, and the ultimate benefit of external customers of the Spitfire Group who used its products and services.

61. The Liquidators also point out that the words “(whether or not the account debtor is the person to whom the right is granted or the services are provided)” in paragraph (b) of the definition of account in s 10 of the PPSA are sufficient to include a position where the “account debtor” is the Commissioner of Taxation, which was not the person to whom the relevant research and development services were provided. For completeness, the Commonwealth points out that the relevant account debtor would be the Commonwealth and not the Commissioner of Taxation, for the reasons noted in Commissioner of Taxation v Official Receiver above at 311, 312, 324 and Re Mondin above at 435, 436 which I address above.

62. For these reasons, I find that the R&D Refunds are circulating assets under s 340(1)(a) of the PPSA. So far as the GSD applies to the R&D Refunds, it is a “circulating security interest” as defined in s 51C of the Corporations Act as, inter alia, a “PPSA security interest” that has attached to a “circulating asset” within the meaning of the PPSA. Under s 561 of the Corporations Act, where Spitfire Corporation’s property available for payment of creditors other than Resilient is insufficient to meet payment of, inter alia, the debts referred to in s 556(1)(e), (g) or (h) (as is common ground if relevant employees are employees of Spitfire Corporation), then payment of that debt must be made in priority over Resilient’s claims in relation to the GSD and may be made out of the R&D Refunds subject to the GSD.

Whether relevant employees are employees of Spitfire Corporation

66. There is also an issue as between the Commonwealth and Resilient as to which of Spitfire Corporation and Aspirio was the “true employer” of employees with contracts with employment with Aspirio. There is a preliminary question as to the proper approach to this issue as a matter of law. All parties acknowledge the significance of the relevant employment agreements in a controversy as to which entity in a corporate group is the “true employer” in respect of any particular employee. Mr Krochmalik submits and I accept (subject to any change in approach required by three recent High Court decisions that I address below) that whether the employer of the employees was Aspirio or Spitfire Corporation, for the purposes of Pt 5.6 of the Corporations Act, is to be determined as a matter of substance and the totality of the relationship between the parties should be considered: Pitcher v Langford (1991) 23 NSWLR 142 at 161 (“Pitcher v Langford”); Golden Plains Fodder Australia Pty Ltd v Millard (2007) 99 SASR 461; [2007] SASC 391 at [33]; Sturesteps v McGrath [2010] NSWSC 169 at [14]-[19] (“Sturesteps”). Mr Krochmalik also refers to Gleeson JA’s observation in Re DH International Pty Ltd (in liq); Challis v Hoffmann (2017) 121 ACSR 585; [2017] NSWSC 870 at [79] (citations omitted) that:

“The terms of the employment contract may not be determinative as to the identity of the employer and it is permissible to look beyond the employment contract to decide as a matter of fact who the real employer is and to whom obligations are owed”.

67. Mr Izzo in turn points out that courts have held that, in determining the priority of employee entitlements under Pt 5.6 of the Corporations Act, a person may be an employee of a company even where he or she has an employment contract with a different company in the same corporate group. He refers to Edmonds J’s summary of the authorities in Gothard (recs & mgrs of AFG Pty Ltd) (in liq) v Davey (2018) 80 ACSR 56; [2010] FCA 1163 (“Gothard”) at [52]‑[64], and his Honour’s observation at [52] that in:

“identifying an employer of a person or group of persons from two or more possibilities ... The courts ... are entitled to take a wide view of the putative relationship, beyond the terms of the contractual documentation, to examine how the parties conducted themselves in practice and whether, where there is contractual documentation, the reality of the situation accords with the terms of that documentation or whether it points to another entity being the employer.”

68. Mr Izzo submits, and I also accept, that this analysis proceeds on the basis that “[d]ocumentation created by one or more of the parties describing or evidencing an apparent employment relationship will be relevant to, but not necessarily determinative of, the true character of that relationship” and that “bare formalities [will] never be enough to obscure the real substance of an arrangement”: ReC & T Grinter Transport Services Pty Ltd (in liq) [2004] FCA 1148 at [20]; Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174; [2011] FCA 1176 at [94] (“Ramsey Food Processing”). He points out that Courts have accepted that the true employer of an employee is not necessarily the company nominated as the employer in the written contract of employment. He refers to Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125 (“Bindaree Beef”), where Giles JA (with whom Spigelman CJ agreed) said at [59] referred to Pitcher v Langford and observed that:

“There is no doubt ... that without going so far as to find a sham the ‘reality of purported contractual arrangements’ [quoting Handley JA in Pitcher v Langford] can be considered, and the case illustrates that it can extend to the identity of a contracting party and that it can be found that a purported contracting party was not in reality party to the contract even where a written contract gives it as the party.”

