Pace v Antlers Pty Ltd (in liq)
[1998] FCA 2
•12 JANUARY 1998
CHARLIE PACE & ANOR v ANTLERS PTY LIMITED (IN LIQUIDATION)
No. NG 131 of 1994
FED No. 2/98
Number of pages - 34
Corporations
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
LINDGREN J
CORPORATIONS - winding up - liquidators - duties of liquidators - duty to bring solvent company out of liquidation within a reasonable time - "costs and expenses of the winding up" - whether income tax liability of company resulting from its management by de facto directors a cost or expense of the winding up - failure by liquidator to pay income tax and resultant incurring of liability to additional tax by way of penalty for late payment.
CORPORATIONS - winding up - liquidators - remuneration - invalid approval by "creditors" - liquidator innocently appropriating company funds in payment of his remuneration without due authority - liability to pay interest on amounts so appropriated.
Companies Act 1961 (NSW), s 292 (1) (a)
Income Tax Assessment Act 1936 (Cth), s 215
Taxation Administration Act 1953 (Cth), ss 14ZZM, 14ZZR
McAusland v Commissioner of Taxation (1993) 47 FCR 369 (Referred to)
Home v Walsh [1978] VR 688 (Distinguished)
Windsor Steam Coal Co Ltd [1929] 1 Ch 151 (Considered)
Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 (Considered)
Re House Property & Investment Co [1954] Ch 576 (Followed)
Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207 (Distinguished)
Shiraz Nominees (in liq) v Collinson (1985) 10 ACLR 7 (Distinguished)
Re Crawford House Press Pty Ltd (1995) 17 ACSR 295 (Distinguished)
Re Beni-Felkai Mining Co Ltd [1934] 1 Ch 406 (Considered)
Re Mesco Properties Ltd [1980] 1 All ER 117 (Considered)
Re Mesco Properties Ltd [1979] 1 WLR 558 (Considered)
Yeomans v Walker (1986) 5 NSWLR 378 (Considered)
Re Spedley Securities Ltd (in liq) (1992) 10 ACLC 1742 (Distinguished)
Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29 (Considered)
SYDNEY 30, 31 July and 1 August 1997 (hearing) 12 january 1998 (decision)
#DATE 12:01:1998
#ADD 13:01:1998
Appearances
Counsel for the Liquidator:
Mr N A Cotman SC with Mr J T Johnson of counsel Solicitors for the Liquidator: Sally Nash & Co Counsel for Antlers Pty Ltd, Vera Mary Kavich and Frank Portelli Mr J D Heydon QC with Mr R W Cameron of counsel Solicitors for Antlers Pty Ltd, Vera Mary Kavich and Frank Portelli Tony Vella
Order:
1. The proceeding be stood over to 16 February 1998 at 9.30 am.
2. By 11 February 1998, the parties supply to the Associate to Lindgren J agreed short minutes of the orders to be made on the date referred to in order (1), or, if agreement has not been reached, the respective short minutes of the orders for which they will contend and written submissions in support.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
Judgment here
INTRODUCTION
There are before the Court numerous notices of motion. This proceeding was commenced by the filing on 7 July 1978 in the Supreme Court of New South Wales of a summons S 2520 of 1978 by Charlie Pace and Stella Pace as plaintiffs seeking an order for the winding up of Antlers Pty Limited ("Antlers"). Vera Mary Kavich and her brother Frank Portelli held the only two issued shares in the capital of Antlers (one share each) and were its directors. The order for winding up was made by the Supreme Court on 21 August 1978 when Mr L B Hunter was appointed as liquidator. By order of the Supreme Court Mr Hunter was discharged as liquidator and replaced by Mr P B Allen on 14 July 1986.
Some nine years after the commencement of the winding up, on 23 November 1987, the Supreme Court directed that a meeting of members of Antlers take place on 30 November 1987 for the purpose of the election of directors and ordered that the winding up terminate on 1 December 1987. The meeting was not held. Nonetheless, the former directors assumed (as apparently did Mr Allen) that the winding up had come to an end on 1 December and they re-assumed management of the company's affairs.
In the course of the management by Mrs Kavich and Mr Portelli, Antlers gave options to purchase and sold certain land. Of particular significance are Lots 51, 52, 53 and 78 DP 16868 at Doonside and the sale of Lot 51 for $1,495,000 which was completed on 1 May 1992. The Commissioner of Taxation alleged that in consequence of the granting of the options and the sale, Antlers derived assessable income for the years ended 30 June 1991 and 30 June 1992. Accordingly, on 30 November 1992, he issued two notices of assessment of income tax, one for each year.
On 6 May 1993, the Official Trustee in Bankruptcy as trustee of the bankrupt estate of Mrs Kavich ("the OT in B"), no doubt also assuming that the winding up of Antlers had terminated on 1 December 1987, commenced proceeding NG 3118 of 1993 in this Court seeking an order that Antlers be wound up and orders directed to establishing that Mrs Kavich's shareholding in Antlers formed part of the property of her bankrupt estate (at that time, the share was recorded in Antlers' share register as standing in the name of Mrs Kavich's husband, George Kavich). The grounds on which the OT in B relied in seeking a winding up were the oppression ground, the "just and equitable" ground, and the ground that the directors had preferred their own interests. In that proceeding, on 2 July 1993 this Court appointed James Morrison Millar of Ernst & Young receiver and manager of the assets of Antlers.
On 10 December 1993, in McAusland v Commissioner of Taxation (1993) 47 FCR 369, a Full Court of this Court held that the holding of a meeting of the members of Antlers on 30 November 1987 and the appointment of directors at such a meeting had constituted a condition precedent to the operation of the Supreme Court's order for termination of the winding up. It followed that the winding up had not come to an end on 1 December 1987 after all, that Mrs Kavich and Mr Portelli, although they had acted as de facto directors after that date, had not been directors de jure; and that Mr Allen had remained the liquidator of Antlers although he had not been active.
No doubt it was the Full Court's decision that prompted George Kavich, on 20 May 1994, to file in the winding up proceeding in the Supreme Court a notice of motion seeking an order terminating the winding up. On the same day, the Supreme Court ordered that the proceeding in that Court be transferred to this Court, where it became the present proceeding (NG 131 of 1994). Twelve days later, on 1 June 1994, in the present proceeding, this Court appointed Mr Millar as liquidator in place of Mr Allen. Accordingly, from that date, Mr Millar was both receiver and manager pursuant to the order of this Court made on 2 July 1993 in proceeding NG 3118 of 1993 brought by the OT in B, and liquidator pursuant to the order made by this Court on 1 June 1994 in this present proceeding.
Many orders of this Court were made on 27 October 1995. One was that Mr Millar be discharged as receiver and manager of Antlers. After that date he remained its liquidator alone.
On 20 November 1995, Mr Portelli filed a notice of motion intituled in the Supreme Court proceeding seeking a termination of the winding up. That notice of motion came before Young J in the Supreme Court on 5 December 1995. His Honour held that, as the proceeding had been transferred to this Court, the proceeding was not before him and he therefore refused to make any order on the notice of motion. On 8 December 1995, Mr Portelli filed a second notice of motion, this time correctly intituled in the present proceeding, seeking a stay of the winding up.
On 26 May 1996, by consent, I ordered that, subject to prior satisfaction of certain conditions (they were satisfied), the winding up be stayed as from 6 June 1996. That order was one of numerous orders made on that day, further detail of which will be noted later.
MOTIONS REMAINING TO BE DISPOSED OF
The parties have agreed that the following motions remain to be disposed of:
1. A motion brought by notice of motion filed in this proceeding on 26 March 1996 by both the OT in B and the Deputy Commissioner of Taxation ("DCT"), seeking an order that the motion brought by Mr Portelli by his notice of motion filed on 8 December 1995 seeking a stay of the winding up be dismissed for want of prosecution and an order for costs on an indemnity basis. Since the winding up has in fact now been stayed, apparently only issues of costs on these two motions, at most, are outstanding on them.