69. In Sturesteps at [19], Brereton J took the same approach in holding that, ‘without regarding the [written employment contract] as a sham’, and ‘taking into account all the indicia’, the true employer of an employee was the company that paid the remuneration and issued group certificates. In Re Branded Media Holdings Pty Limited (in liquidation); Re Brand New Media Pty Ltd (subject to a Deed of Company Arrangement) [2020] NSWSC 557 (“Re Branded Media”), where the relevant employment contracts nominated a holding company as the employer and there was no evidence of any written contract with the another company, I held that “the documentation of the relationship [was] consistent with [the holding company] being an “employer of record” and less significant in identifying the true employer than the fact that [the other company] incurred the costs of paying employees for entities across the group”.

70. Mr Izzo in turn recognises that, while cases turn on their own facts, matters that are relevant to assessing the identity of the true employer relevantly include which company that paid the employees' remuneration; whether the employer of record had assets or revenue from which it could meet employees’ entitlements; whether the employer of record had any purpose other than to be an employer of record; and whether the employer of record exercised practical and legal control and direction over the employees, although this will be given limited weight where the putative employers are part of the same corporate group: Textile Footwear and Clothing Union of Australia v Bellechic Pty Ltd [1998] FCA 1465; Ramsey Food Processing at [79]; Sturesteps at [19]; Gothard at [60], [184], [200]; Bindaree Beef at [60(f)]; Re Branded Media at [31]. Mr Izzo also cites the observation of Buchanan J in Ramsey Food Processing at [78], his Honour that:

“it must be possible to identify a rational explanation for the arrangement and the explanation must be satisfactorily related to an intelligible business objective. That is so because otherwise, doctrines of agency, at least, may operate to defeat a bare claim of independence and isolated liability, supported only by a bare reference to separate incorporation. That is particularly likely to be the case when: the separate employing company is completely reliant upon a company to which it purportedly supplies labour; it has no assets and no management structure of its own; and it exists only as a corporate shell to protect another company, which does have assets, from liability to employees. In such a case a court might not hesitate long before pronouncing the arrangement ineffective or, in a more serious case, a sham.”

71. Mr Izzo notes that I followed that approach in Re Branded Media at [26], where I noted that:

“[The Commonwealth] also points out that the Court may have regard to whether the suggested arrangement had an “intelligible business objective” which is “consistent with the financial and administrative organisation of the business”. I can accept that there would exist an intelligible business objective in a single employer entity within a group, at least where that entity on charges the cost of employee services to other group entities, and there is either a payment structure or an accounting structure so that it is in a position to meet its obligations to employees on an ongoing basis. I do not accept that there is such an intelligible business objective where the suggested employing entity would, at all times, be incapable of meeting those obligations, which are in fact met by another entity which is the only entity that has the capacity to meet them. That is the case here, since Holdings could not have met the relevant obligations and BNM in fact met those obligations where it was the only entity with the capacity to do so.”

72. Resilient contends for a substantially narrower approach. Mr Burnett contends that, where employment agreements are contained in writing, the identity of the employer of any particular employee is to be determined by reference to the written agreement and orthodox principles of contractual construction. That proposition is uncontroversial unless applied, as Resilient seeks to apply it here, to exclude reference to any other relevant facts. Resilient submits that a determination of the “true employer” does not permit inquiry beyond the employment contract (other than in cases of sham or contractual variation) and that, by reference to the written employment contracts and orthodox contractual principles, Aspirio was the relevant employer of the employees other than the Excluded Employees. It denies that reference to the “totality of the relationship” or to a “multifactorial analysis” is available. Mr Burnett relies on recent decisions of the High Court of Australia in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (“Personnel Contracting”); ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (“ZG Operations”) and WorkPac Pty Ltd v Rossato (2021) 95 ALJR 681; [2021] HCA 23 (“Workpac”) to support that approach.

73. The Liquidators respond that these decisions emphasise the significance of the formal contractual arrangements in determining the nature of contractual arrangements, but they contend that these cases do not overrule existing authority that allows attention to the substance of the relationship when identifying the employer entity in intra-corporate group arrangements in for the purposes of Pt 5.6 Div 6 of the Corporations Act. Mr Krochmalik also submits that these decisions did not address the question whether an employee who contracted with an employer entity in a corporate group was, in substance, employed by another entity in that corporate group, and also did not address the question of how to determine what entity was an employer of the relevant employees for the purposes of Pt 5.6 Div 6 of the Corporations Act and that Personnel Contracting, ZG Operations or Workpac do not overrule the existing case law as to that question.

74. The Commonwealth supports the Liquidator’s position in this respect. Mr Izzo submits that the three recent High Court decisions are concerned with ascertaining the “character” or “characterisation” of the parties’ relationship (Rossato at [62], [63]; Personnel Contracting at [59], [174]; ZG Operations at [8]) and dealt with whether an employee was engaged on a casual or permanent basis (Rossato) or whether a worker was an employee or an independent contractor (Personnel Contracting and ZG Operations). He submits, by contrast, that the “true employer” cases are directed to ascertaining the identity of the party by whom a putative employee is engaged: Gothard at [52]; Bindaree Beef at [59]. I accept that is a real distinction. Mr Izzo also submits and I accept that the “true employer” cases directed to Pt 5.6 Div 6 of the Corporations Act comprise a discrete line of authority which this Court should follow unless it is overruled by an appellate court. Mr Izzo also supports the correctness of those cases on other grounds, which I need not address where I consider that I am bound to follow them, for the reasons noted below.

75. At my request, Resilient and the Commonwealth made further submissions as to the circumstances in which appellate authority may be impliedly overturned by a decision of the High Court, and the Liquidators indicated they did not seek to add anything to the Commonwealth’s submissions in that respect. Mr Burnett submitted that an earlier case may be impliedly overruled where the reasoning in a later case is necessarily inconsistent with it. He referred to Ratcliffe v Watters (1969) 2 NSWR 146 at 152-153, where Street J noted the earlier “warning” by Barwick CJ in Jacob v Utah Construction and Engineering Pty Ltd (1996) 116 CLR 200 at 207, and observed that a single Judge in a State Supreme Court is bound by the State’s own appeal Court or Full Court, although he also recognised that:

“If, in substance, an earlier decision is overruled by a subsequent directly conflicting decision, then it is the subsequent decision that must be applied notwithstanding that it does not in terms mention the earlier decision.”

76. Mr Burnett fairly acknowledged that two appellate decisions that are binding on me, namely Pitcher v Langford and Bindaree Beef, indicate that the “reality of purported contractual arrangements” can be considered in determining the identity of an employer. He submits that the principle stated in those cases is directly inconsistent with the reasoning of the majority of the High Court in Personnel Contracting. I do not accept that submission, where the decision in Personnel Contracting was directed to the characterisation of the relationship as between employer and employee and not to the application of Pt 5.6 Div 6 of the Corporations Act, and the High Court did not there address the application of Pitcher v Langford (to which it referred) and Bindaree Beef in that context. I do not consider that I can treat Personnel Contracting, ZG Operations or Workpac as expressly or impliedly overruling those decisions, where they did not need to address and did not address the terms, functions or policy of Pt 5.6 Div 6 of the Corporations Act and the High Court did not there need to consider the implications of treating employment contracts with corporate shells, that have no assets or nominal assets and perform no real business functions, as a means of defeating employee entitlements in insolvency or shifting the liability for them to the Fair Entitlements Guarantee scheme and, ultimately, Australian taxpayers.