2. A motion brought by Mr Millar as liquidator of Antlers by notice of motion filed in this proceeding on 15 April 1996 seeking the following orders:
"1. An order that the liquidator's remuneration between the period 1st February 1996 to 31st March 1996 be approved. 2. Alternatively an order that the quantification of the remuneration be referred to a Registrar for assessment. 3. An order that the remuneration of the liquidator approved at a meeting of creditors on 27th February 1995 be ratified by the Court. 4. Alternatively that the liquidators remuneration for the period 1st June 1994 to 31st January 1995 be approved. 5. An order that the costs of this Notice of Motion on the part of the Second Respondent be paid out of the assets of the First Respondent under his control. 6. Such further or other order as the Court deems fit."
3. A motion brought by notice of motion filed by Mr Millar as liquidator of Antlers by notice of motion filed in this proceeding on 5 June 1996 seeking the following orders:
"1. That James Morrison Millar, as Official Liquidator of Antlers Pty Ltd (In Liquidation) be release [sic - released] pursuant to section 239(c) of the Companies Act, 1961 (NSW). 2. Directions to the Liquidator with respect to the requirements to forward to creditors and/or contributories:- (a) Notice by Liquidator of intention to seek Release. (b) A copy of the Summary of receipts and payments (c) A copy of a Statement showing the position of the company at the date of the application for Release. (d) Whether or not to advertise this Application (e) Whether or not the Companies Rules or the Federal Court Rules should apply and in what manner. 3. Costs."
Section 239 of the Companies Act 1961 (NSW) (that Act applied to the winding up of Antlers because its winding up commenced under that Act - see s 302 of the Companies (Application of Laws) Act 1981 (NSW) and s 601 of the Corporations Law) provides, relevantly, that when a liquidator
"has realised all the property of the company ... and has distributed a final dividend, if any, to the creditors and adjusted the rights of the contributories among themselves and made a final return, if any, to the contributories; ... he may apply to the Court ... for an order that he be released; ... ."
Antlers and the two contributories, Mrs Kavich and Mr Portelli, opposed Millar's being released but only on account of the liability which they allege he has to Antlers in respect of his past conduct of the liquidation. The existence and extent of that liability are dealt with in these Reasons.
4. A motion brought by Mr Portelli by notice of motion filed in this proceeding on 15 October 1996 seeking the following orders:
"1. Orders pursuant to section 240(2)(a) and (b) of the Companies Act, 1961 as amended as the Court may determine; 2. An Order under section 240(2)(c) of the said Act withholding the liquidator's release; 3. An Order under section 240(3) of the said Act; 4. Costs. 5. Such further or other order as the Court deems fit."
I need not set out these provisions.
5. A motion brought by notice of motion filed by Mr Millar in this proceeding on 17 February 1997 seeking the following orders:
"1. Pursuant to the Orders of Foster J, made on 10 May 1996, that the remuneration incurred by me as Liquidator of Antlers Pty Limited during [sic] for the period 1 June 1994 to 1 April 1996 be determined in the sum of $134,957.80. 2. That the remuneration incurred by me as Liquidator of Antlers Pty Limited during the period 1 April 1996 to 31 December 1996 be determined in the sum of $33,345.20. 3. That the out of pocket expenses incurred and approved by me during the period 1 September 1995 to 31 December 1996 in the sum of $1,761.56 be added to the remuneration approved by the Court in paragraphs 1 and 2, pursuant to the Orders of Lindgren J, made on 23 May 1996 and 6 June 1996. 4. That certain legal expenses incurred and approved by me during the period 18 August 1995 to 22 January 1997 in the sum of $23,304.25 be added to the remuneration approved by the Court in paragraphs 1 and 2, pursuant to the Orders of Lindgren J, made on 23 May 1996 and 6 June 1996. 5. Costs. 6. Such further or other Order as the Court deems fit."
Section 232 (3) (c) provides, relevantly, that a liquidator is entitled to receive such salary or remuneration by way of percentage or otherwise as is determined by the Court. On 10 May 1996, Foster J ordered, pursuant to s 232 (3) (c), that Mr Millar's remuneration as liquidator be calculated and charged at the hourly rates of the Insolvency Practitioners Association of Australia. The orders made by me on 23 May and 10 June 1996 referred to in pars (3) and (4) above in fact related, inter alia, to Mr Millar's application to be released as liquidator, not to his application for remuneration.
6. A motion brought by notice of motion filed by Mr Millar in this proceeding on 8 April 1997 seeking an order setting aside a notice to produce and an order that Mr Portelli pay Mr Millar's costs of the motion.
7. A motion brought by notice of motion filed by Mr Millar in this proceeding on 15 April 1997 seeking the following orders:
"1. Pursuant to the Orders of Foster J, made on 10 May 1996, and Orders of Lindgren J, on 23 May 1996, that the remuneration incurred by me as the former Liquidator of Antlers Pty Limited ('Antlers') in finalising the liquidation of Antlers during the period 1 January 1997 to 31 March 1997 be determined in the sum of $24,480.60. 2. That the out of pocket expenses incurred and approved by me during the period 1 January 1997 to 31 March 1997 in the sum of $881.35 be added to the remuneration approved by the Court in paragraph 1, pursuant to the Orders of Lindgren J, made on 23 May 1996 and 6 June 1996. 3. Costs. 4. Such further or other Order as the Court deems fit."
8. A motion brought by notice of motion filed by Antlers, Mrs Kavich and Mr Portelli in this proceeding on 7 May 1997 seeking numerous orders varying orders previously made by the Court on 10 May 1996 and 9 April 1997.
9. A motion brought by notice of motion filed by Antlers, Mrs Kavich and Mr Portelli in this proceeding on 23 May 1997 seeking the following substantive orders:
"1. "A declaration that James Morrison Millar as a liquidator of Antlers Pty Limited (ACN 000 900 989) ('Antlers') breached either or both his fiduciary duty or the duty of care owed by him, to that corporation by failing to have paid to the Australian Taxation Office before 1 October 1994 (or before such other time as the Court may determine) the balance of unpaid tax assessments and penalty tax due and payable by Antlers at the date of his appointment as the liquidator. 2. An Order that the said James Morrison Millar pay such moneys by way of damages with interest or compounded interest thereon to Antlers as may be found to have resulted from the aforesaid breach or breaches of duty. 3. An Order that except as specified in Schedule One hereto the said James Morrison Millar forfeit any entitlement to remuneration for work done by him or on his behalf in the liquidation after 30 September 1994 (or after such other date as the Court may determine). 4. An Order that the said James Morrison Millar do repay to Antlers such amounts received by him for remuneration from Antler's funds as exceed the amount approved by the Court as the proper amount of remuneration payable to him together with interest thereon at the prescribed rates calculated from the respective dates of payment. 5. An Order that legal costs incurred by the said James Morrison Millar in respect of the retainer of the firm Sally Nash & Co, and for counsel briefed by that firm, in respect of Antler's winding-up be limited as specified in Part Two of the Schedule. 6. An Order that the said James Morrison Millar do repay to Antlers such amount as exceeds the amount paid by him to that firm in respect of Antlers and the limited amount referred to in Order 5 herein together with interest thereon at the prescribed rate. 7. A Direction that the Registrar identify and disallow for payment to James Morrison Millar as part of the remuneration claimable by him in his capacity as a liquidator of Antlers the items of work specified in Part Three of the Schedule. 8. A Direction that the Registrar identify and allow of payment to James Morrison Millar as part of the remuneration claimable by him in his capacity as a liquidator of Antlers the items of work specified in Part Four of the Schedule. 9. An Order that James Morrison Millar at his own cost within forty eight (48) hours cause the mortgage registered by him on Antler's lands pursuant to the Orders of the Court made on 23 May 1996, to be discharged."