77. Mr Izzo responds that an appellate Court may be taken to have impliedly overruled an earlier decision where the later decision is directly inconsistent with the earlier one, in the sense that the appellate Court could not have reached its conclusion if the earlier decision remained good law: Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 at [57]. It seems to me that that test is not satisfied here, where the High Court could have readily reached the decisions on which Resilient relies without finding that the approach adopted by Courts in respect of Pt 5.6 Div 6 of the Corporations Act, in a different context, is incorrect. Mr Izzo also pointed to authority that, if there is doubt as to whether an appellate decision had been overruled, that matter must be left to the appellate Courts: Jacob v Utah Construction and Engineering Pty Ltd above at 207; WorkCover Corporation v Jakas (2003) 86 SASR 20 at [49]; see also Rinehart v Rinehart [2020] NSWSC 68 at [354]ff. The position in this respect was plainly put by the Full Court of the Federal Court in Liberty Mutual Insurance Company Australian Branch t/as Liberty Special Markets v Icon Co (NSW) Pty Ltd (2021) 396 ALR 193 at 209 as follows:

“The effect of what the primary judge stated at J[60] was that as a single judge sitting in the original jurisdiction he was entitled to ignore any apparent binding precedent of the Full Court and make up his own mind as to the content of the High Court authority and, if he disagreed with the Full Court’s view of that, not follow the Full Court. With respect, his Honour erred in that regard.”

78. Mr Izzo submits on that basis, and I accept, that a trial judge in New South Wales is bound at least by the appellate authority of Pitcher v Langford and Bindaree Beef. I also consider that I should also apply the approach taken by other judges at first instance in dealing with national corporations legislation in this area, as reflected in Gothard and Sturesteps, unless I consider that those decisions are plainly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; (1993) 112 ALR 627; (1993) 10 ACSR 230; [1993] HCA 15. The proper approach in that regard was summarised by Edelman J (sitting as a Judge of the Supreme Court of Western Australia) in Duckworth v Water Corporation (2012) 261 FLR 185; [2012] WASC 30, where his Honour referred (at 191) to numerous cases supporting the view that “trial Judges should also follow a decision of an equivalent Court on Commonwealth or uniform national law unless the decision is plainly wrong”. I do not consider the earlier decisions in this area are plainly wrong and I should follow them unless and until an appellate court whose decision is binding on me overrules them in the insolvency context. I do not need to address Mr Izzo’s interesting further submission that a judge at first instance should also not engage in “anticipatory overruling”, where he or she disregards a decision which he anticipates might be overruled, if an appellate Court were to reconsider it in the future, where Resilient’s position stands or falls on the proposition that the appellate decisions that otherwise bind me and the first instance decisions which I should otherwise follow in respect of national Corporations legislation have been overruled, and I have not accepted that proposition.

79. Mr Burnett also raises a concern as to an impact on third parties if the Court adopts an approach that is inconsistent with Aspirio’s formal status as employer. I see no such adverse impact, where the Court will there be giving effect to s 561 of the Corporations Act and the legislative policy which it reflects, which has been recognised in the case law for many years. There is no reason to think that third parties will not have conducted their affairs on that basis.

78. Turning now to the applicable facts, Mr Krochmalik points out that the contractual documentation demonstrates that, other than in the case of the Excluded Employees, Aspirio was the employer of record of the employees of the Spitfire Group. He also points out that some (but not all) of the employment agreements obliged the employees to provide services for the benefit not only of Aspirio but also any other company in the Spitfire Group [Barnet [65]]; see, for example, cl 5(b)(ii) and the definition of “Group” in cl 1.1 of the agreement with Mr Markey (Ex KEB-1; CB Tab 8, 367-385).

79. Mr Izzo also points to other terms of employment agreements which obliged employees to provide services for the benefit not only of Aspirio but also of the wider group including, in Mr Markey’s employment contract (by way of example), the obligation to “use your best endeavours to promote the Group’s reputation” (cl 5(b)(v), Ex KEB-1, 373); the obligation to “refrain from acting in conflict with the Group’s interests” (cl 5(b)(vi)); the obligation to “protect the Group’s Confidential Information and Intellectual Property” (cl 5(b)(viii)), with “Confidential Information” defined by reference to the information of the “Group” in cl 1.1; the obligation to take all reasonable steps to “maintain the Group’s Property in good working order” and “ensure the security of and protect the Group’s Property” (cl 12(a)); and an entitlement to participate in the “Group’s Employee Share Option Plan” (cl 9(a)). Mr Izzo submits and I accept that these contractual terms are consistent with the employees being retained for the benefit of the Spitfire Group generally (of which Spitfire Corporation was the parent) rather than Aspirio alone, and support a conclusion that, so far as Aspirio was the employer, it can fairly be characterised as, in substance, an agent for Spitfire Corporation as an undisclosed principal. The proposition that Aspirio acted as agent for Spitfire Corporation or other companies within the Group in entering employment relationships also finds some support in Recital A of the Deed of Forgiveness dated 30 June 2019, which records, as a rationale for that transaction, that:

“The parties often operate as a single entity for commercial purposes. As such, loan balances may exist between the parties from time to time as they each enter into commercial arrangements as stand alone counterparties on behalf of the Parties.” (emphasis added).

82. Mr Krochmalik also submits that, apart from their managerial roles, it is not apparent why the Excluded Employees have a different contractual employer entity to the balance of the employees of the Spitfire Group (Barnet [67]), and the evidence does not establish any business reason for Aspirio (which, I interpolate, never had sufficient assets to meet its obligations to employees) being the employer of record of almost all of the employees, other than management employees who were employed by an entity which had sufficient assets to meet its obligations to them. Mr Krochmalik also notes Mr Johnson’s evidence as to this matter, to which I have referred above, but that evidence explains the benefit of a single employing entity, not why an entity without sufficient assets to meet its obligations to employees was chosen as that named employer, other than for management employees.

83. The Liquidators also recognise that Aspirio issued payslips recording itself as the employer (Ex KEB-1; CB Tab 8, 784-931) and reported PAYG tax to the ATO (Barnet [77]-[78]; CB Tab 7, 15-16) and that was consistent with the relevant payroll records (CB Tab 12). The Liquidators also point out and I find that Aspirio did not carry out any business activities, other than as a formal employer of record; Aspirio did not have any external clients or customers; and Aspirio had no substantial assets or revenue stream to meet its employment liabilities (Barnet [83]; CB Tab 7, 17). Although Aspirio had bank accounts, there were only minimal amounts in these accounts, except on several occasions when other entities in the Spitfire Group transferred money to Aspirio to enable it to make certain tax payments (Ex KEB-1, CB Tab 8, 932-988). Aspirio did not make payments to employees from its bank accounts, and Spitfire Corporation made those payments, which were recorded as loans from Spitfire Corporation to Aspirio (Barnet [84]-[85]; CB Tab 7, 17). Aspirio did not repay the resulting debt that it owed to Spitfire Corporation, and could not do so where it had no assets of substance and did not charge management or other fees to Spitfire Corporation or any other entity in the Spitfire Group. The loan was forgiven on 30 June 2019 (Barnet [87]-[89]; CB Tab 7, 18; Ex KEB-1; CB Tab 8, 1111-1118) and that debt then increased again as the same arrangements continued after that date (Ex KEB-1; CB Tab 8, 1095-1110). Mr Krochmalik submits and I accept that:

“… the practical reality of the relationship appears to be that Spitfire Corporation was responsible for meeting obligations with respect to the corporate group’s employees. Aspirio, as the nominal employing entity, was at all times incapable of satisfying these liabilities, which were in fact met by Spitfire Corporation (which did have the relevant funds to do so).”

84. Mr Izzo also submits and I also accept that Mr Johnson’s evidence supports rather than undermines, a finding that Spitfire Corporation was the employer of the relevant employees, where the employees nominally employed by Aspirio undertook work for other companies in the group, each of which conducted different and separate business activities; each business unit had its own supervisors who made their own decisions about bringing on more staff, dismissing staff, and employee entitlements (Johnson [18], [20]) and each business unit entity was responsible for managing the day-to-day operations of each entity, including giving directions to employees (Johnson [30]). Mr Izzo also emphasises that the evidence establishes that Aspirio did not carry out any business activities and had no assets or revenue streams to meet its employment liabilities and that Spitfire Corporation paid the employees and relinquished, without consideration, its formal entitlement to pursue Aspirio for the value of those payments. Mr Izzo also points out that there is no evidence of a contractual arrangement between Aspirio and Spitfire Corporation (such as a management services agreement) which would allow Aspirio to receive payment for the services it undertook in making its employees available for the benefit of the Spitfire Group, or to fund the payment of their salaries; and that Aspirio incurred a loss for each of the financial years ending in 2017, 2018 and 2019 (Ex KEB-1, 989) and was incapable of meeting the employees’ entitlements at all relevant times.