The references to "Schedule One" and to Parts Two, Three and Four of the Schedule are references to Parts One, Two, Three and Four of a Schedule to the notice of motion.
It has been agreed before me that the issues to be resolved on the present hearing are those relating to the application by Mr Millar as liquidator for a release and to his entitlement to remuneration, and, in particular, the question of any reduction in the amount of remuneration to which he might otherwise be entitled, on account of any breach of duty by him.
It is common ground that throughout the sorry saga of Antlers, it has been "balance sheet solvent". Antlers, Mrs Kavich and Mr Portelli contend that in these circumstances it was the duty of Mr Millar, following his appointment as liquidator on 1 June 1994, to direct his energies to ensuring that Antlers came out of liquidation and was restored to Mrs Kavich and Mr Portelli as soon as practicable. They contend that if he had discharged that duty, in various ways they would have been better off financially. For example, and in particular, they submit that Mr Millar's entitlement to remuneration would have come to an end much earlier as would the liability of Antlers to ongoing additional tax by way of penalty under s 207 of the Income Tax Assessment Act 1936 (Cth).
A separate issue relates to two meetings of creditors of Antlers held on 27 February 1995 and 31 August 1995 at which remuneration of Mr Millar as liquidator was approved by resolution. It is common ground that the obtaining by Mr Millar of the approval of creditors was based on a misconception, in that it was, in the circumstances, the Court from which approval should have been sought. Accordingly, Antlers and its contributories complain that in appropriating to himself the amounts of remuneration approved by the resolutions, Mr Millar took money of Antlers to which he was not entitled. They contend that he is liable to pay interest on those amounts calculated from the times of their respective appropriations, to the date (not earlier than 10 May 1996 - see later) when approval was ultimately given by the Court.
Antlers, Mrs Kavich and Mr Portelli have made it clear, through senior counsel appearing for them, that in opposing the release of Mr Millar, they rely only on the two matters to which I have referred, that is to say, his alleged breach of duty in failing to ensure that Antlers came out of liquidation and was restored to its contributories as soon as reasonably practicable, and his premature appropriation of Antlers' money. The parties have agreed that I should not deal with any issue of quantification which may arise, which, they hope, would be capable of being resolved by agreement.
The parties have agreed that the following are the issues for trial:
"1. Whether Millar, as Liquidator, ought to have paid the income tax assessed on the company, Antlers Pty Ltd (Receiver and Manager Appointed and in Liquidation), out of funds on hand, on some date earlier than May 1996 (and, if so, what date) by reason of: 1.1 the financial position of his liquidation on and after the date of his appointment; and 1.2 notwithstanding the circumstances of the liquidation and in particular, the receivership of the assets of the Company? 2. If the answer to 1 is 'no', should the Liquidator have applied to the Court for directions before February 1996 for directions to permit the payment of the said assessment, notwithstanding the financial position of the company and, if so, would the Court necessarily have directed payment of the sum assessed at a time earlier than it was in fact paid? 3. If the tax assessed ought to have been paid earlier than it was in fact paid, what loss or damage, if any, did the company incur, having regard to: 3.1 the additional tax incurred in fact; 3.2 the additional tax incurred before the appointment of Millar as liquidator; 3.3 interest earned by the company on monies not paid; 3.4 the prospect that the additional tax may be waived, in whole or in part, by the Commissioner; 3.5 the costs of the conduct of any application for directions or other costs attendant on making the payment? 4. If the said amount assessed has been paid to the Commissioner of Taxation, would there have been any earlier determination of the liquidation of the company than in fact occurred? 5. If the answer to 4 is 'yes', would there have been any change, by way of reduction in the aggregate of costs, charges and expenses of the liquidation than were in fact charged by or incurred by Millar in his capacity as Liquidator and as Receiver having regard to the work performed, and the directions of the court? 6. Has the company suffered any loss if the liquidation ought to have determined earlier than it did in fact, when some of the work and services charged for by the liquidator are work and services apparently for the benefit of the company, eg. in the prosecution of appeals against the assessment of tax; preparing reports to the Court in termination proceedings? 7. Is the Liquidator liable to the company in an amount by way of interest on payments on remuneration and out of pocket costs made in reliance on resolutions of creditors where no approval by the Court was obtained? 8. If 7 is answered yes as to both remuneration and out of pocket costs, for what period of time and on what amounts? 9. If 7 is answered yes as to remuneration, for what period of time and for what amounts? 10. If the answer to 3, 6 or 7 is yes, ought the liquidator be excused from liability to the company in all the circumstances in respect to all or any of the matters?"
Issues 1-6 relate to the question of breach of duty and issues 7-9 to the two meetings of creditors, while issue 10 is sui generis.
CHRONOLOGICAL SUMMARY OF BACKGROUND FACTS
The factual background to the present proceeding is complex. It is set out in an appendix to these Reasons for Judgment. The appendix forms part of these Reasons.
ISSUES FOR DETERMINATION
Agreed Issues 1-6 and 10 set out earlier raise the following questions:
A. (i) Did Mr Millar as liquidator have sufficient funds available to him with which to pay the income tax assessed against Antlers at a time earlier than 23 May 1996; and, if so, (ii) what was the earliest time when such funds were available to him for that purpose?
B. (i) Was Mr Millar under an obligation to pay the amounts of the two income tax assessments earlier than 23 May 1996; and, if so, (ii) what was the earliest time at which he was obliged to pay them?
C. If "no" to B, (i) was Mr Millar under an obligation to seek directions from the Court as to whether he should pay the amounts of the two income tax assessments; and, if so, (ii) would the Court have directed him to pay them?
D. If "yes" to B (i) or C (i) and (ii),
(i) would payment by Mr Millar of the amounts of the two income tax assessments have caused the winding up of Antlers to terminate earlier than 6 June 1996; and, if so, (ii) when would the winding up have terminated?
E. If otherwise liable, should Mr Millar be excused from liability pursuant to s 365 of the Companies Act 1961 (NSW)?
REASONING - BREACH OF DUTY
A. (i) Did Mr Millar as liquidator have sufficient funds available to him with which to pay the income tax assessed against Antlers at a time earlier than 23 May 1996; and, if so, (ii) what was the earliest time when such funds were available to him for that purpose?
On 2 July 1993, in NG 3118 of 1993, which the OT in B had commenced on 7 May 1993, Whitlam J made, relevantly, the following orders:
"1. James Morrison Millar be appointed Receiver and Manager of the First Respondent [Antlers] for the purpose of ascertaining and preserving the assets of the First Respondent until further order of the Court. 2. The Receiver and Manager have the powers set out section 420 (2), (a), (e), (f) (h), (j), (k), (m), (n), (p), (q), (r) of the Corporations Law."
By the reference in order (2) to s 420 (2) (h) of the Corporations Law, Mr Millar was given power to carry on any business of Antlers. By the reference in order (2) to s 420 (2) (m), Mr Millar was given power, relevantly, to draw bills of exchange. A "bill of exchange" includes a cheque. The powers to carry on any business of Antlers and to draw cheques are, however, subject to the terms of s 420 (1) as well as to the opening words of s 420 (2) which are as follows:
"420. (1) Subject to this section, a receiver of property of a corporation has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed. (2) ... a receiver of property of a corporation has, ... power, for the purpose of attaining the objectives which the receiver was appointed: ..."
In the present case, the objectives for which Mr Millar was appointed were those of ascertaining and preserving the assets of Antlers until further order of the Court. Accordingly, the powers which Mr Millar had as receiver and manager, even the powers to carry on any business of Antlers and to draw cheques, were severely limited by reference to the objectives of ascertaining and preserving the company's assets until further order of the Court.
As receiver and manager, Mr Millar had taken possession of certain funds. He was in possession of those funds when, on 1 June 1994, he was appointed as liquidator. Subsection 233 (1) of the Companies Act 1961 (NSW) provided, relevantly:
"Where a winding up order has been made ... the liquidator ... shall take into his custody or under his control all the property and things in action to which the company is or appears to be entitled, ..."
Numerous other provisions of the same Act governed the powers and duties of Mr Millar as liquidator.
In my opinion, the effect of the two orders was that the obligations incumbent upon Mr Millar as liquidator prevailed over his duty as court-appointed receiver to ascertain and preserve Antlers' assets until further order of the Court. Why, it may be asked rhetorically, would it have been intended, in the face of the statutory regime of the duties and powers of liquidators, that Mr Millar not be authorised to do more in relation to Antlers' assets than to ascertain their identity and preserve them pending further order of the Court?
Subsection 233 (1) obliged Mr Millar to take into his custody and under his control as liquidator assets of the company which he had previously held as receiver and manager. Mr Millar himself seems to have understood that his role as liquidator "superseded" that as court-appointed receiver and manager. In his report dated 17 November 1994 which is headed "Report by James M Millar, Liquidator and Receiver and Manager of Antlers Pty Ltd (Receiver and Manager Appointed) (in Liquidation)" and which was addressed to "Mr Justice Whitlam", Mr Millar reported that there was cash in the liquidator's account of $634,210.08 representing "the balance of cash held and invested by the liquidator after payment of certain expenses as they fell due or were approved". He reported that a total of $644,986.69 had been obtained from the following bank accounts held by persons associated with Antlers:
$644,986.69
In his presentation of accounts and statement by liquidator lodged with the Australian Securities Commission on 29 December 1994, Mr Millar recorded that on 5 September 1994, he had received $65,000 being "balance of Paul Baiada Acc", that on 6 September 1994 he had received $507,828.07 being "cash at bank at appointment", and that on 14 September 1994 he had received $72,158.69 representing "closure of Carmela Portelli". In each case the source was stated as "R" and it seems clear that this is an abbreviation for "Receiver". These amounts totalling $644,986.76 were shown in that statutory statement by the liquidator as having been received into his account as liquidator at the State Bank 154789-01 from, respectively, Westpac Banking Corporation, Citibank and St George Bank Limited. As indicated in the appendix to these Reasons, the balances in those three bank accounts represented proceeds of the sale of Lot 51 DP 16868 received on account of Antlers in mid-1992.
Senior counsel for Mr Millar submits that, notwithstanding appearances, the funds were, until 27 October 1995 when the receivership was terminated, held by Mr Millar as receiver and manager pending further order of this Court and were not available to him as liquidator. He relies on Home v Walsh [1978] VR 688. In that case receivers and managers were appointed by Australian Guarantee Corporation Ltd ("AGC") to Highcrest Motors Pty Ltd ("Highcrest") pursuant to a debenture. They appealed against an order of O'Bryan J that they surrender to subsequently appointed liquidators of the company, all books of account, papers and certain real estate and all other assets and property of Highcrest in their possession, custody or power, other than a specified sum necessary to pay their costs as receivers and managers. A Full Court of the Supreme Court of Victoria allowed their appeal.
The liquidators had applied for an order under s 263 (3) of the Companies Act 1961 (Vic) which provided as follows:
"263. (3) The Court may require any contributory, trustee, receiver, banker agent or officer of the company to pay, deliver, convey, surrender or transfer forthwith or within such time as the Court directs to the liquidator any money, property or books and papers in his hands to which the company is prima facie entitled."
The Full Court held that the expression "receiver ... of the company" in the subsection referred only to persons who were receivers of the property of a debtor of the company and who had been appointed as receivers by the company in its capacity as a secured creditor, and did not include persons who were receivers of property of the company itself by virtue of an appointment by a secured creditor of the company under a debenture deed. The foundation of their Honours' reasoning was that s 263 (3) had no application to a case where the person in question was entitled to resist a claim by the company for payment, delivery, conveyance, surrender or transfer by reason of an adverse claim against the company. Their Honours referred to the fact that the other persons referred to in s 263 (3) ("contributory, trustee, ..., banker, agent or officer of the company") were "insiders" of the company, not "outsiders", and considered that the word "receiver" should be construed similarly. They also referred to the expression "to which the company is prima facie entitled" at the end of the subsection.
Home v Walsh was applied in Evans v Bristile Ltd (1992) 8 ACSR 344 and Boyles Sweets (Australia) Pty Ltd (in Liq) v Platt (1993) 11 ACSR 76, to deny claims made by liquidators under the equivalent summary procedure made available by s 483 (1) of the Corporations Law. In those cases, "outsiders" who made claims adverse to the company to retain possession of its property, successfully resisted claims by liquidators purportedly under the statutory provision.
In my view, these cases are distinguishable from the present one. Mr Millar was not appointed as receiver and manager by the OT in B or by any other person entitled to resist a claim by the company or its liquidator to be paid the moneys in question. Subsection 263 (3) of the Companies Act 1961 (Vic) and s 483 (1) of the Corporations Law provide for a power to order payment, delivery, conveyance, surrender or transfer to a liquidator. Whatever may be the position in the case of a receiver of the company appointed by its creditor under a debenture deed, it could scarcely be suggested that a court-appointed receiver would need the protection of an order under the provision before paying, delivering, conveying, surrendering or transferring assets of the company to a liquidator of the company who has been appointed by the same court, and who is obliged by statute to "take into his custody or under his control all the property and things in action to which the company is or appears to be entitled".
In any event, I find, on the basis of the evidence to which I have referred, that Mr Millar, in his capacity as receiver and manager, did in fact pay over the funds to himself in his capacity as liquidator.
It is not suggested that the balance remaining in the hands of Mr Millar as liquidator after allowing for the remuneration to which he was entitled for his work as receiver and manager during the period from 2 July 1993 to 1 June 1994, was inadequate to pay the amounts of the two assessments. I find that as from 14 September 1994 sufficient funds were available to him as liquidator to pay the amounts of the two assessments. According to a proof of debt lodged by the DCT with Mr Millar as liquidator, the amount owing as at 1 September 1994 was $291,298.45, comprising primary tax of $235,682.83 and additional tax for late payment of $55,315.62.
In his report of 17 November 1994, Mr Millar said that he held $634,210.08 in cash and $16,950 in shares in GIO Australia Holdings Ltd. (Another major asset was land (the remaining Lots 52, 53 and 78 DP 16868 at Doonside) having a value of between $900,000 and $950,000.) The cash was apparently what remained after allowing for, inter alia, Mr Millar's remuneration as receiver and manager. There were no creditors listed as being secured, although Paul Baiada's debt of $90,000 ($65,000 according to Mrs Kavich) was later said to be secured. More generally, on a "pessimistic" view, Antlers had assets worth $2,081,639 and liabilities of $976,704 giving a surplus of assets over liabilities of $1,104,935.
I find that Mr Millar, as liquidator, had sufficient funds available to pay out the DCT.
B. (i) Was Mr Millar under an obligation to pay the amounts of the two income tax assessments earlier than 23 May 1996; and, if so, (ii) what was the earliest time at which he was obliged to pay them?
The applicants submit that by failing to pay out the DCT, Mr Millar breached both his fiduciary duty and his duty of care and skill as a liquidator. It is appropriate at the outset to discuss the nature of those duties.
According to McPherson's The Law of Company Liquidations (3rd ed, 1987), at 214-215:
"From the practical point of view it does not seem to matter much whether the liquidator is treated as a trustee in the strict sense or simply as an agent, for in either capacity he occupies a fiduciary position in relation to the company, its creditors and contributories. This imposes upon him certain obligations identical with those resting upon trustees, agents, and directors, one of which is that he is bound to act honestly and to exercise his powers bona fide for the purpose for which they are conferred and not for any private or collateral purpose. In addition, two further duties of major importance follow from his fiduciary relationship: these are (a) that he must not allow his private interest to come into conflict with his duty, and (b) that in discharging his duties he must at all times act with complete impartiality as between the various persons interested in the property and liabilities of the company.