85. Mr Izzo submits and I accept that, in these circumstances, there was no “intelligible business objective” consistent with the “financial and administrative organisation of the business” in Aspirio being the employer of the relevant employees. Where Spitfire Corporation in fact paid the employees nominally employed by Aspirio, where Aspirio was absolved by the Deed of Forgiveness of any liability to Spitfire in respect of that payment, where Aspirio had no assets or revenue from which to pay the employees if it was ever called on to pay them, and where there was no formal structure by which Aspirio was paid by any other company in the group for making its employees available, the true employer is Spitfire Corporation, for the same reasons that I reached the corresponding result in Re Branded Media at [26].

86. The Liquidators submit (and the Commonwealth agrees) that, when looking at control, so far as the exercise of it over the employees is relevant, the Excluded Employees were the managerial personnel of the Spitfire Group and were employed by Spitfire Corporation, other than the chief executive officer who was employed by Spitfire Asset Management. They submit that control of the employees of the Spitfire Group was exercised by management personnel who were, on any view of it, employed by Spitfire Corporation. Resilient responds and I accept that the question of control is of lesser relevance in a corporate group: Re Branded Media at [31]; submits that the directors of Aspirio were managerial personnel of the Spitfire Group, so the entity which employed those persons is a neutral consideration in considering whether others in the group were employed by Aspirio; and submits that the separation between managerial staff (employed by Spitfire Corporation) and other staff (employed by Aspirio) should be taken as deliberate and legitimate means of organisational structure.

87. Mr Burnett responds that the employment agreements between employees (other than Excluded Employees) and Aspirio are in writing and that Aspirio was the relevant employer based on orthodox principles of contractual construction and interpretation, disregarding post-contractual conduct and, I interpolate, also disregarding the fact that Aspirio never had the assets necessary to meet any of its obligations as an employer. Mr Burnett largely otherwise points to the matters which the Liquidators recognise, in respect of documentation prepared on the basis that Aspirio was the employer, and addresses the factual position in respect of payment arrangements as follows:

“To the extent that employee obligations were satisfied by payments from Spitfire Corporation, those payments were recorded on an inter-company loan balance owing from Aspirio to Spitfire Corporation. That is, the way in which payments were managed was consistent with Aspirio being liable for the payment of employee entitlements”.

This submission fails to recognise that employee entitlements were, with two exceptions, paid by Spitfire Corporation and not Aspirio. The reference to Aspirio being “liable” for the payment of employee entitlements is undermined by its obvious inability to meet any such liability at any relevant time.

88. Resilient also submits that Aspirio made payments to employees from funds loaned to it by Spitfire Corporation, and submits that feature is consistent with Aspirio being the employer, rather than a feature that supports characterising another entity as the employer. However, the evidence is that Spitfire Corporation and other Group companies did not transfer funds to Aspirio to allow it to pay employees, but Spitfire Corporation in fact paid those employees from its own funds, and then recorded that payment as giving risen to an inter-company liability owed to it by Aspirio which did not have the capacity to discharge it. Resilient also contends that any analysis that focuses on revenue streams or assets as the basis for identifying an employer entity within a corporate group is of limited value, and revenue was here generated by entities other than Spitfire Corporation, which made payments to Spitfire Corporation from time to time; the Spitfire Group’s primary assets appear to be held by entities other than Spitfire Corporation, being “intangible assets under development”. While the latter proposition appears to be correct, the fact is that Spitfire Corporation had the necessary assets to pay, and did pay, employees throughout the relevant period, and Aspirio did not, and that is a significant matter, notwithstanding that Spitfire Corporation received funding from other entities in the Group, which Aspirio did not.

89. In the alternative, Resilient submits that, even if Aspirio is not characterised as the “true employer” by reference to the “totality of the relationship” or on the basis of a multifactorial analysis, it does not follow that Spitfire Corporation is the “true employer” within the group. It submits that revenue was generated by entities other than Spitfire Corporation; entities other than Spitfire Corporation held assets; and as a matter of practice, the business of the Spitfire Group was undertaken by distinct “business units”. It submits that, to the extent that Aspirio is not the “true employer”, it would be more accurate to characterise the employees as being employed by the entity that operated the “business unit” for which those persons worked. The Liquidators respond that there is no evidence supporting the proposition that any other entity in the Spitfire Group (other than Spitfire Corporation) met the obligations of the relevant employees, regardless of whether the business operated within different “silos” or “business units”. It seems to me that Resilient’s submission is untenable, where Mr Johnson’s evidence is that the Spitfire Group sought the administrative advantages of employing those persons in a single entity, and the question is then whether that entity was Spitfire Corporation or Aspirio, although the latter was never able to pay those employees their ongoing wages on their entitlements from its own resources.