This passage was approved by Olney J in Re G K Pty Ltd (in liq); Ex parte Deputy Commissioner of Taxation (1983) 7 ACLR 633 at 639.
The liquidator's duty to exercise reasonable care and skill has been the subject of some debate. The following propositions, however, appear to have gained acceptance in Australia:
* The court should not be quick to condemn a person in the difficult position of a liquidator, and, in particular, should not judge his or her conduct with wisdom born of hindsight: In re Windsor Steam Coal Co Ltd [1929] 1 Ch 151 ("Windsor Steam Coal"); Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 (Olsson J) ("Maelor Jones") at 287; it is not every error of judgment that will be accounted negligence: Re George Bond & Co (1932) 32 SR(NSW) 301 at 306.
* At the same time, a high standard of care and diligence is to be expected of a liquidator as a professional person who is being paid for his or her services: Windsor Steam Coal at 165, per Lawrence LJ; Maelor Jones at 288-9; McPherson's The Law of Company Liquidation, p 218;
* A liquidator is under a duty to complete the administration of the assets within a reasonable time and not to protract the liquidation unduly: Re House Property & Investment Co [1954] Ch 576 at 612; McPherson's The Law of Company Liquidation,p 218; he or she must act with "due despatch": Commissioner for Corporate Affairs v Harvey [1980] VR 669 ("CCA v Harvey") at 691; Maelor Jones at 288;
* If there is a difficulty at any stage of the administration, it is the liquidator's clear duty to inform the court and seek directions: CCA v Harvey at 691; Windsor Steam Coal at 159, 161; Maelor Jones at 288.
Senior counsel for Mr Millar submits that the relevant test is whether "the judgmentÖ made by the liquidator [was] so manifestly bad there could not have been a proper decision by a liquidator". He referred to several cases, including what he described as the locus classicus in this area, Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207 ("Mineral Securities"). In that case, Street CJ in Eq referred to a test of whether the liquidator did not exercise his discretion bona fide or acted in a way in which no reasonable liquidator "should" have acted (his Honour preferred "should" to "would" or "could"). However, that case concerned an application for review of a liquidator's decision: the court was being asked to substitute its own decision for that of the liquidator. I was not referred to any cases dealing with the liquidator's duty of care and skill in which the Mineral Securities formulation was adopted as the measure of care and skill which a professional liquidator is required to exhibit.
Mr Cotman SC who, with Mr J Johnson of counsel, appeared for Mr Millar, also referred to Shiraz Nominees (in liq) v Collinson (1985) 10 ACLR 7 ("Shiraz Nominees"). In that case, Franklyn J declined to order that liquidators were at liberty to commence an action against a debtor of the company. He referred at some length to the judgment of Street CJ in Eq in Mineral Securities. In particular, he referred (at 14) to a passage in the Chief Judge in Equity's judgment in which he had set out the following passage from his own earlier judgment in Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 at 383:
"If, of course, there can be shown to be some defect in the manner in which the receiver and manager is conducting his duties - a defect arising out of some want of good faith or out of some erroneous approach in law or principle - then that is clearly a ground on which the court would entertain an application by one of the interested parties for appropriate direction or some other form of remedial order". (emphasis supplied)
Franklyn J noted that in Mineral Securities, Street CJ in Eq had said of this passage:
"The concluding portion ... indicates the court's reluctance to entertain a challenge to a decision on the grounds of prudence and wisdom."
Franklyn J then went on to say (at 14) of these observations:
"I am of the view that the comments set out above apply equally to the obligations of a liquidator as to the exercise by him of the powers and discretions vested in him by the [Companies] Code and to the circumstances under which a court will give directions or make orders in the exercise of its supervisory powers at the instance of a creditor or contributory. They further in my view correctly indicate the obligations of a liquidator, compliance with which render him safe from liability at the instance of a creditor or contributory."
If his Honour was saying that a liquidator will never be in breach of his duty to exercise care and skill except where his decision is so unreasonable that no reasonable liquidator should have made it, the statement would appear to be in conflict with the decisions referred to earlier, to which he was apparently not referred.
In my view, a liquidator must exhibit care (including diligence) and skill to an extent that is reasonable in all the circumstances. "All the circumstances" will include the facts that a liquidator is a person practising a profession, that a liquidator holds himself or herself out as having special qualifications, training and experience pertinent to the liquidator's role and function, and that a liquidator is paid for liquidation work. "All the circumstances" will also include the fact that some decisions and courses of action which a liquidator is called upon to consider will be of a business or commercial character, as to which competent liquidators acting with due care, but always without the benefit of hindsight, may have differences of opinion.
In relation to the allegation of breach of fiduciary duty, it has not been submitted that Mr Millar failed to act impartially or that he put himself in a position where his duty and interest were in conflict. Although it has been said that a "liquidator is not permitted, either directly or indirectly, to profit from his office otherwise than to the extent expressly allowed by law" (McPherson, The Law of Company Liquidations, p 215), such a statement should be understood as relating to a liquidator's making of a profit by such conduct as the engagement of outside parties with whom the liquidator is associated, to undertake work in the liquidation. To establish that Mr Millar breached his fiduciary duty, as distinct from his duty of care and skill, Antlers and the contributories would have to show that he deliberately delayed payment of the tax debt for the purpose of prolonging the liquidation, and, concomitantly, his opportunity to earn fees, and so did not "act honestly" or "exercise his powers bona fide for the purpose for which they [were] conferred". This is not shown or suggested.
The main thrust of the applicants' submissions was directed to the claim that Mr Millar breached his duty of care and skill rather than his fiduciary duty. Antlers and the two contributories relied, in particular, on the following passage from the judgment of Roxburgh J in Re House Property and Investment Co Ltd [1954] Ch 577 at 612:
"Of course, a liquidator is not to distribute the property among the members before he has dealt with the liabilities. That is plain enough, but I am quite certain that, though it does not say so in express terms, the policy of the Act [the Companies Act 1948 [UK)] as expressed in that section [s 302] carries the implication that he has to deal with the liabilities within a reasonable time, and deal with them finally within a reasonable time, and thereafter to distribute amongst the members within a reasonable time. I imply those words in that section from the general policy of the Act. Parliament cannot have contemplated liquidations of 999 years. Where is the line to be drawn? Of course, what is reasonable must vary according to the circumstances of the company. In some cases the time may be very long and still be reasonable, ..."
Section 302 of the Companies Act 1948 (UK) to which his Lordship referred is comparable to s 264 of the Companies Act 1961 (NSW) which provided as follows:
"264. Subject to the provisions of this Act as to preferential payments the property of a company shall, on its winding up, be applied in satisfaction of its liabilities equally, and subject to that application shall unless the articles otherwise provide be distributed among the members according to their rights and interest in the company."
McPherson states under the heading "Duties of skill and care":
"[a liquidator] is under a duty to complete the administration of the assets within a reasonable time without needlessly protracting the liquidation, ..." (p 218)
For the first part of this proposition, the learned author cites Re House Property & Investment Co Ltd noted above.For the second and negative aspect of the proposition, he refers to s 381 (a) of the Companies Code. Section 381 was as follows:
"When the liquidator - (a) has realised all the property of the company or so much of that property as can in his opinion be realised without needlessly protracting the winding up, and has distributed a final dividend (if any) to the creditors and adjusted the rights of the contributories among themselves and made a final return (if any) to the contributories; or (b) has resigned or has been removed from his office, he may apply to the Court - (c) for an order that he be released; or (d) for an order that he be released and that the company be dissolved."
This provision is in substance identical to s 239 of the Companies Act 1961 (NSW).
I would have thought it plain that as liquidator Mr Millar was under an obligation to exercise reasonable care and skill in attending to payment of Antlers' debts with a view to bringing the company out of liquidation as soon as reasonably practicable. There are, however, two particular submissions made on his behalf as to why he was not obliged to pay the tax debt earlier than he did. The first is the submission that it was not an expense of the winding up. The second is the submission that he was entitled not to pay it because of the opposition to payment of it by the contributories, Mrs Kavich and Mr Portelli. I will now address these two submissions.
It is common ground that the indebtedness of Antlers for income tax was not a debt of Antlers provable in the winding up. The date of the commencement of the winding up was 21 August 1978 and it was many years later, when everyone assumed that the winding up had long since been terminated, that Mrs Kavich and Mr Portelli, as Antlers' de facto directors, granted the options to purchase and effected the sale of land which gave rise to Antlers' liability to return income in the financial years ended 30 June 1991 and 30 June 1992.
While s 291 of the Companies Act 1961 (NSW) related to debts as at the commencement of the winding up, s 292 provided that amounts of the kinds described in that section must be paid in priority to all other unsecured debts, and the class enjoying first priority (s 292 (1) (a)) was:
" ... the costs and expenses of the winding up including the taxed costs of a petitioner payable under section two hundred and twenty-four the remuneration of the liquidator and the cost of any audit carried out pursuant to section two hundred and eighty-one".
Antlers and the contributories submit that the debt for income tax payable in respect of Antlers' income for the years ended 30 June 1991 and 30 June 1992 fell within the expression "the costs and expenses of the winding up" and was therefore an amount which Mr Millar, as liquidator, was required by s 292 to pay in priority to all other unsecured debts.
The first thing to be said is that the expression, "the costs and the expenses of the winding up", does not strike one as obviously including a liability of Antlers to pay income tax arising many years after the commencement of the winding up, at a time when everyone concerned assumed that the winding up had long since terminated, and as a result of the conduct of its affairs, not by the liquidator, but by its de facto directors.
Senior counsel for Mr Millar relies on Re Crawford House Press Pty Ltd (1995) 17 ACSR 295 (NSW/Cohen J) ("Crawford House"). In that case the company in question had been the subject of a deed of company arrangement. A person who had previously been appointed by the company as its administrator under s 436A of the Corporations Law was required by the deed to cease to be involved in the carrying on of the company's business, but the deed assumed that the company would in fact continue in business and incur debts for that purpose. The deed required the company to pay moneys to the administrator for the purpose of his making distributions in accordance with the deed.
After about six months' trading, the creditors resolved, pursuant to s 445E of the Corporations Law, that the deed be terminated and the company be wound up. The former administrator was appointed liquidator. He applied to the court for directions as to whether he should treat those creditors whose debts had been incurred during the six months' trading as ordinary unsecured creditors in the winding up, or as part of the costs and expenses of the winding up, or as not being creditors at all.
Cohen J directed the liquidator that he would be justified in treating the creditors in question as not being creditors at all. His Honour referred to s 533 (1) of the Corporations Law which, in its amended form, was as follows:
"553. (1) Subject to this Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims for circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company."
With this provision may be compared s 291 (1) of the Companies Act 1961 (NSW).
His Honour then referred to s 554 (1) which was similar to s 291 (3) of the Companies Act 1961 (NSW). These provisions have the effect that only debts incurred prior to the commencement of the winding up may be admitted to proof. He held that the trading debts incurred by the company during the period in question did not fall within s 556 (1) (a) of the Corporations Law. That paragraph described the first priority class of debts to be paid. The terms of the paragraph had been amended and in neither its original nor its amended form was it identical to s 292 (1) (a) of the Companies Act 1961 (NSW), although in its original form it was very similar to that paragraph:
"556. (1) ... (a) ... the costs, charges and expenses of the winding up, including the taxed costs of an applicant payable under s 456, the remuneration of the liquidator and the costs of any audit carried out under s 539."
In its amended form, s 556 (1) (a) referred to:
" ... expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;"
The expression "relevant authority" was defined to mean various classes of persons, including an administrator of the company (even if the administration ended before the winding up began), a liquidator or provisional liquidator of a company, and an official manager, or an administrator of a deed of company arrangement executed by the company (even if the deed terminated before the winding up began). But it was not the administrator who had incurred the trading debts in question; they were debts of the company and not of the administrator. Accordingly, his Honour held that they were not within the amended s 556 (1) (a).
Senior counsel for Antlers and the contributories seeks to distinguish Crawford House on two grounds: first, the words "incurred by a relevant authority" in the amended s 556 (1) (a) have no counterpart in s 292 (1) (a) with which I am concerned; secondly, the debts with which I am concerned were incurred by the company acting through its de facto directors after the commencement of winding up, whereas the trading debts in question in Crawford House were incurred prior to the commencement of the winding up.
Antlers and the contributories rely on Re Beni-Felkai Mining Co Ltd [1934] 1 Ch 406 ("Beni-Felkai") and Re Mesco Properties Ltd [1980] 1 All ER 117 ("Mesco Properties"). In the first case, Maugham J had to consider, inter alia, s 196 of the Companies (Consolidation) Act 1908, which provided:
"All costs, charges, and expenses properly incurred in the voluntary winding up of a company, including the remuneration of the liquidator, shall be payable out of the assets of the company in priority to all other claims."
In the course of the liquidation, the liquidator performed certain acts for the purpose of realising the company's assets and a liability to pay income tax arose. Maugham J said
"I have a difficulty in seeing how a liquidator who, in the course of his liquidation carries on the business of the company at a profit, the consequence being the assessment of the company to income tax, can avoid the conclusion that this is one of the expenses in the winding up." (at 418)
His Lordship said that the expressions "expenses of the liquidation" and "expenses incurred in the winding up" were not terms of art and included "any expenses which the liquidator might be compelled to pay in respect of his acts in the course of a proper liquidation of the company's assets" (at 419). The case is, however, distinguishable from the present one because there the liquidator's acts gave rise to the tax liability, whereas here it was the acts of Mrs Kavich and Mr Portelli in conducting the business of Antlers that did so.
In the second case, Mesco Properties, after the making of a compulsory winding up order, certain properties of the company were sold at prices in excess of the cost of acquisition, with resultant liability of the company to tax. Some of the sales had been effected by a receiver appointed by a chargee prior to the making of the winding up order. A further property was sold by a mortgagee bank. Yet further properties were sold by the liquidator, some of which were subject to charges and some of which were unencumbered. Under legislation, for capital gains tax purposes a sale by a mortgagee or receiver was treated as if it had been effected by the mortgagee or receiver as nominee for the mortgagor. As a result of the various realisations, there accrued to the liquidator a net balance after discharge of encumbrances and costs. In connection with priorities, questions arose whether the corporation tax for which the company was liable was part of "the fees and expenses properly incurred in ... realising or getting in the assets" of the company within the meaning of r 195 (1) of the Companies (Winding-up) Rules 1949, and, if not, whether it was part of the "necessary disbursements of [the] liquidator appointed in the winding up by the Court ..." also for the purposes of r 195 (1). A further question was whether the tax fell within the expression "the costs, charges and expenses incurred in the winding up" in s 267 of the Companies Act 1948 (UK).
The trial Judge, Brightman J, held ([1979] 1 WLR 558) that the tax was not an expense incurred in realising or getting in the assets because the tax, unlike estate agents' fees or advertising costs, did not assist the liquidator to sell, nor was it a necessary result of the sale - tax would be payable only if the asset was sold at a profit. However, his Lordship did find that the tax was one of the "necessary disbursements of [the] liquidator" for the purposes of r 195 (1). His Lordship also held that the tax was a "charge or expense" incurred in the winding up for the purposes of s 267 of the Companies Act (UK) 1948. The Court of Appeal dismissed an appeal ([1980] 1 All ER 117).