90. Given the findings that I have reached above, it seems to me that Spitfire Corporation rather than Aspirio was the true employer of the relevant employees, at least for the purposes of Pt 5.6 Div 6 of the Corporations Act. The three recent decisions of the High Court do not require a different result, and, unless I was bound by appellate authority to do so, I would not adopt an approach that would facilitate the defeat of the provisions protecting employee entitlements in Pt 5.6 Div 6 of the Corporations Act by treating employment contracts (including with assetless companies) as conclusive, unless they are varied or a sham in the strict sense, of the true employer for the purposes of those provisions.

The Liquidators’ claim to a declaration as to an equitable lien

91. Third, the Liquidators seek a declaration that they hold an equitable lien over the proceeds of the R&D Refunds with respect to their costs, expenses and remuneration (as approved) in connection with the care, preservation, realisation and subsequent distribution of the proceeds of the R&D Refunds or alternatively a direction that they would be justified in distributing the proceeds of the R&D Refund in a specified manner, which would give first priority to certain costs and expenses for these proceedings and second priority to their costs, expenses and remuneration (as approved) with respect to the care, preservation, realisation and subsequent distribution of the proceeds of the R&D Refunds. In their opening submissions. the Liquidators submit that it is not apparent whether there is any real dispute as to this matter. They refer to the principles applicable to an external administrator’s lien for remuneration, costs and expenses reasonably incurred in the care, preservation and realisation of property and submit that they have incurred remuneration referable to the R&D Refunds and general administration expenses in the administration, deed administration and liquidation. While they seek a declaration that they have a lien over the R&D Refunds in respect of those costs, expenses and remuneration, they do not seek a further determination as to the scope of that lien or the amount of those costs, expenses and remuneration, and submit that the parties can approach the Court if disputes emerge.

92. Mr Burnett, for Resilient, accepts as a matter of principle that the Liquidators are entitled to a lien over the proceeds of property for remuneration, costs and expenses reasonably incurred in the care, preservation and realisation of property, and identifies a factual question as to the extent to which such steps have been taken for that purpose, which has not been addressed in this application. He submits, and I accept, that it is premature to grant the relief sought by the Liquidators in respect of that lien, where there is an open question as to the extent of costs, expenses and remuneration that would properly be the subject of that lien and evidence has not been led as to those matters.

93. It seems to me that all questions in respect of the existence of the lien claimed by the Liquidators are preferably determined at the one time, and there is no utility in determining whether it exists “in principle” in the abstract and without identification by the Liquidators of the costs, expenses and remuneration which they contend falls within the scope of that lien. I do not determine this issue.

Orders and costs

94. For these reasons, I will make orders in accordance with paragraphs 2 and 3A of the Amended Originating Process. I will also order that the Plaintiffs’ costs of these proceedings be costs in the liquidation of Spitfire Corporation. I reserve the question whether they are payable out of the proceeds of the R&D Refunds which, as the Commonwealth points out, would raise similar issues to those arising from the Liquidators’ claim to a lien. I will, as Resilient requested, also reserve the question of the Commonwealth and Resilient’s costs of the proceedings. I also note that the Commonwealth and Resilient were given leave to be heard in the proceedings under r 2.13 of the Supreme Court (Corporations) Rules and were not joined as parties to them, and persons heard in that capacity will ordinarily neither obtain the costs of its involvement in the proceedings or have costs ordered against it. On the other hand, it seems to me that this matter has substantially proceeded as contested litigation and there may be a case for an order that Resilient pay the Liquidators’ and the Commonwealth’s costs of the matter.

95. I direct the parties to bring in agreed short minutes of order to give effect to this judgment including as to costs within five business days, or otherwise their respective short minutes of order and submissions not exceeding six pages in one and a half spacing as to the differences between them.

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