Neither Brightman J nor the Court of Appeal referred to the fact that some sales had been effected, not by the liquidator, but by, in effect, the company. Nor did they refer to the fact that in Beni-Felkai, it was the liquidator's conduct that gave rise to the liability to tax. Mesco Properties is of doubtful if any authority in the context of the facts of the present case in which the sales were clearly not for the purpose of a winding up, and, indeed, were effected at a time when both the former directors and the original liquidator assumed that the winding up had long since been terminated.
In my view, subject to the argument based on tax legislation next to be noted, the tax liability was not a cost or expense of a winding up for the purpose of s 292 (1) (a) of the Companies Act 1961 (NSW).
Antlers and the contributories make a submission, however, based on s 215 of the Income Tax Assessment Act 1936 (Cth). That section provided, relevantly, as follows:
"215. (1) Every person (in this section called 'the trustee'): (a) who is liquidator of any company ....; or (b) ... ; or (c) ... , shall within 14 days after he has become liquidator, or after he has so taken possession of assets, or after he has been so required by his principal, give notice thereof to the Commissioner. (2) The Commissioner shall as soon as practicable thereafter, notify to the trustee the amount which appears to the Commissioner to be sufficient to provide for any tax which then is or will thereafter become payable by the company or principal, as the case may be. (3) Subject to subsection (3B), if the trustee is a person of the kind referred to in paragraph (1) (a) ..., the trustee: (a) shall not, without the leave of the Commissioner, part with any of the assets of the company until the trustee has been so notified; (b) shall set aside, out of the assets available for payment of ordinary debts of the company, assets to the value of an amount that bears to the value of the assets available for payment of ordinary debts of the company the same proportion as the amount notified by the Commissioner under sub-section (2) bears to the sum of: (i) the amount notified by the Commissioner under subsection (2); (ii) any amount of prescribed tax that the Commissioner is required to notify to the trustee under an Act other than this Act and has so notified; and (iii) the aggregate of the ordinary debts of the company (excluding any debt in respect of tax or prescribed tax); and (c) is, to the extent of the value of the assets that the trustee is so required to set aside, liable as trustee to pay the tax." (3A) ... (3B) ... (3C) ... (3D) ... (4) If the trustee refuses or fails to comply with any provision of this section or refuses or fails as trustee duly to pay the tax for which the trustee is liable under subsection (3) or (3A), the trustee: (a) is, to the extent of the value of the assets that the trustee is required under subsection (3) or (3A), as the case may be, to set aside, personally liable to pay the tax; and (b) is guilty of an offence punishable on conviction by a fine not exceeding $1,000. (5) ... (6) In this section, unless the contrary intention appears: 'tax' includes: (a) ...; and (b) additional tax under section 207 or Part VII; and (c) ... ."
Mr Millar did not give a notice to the Commissioner as required by s 215 (1), although he had given notice to the Commissioner of his earlier appointment as receiver and manager. Mr Millar is not entitled to be in a better position than he would have been in if he had performed the obligation imposed upon him by s 215. If he had given the notice required by that section, the Commissioner would have notified him of the amounts of the two tax assessments and of the amounts of additional tax for late payment outstanding at the time. Having received the DCT's proof of debt dated 1 September 1994 for $291,298.45, and having received the last part of that part of the proceeds of sale of Lot 51 DP 16868 which he was to receive ($644,986.69 in all) on 14 September 1994, it seems reasonable to conclude that by 1 October 1994, he would have been obliged to set aside the full amount notified by the DCT. Whether or not he performed his obligation to set aside, he would have been liable to pay the full amount: s 215 (3) (c), (4) (a).
In my view, the amount of that liability would have been a cost or expense of the winding up for the purposes of s 292 (1) of the Companies Act 1961 (NSW). It would have been a liability incurred by Mr Millar in the course of, and by reason of, the winding up and by reason of his position as liquidator. If Mr Millar had failed to set aside funds and had incurred personal liability by the operation of s 215 (4), upon his paying the Commissioner he would have been entitled to indemnity out of Antlers' funds, at least to the extent of the amount which would have been payable if he had paid within due time, and Antlers' liability to indemnify him would itself have been a cost or expense of the winding up.
Section 215 also makes the liquidator liable to pay additional tax by way of penalty for late payment of the primary tax. The primary tax and the additional tax are payable, notwithstanding the pendency of a review by the Administrative Appeals Tribunal or of an appeal to this Court: see ss 14ZZM and 14ZZR of the Taxation Administration Act 1953 (Cth) discussed later. Upon a successful application for review or appeal, tax paid is refundable. Mr Millar was in breach of his duty by failing to pay.
As noted earlier, Mr Millar also relies on the stance which he claims was taken at the time by Mrs Kavich and Mr Portelli, that the tax debt should not be paid. But one searches in vain in the evidence or an unequivocal communication by Mrs Kavich and Mr Portelli to Mr Millar, to the effect that they did not wish him to pay the tax debt.
In an affidavit sworn 14 November 1995 and intituled in the Supreme Court proceeding, Mr Portelli stated in par 12:
"I intend also to have all creditors, other than the Australian Taxation Office, paid out in full from the moneys held by the liquidator. A sum sufficient to pay out the assessment in full and to provide for costs will also be set aside."
No doubt, a copy of that affidavit was served on Mr Millar at the time and may have revealed to him in part and by implication, the views of Mr Portelli on any proposal to pay out the DCT.
On 27 November 1995, Belen Oag (Tony Vella), apparently as solicitor for Mr Portelli, wrote to the Australian Government Solicitor ("the AGS"), representing both the DCT and the OT in B, advising:
"We had always contemplated that a sum sufficient to meet the contingent liabilities for tax would need to be set aside. A sufficient amount would also be set aside for costs. We entertain grave doubts as to whether these would amount to anywhere close to $250,000.00."
In a letter dated 18 December 1995 to Mr Millar, which senior counsel for Antlers and the contributories claimed, without objection, was from Mrs Kavich, the writer says:
"I would like to point out to you that not paying these taxes and rates means that you are failing in your duty as a liquidator."
On 30 January 1996, Belen Oag (Tony Vella) wrote to Sally Nash & Co enclosing what he described as his "client's amended Schedule of Proposals". Included in that document was a proposal for establishment of a bank account in the name of Belen Oag and the AGS, into which an amount was to be paid to abide the result of the taxation proceeding.
On 24 May 1996, Mr Millar wrote to the DCT referring to the two income tax assessments dated 30 November 1992 against Antlers for the 1991 and 1992 tax years and to an affidavit by Mr Peter Greenwood of the Commissioner's staff sworn 7 May 1996 to the effect that additional tax and interest for late payment calculated to 10 May 1996 amounted to $141,760.44. The letter claimed:
"I was ... given instructions from the contributories of Antlers after my appointment not to pay the income tax liability."
The letter requested the DCT to remit the additional tax and interest for late payment. He enclosed a cheque for $240,945.45 in payment of the primary tax outstanding on the two assessments.
Mr Millar does not anywhere depose to any particular oral or written instruction not to pay. In par 22 of his affidavit sworn 26 February 1997 in this proceeding he says that from February 1996 he received requests from the solicitors for Mr Portelli to pay the debt to the DCT. In par 23 of the same affidavit he seems to imply that he understood that Mrs Kavich wanted him to pay it and that the only reason why he felt that he could not do so was that the OT in B would not give him a direction to do so. But there is no evidence that he brought this issue to a head with the OT in B or that the OT in B sought to prevent payment.
Mr Heydon QC for Antlers and the contributories referred to s 237 (1) and (2) of the Companies Act 1961 (NSW) which provided that a liquidator shall have regard to directions "given by resolution of the creditors or contributories at any general meeting" and that a liquidator may summon general meetings of contributories to ascertain their wishes. Generally, a liquidator is entitled to take into account even informally expressed views of creditors or contributories: Yeomans v Walker (1986) 5 NSWLR 378 (Hodgson J). But while s 237 (1) provides that a liquidator "shall" have regard to directions given by resolution of the creditors or contributories in general meeting, in relation to the informally expressed wishes of creditors or contributories, he may, but is not required to, take them into account. I accept Mr Heydon's submission that letters, often ill-expressed and often uncertain in meaning, are no substitute for resolutions duly passed at formally convened meetings. In any event there is no evidence that Mrs Kavich had ever requested Mr Millar not to pay the tax and there is evidence that on 18 December 1995 she requested him to pay it. The attitude of her husband, George Kavich, is to be ignored because he was not a contributory and there is no suggestion in the evidence before me, and it was not submitted, that he represented his wife. There was no unequivocal instruction or expression of desire by Mr Portelli that Mr Millar should not pay the tax debt. In his affidavit sworn 14 November 1995 he said that if the winding up were terminated as sought in his motion, he would "set aside" a sufficient sum to pay the amounts of the assessments in full - a course which s 215 of the Income Tax Assessment Act 1936 required Mr Millar to take.
In any event, I accept the submission of Antlers and the contributories that even if both contributories had clearly requested Mr Millar not to pay the tax debt, in the face of the requirements of s 215 of the Income Tax Assessment Act 1936 (Cth), the request would have been irrelevant to the obligation incumbent upon Mr Millar, and was bound to be ignored by him.
C. If "no" to B, (i) was Mr Millar under an obligation to seek directions from the Court as to whether he should pay the amounts of the two income tax assessments; and, if so, (ii) would the Court have directed him to pay them?
If Mr Millar was in doubt as to whether he was obliged to pay the income tax assessments, he was under a duty promptly to seek directions from the court: CCA v Harvey at 691; Windsor Steam Coal at 159, 161. Senior counsel for Mr Millar submitted that a direction to pay would not have been given and that he would have been told to exercise his commercial judgment. He referred to Shiraz Nominees at 13 and Re Spedley Securities Ltd (in liq) (1992) 10 ACLC 1742 (NSW/Giles J) at 1744-5. However, I do not think that these cases require acceptance of the submission.
What would have been in issue on an application by Mr Millar for directions would have been whether he was required by the combined operation of s 215 of the Income Tax Assessment Act 1936 (Cth) and s 292 (1) (a) of the Companies Act 1961 (NSW) to pay the amounts of the two income tax assessments as a cost or expense of the winding up. This would have been a question of law. The Court would have directed Mr Millar to pay the tax, notwithstanding the ongoing contest over the assessments and the dispute as to ownership of Mrs Kavich's share in Antlers. Section 14ZZM of the Taxation Administration Act 1953 (Cth) provides that the fact that a review by the Administrative Appeals Tribunal is pending in relation to a taxation decision (including a reviewable objection decision as in the present case) does not interfere with or affect the decision and "any tax, additional tax or other amount may be recovered as if no review were pending". Section 14ZZR of the same Act provides similarly in relation to the fact that an appeal to this Court is pending in relation to a taxation decision (including an appealable objection decision as in the present case). Payment by Mr Millar was required by law.
In Shiraz Nominees, on the other hand, the question was whether the liquidator should cause a proceeding to be commenced - a question which involved assessment and evaluation of various considerations including the availability of evidence. The statement by Giles J in Re Spedley Securities Ltd (in liq) that "[i]t is generally not appropriate in an application for directions to make the liquidator's commercial decisions for him where he has full power to act ... and the liquidator should not seek directions as a kind of insurance that he has made the right commercial decision" (at 1,744-1,745) is distinguishable for the same reason.
In view of my reasoning in relation to question B above, the Court would have directed Mr Millar to pay the tax.
If Mr Millar had applied for directions, the Court would in my opinion, not have ruled that he ought not to have done so, and would have allowed him his costs of the application as a cost and expense of the winding up. Moreover, if he had made such an application with reasonable dispatch following his appointment, I do not think that he would have been left to bear the additional tax by way of penalty for late payment that would have accrued down to the time of the giving of the direction. Apparently, the direction would have been given by 1 October 1994. Mr Millar had in hand as liquidator, sufficient funds to enable payment to be made as from 6 September 1994.
D. If "yes" to B (i) or C (i) and (ii),
(i) would payment by Mr Millar of the amounts of the two income tax assessments have caused the winding up of Antlers to terminate earlier than 6 June 1996; and, if so, (ii) when would the winding up have terminated?
This issue is one of fact. Senior counsel for Mr Millar emphasised that until the making of the orders by consent on 23 May 1996, both the OT in B and the DCT opposed termination of the winding up. He submits that in the light of that opposition, payment of the income tax and additional tax by way of penalty would not have caused the liquidation to terminate.
Senior counsel for Mr Millar referred me to the evidence said to support the submission. On 26 August 1994, Mr Aldridge of counsel, who appeared for both the OT in B and the DCT, informed Whitlam J as follows:
"In relation to the termination, my clients understand that the debt of Antlers to the Deputy Commissioner of Taxation will be paid in full and that sufficience [sic] funds will become available to the bankrupt estate of Vera Kavich to be able to pay all debts as ultimately determined by the Court to be paid in full and on that basis we are prepared to allow the termination of application [sic - termination application] to proceed ahead of the other applications. If that is not the basis, my client would then wish to oppose the determination application on the grounds that are available to it, this is the Official Trustee in Bankruptcy, because it would want the company to stay in winding up so that we could receive a surplus and we wish to take all necessary steps in relation to that to ensure that it was entitled to one half of the surplus upon the winding up." (T 4.28-5.03)
On the same occasion, Mr Cameron of counsel who appeared for George Kavich said:
" ... we have now been given the figures from the Official Receiver. We were given them last Friday. It is a bit high. It is $462,000, and that necessitates that we now have to put in some more money from a third party. That is being investigated at the moment. HIS HONOUR: That will cover Mrs Kavich, too, will it? MR CAMERON: Yes, that is for Mrs Kavich's bankrupt part of it. The rest of it is quite easily accommodated because I think there is something like $700,000 in their claims, 200 or 300, but we will be proceeding along the lines as indicated and everyone will be protected ultimately. HIS HONOUR: Well, is there evidence of that put on in connection with the application to terminate the winding up? MR CAMERON: We have the figures now. We can put that on now that we have them, yes. It just took a long time to get them, that is all. We have them now, at last, and we can do something about it. There are plenty of assets ..." (T 5.13-5.28)
Fourteen months later, on 27 October 1995, the various proceedings were again before his Honour. The following exchange occurred between his Honour and Mr Morris, a solicitor in the office of the AGS, who represented the OT in B and the DCT:
"HIS HONOUR: Mr Cameron is pretty consistent in wanting to terminate the winding up. MR MORRIS: Certainly, but our position would be that unless there is some means to satisfy whatever the provable debts of Mrs Kavich's bankrupt estate are, there has been nothing yet shown about how those provable debts would be satisfied. Any application to terminate the liquidation would be premature, as the only asset in Mrs Kavich's bankrupt estate is her share in the company, Antlers. Therefore, unless there is some way of money being flown [sic - flowed, caused to flow] through to the Official Trustee, he will have to oppose the application on the basis that the only way that he can pay out the creditors is by winding up Antlers to realise the value of his share. HIS HONOUR: Well, he can take whatever action he likes. He has got lots of rights now to get on the register and do what he likes and even to direct Mrs Kavich what she is to do. MR MORRIS: Yes, I just want to make it plain that my client would oppose any termination of the liquidation unless there is some means of ensuring that there are sufficient funds to pay out the provable debts. HIS HONOUR: The Official Trustee has a whole slew of rights he can exercise in relation to Mrs Kavich being on the register but if he does not choose to do so, he does not get on with doing it, then there is no reason why Mr Portelli and Mrs Kavich should not file their application. I mean, she is a contributory. MR CAMERON: All we want him to do - a bank cheque might satisfy him but if he just tells us what his costs are we will get the cheque for it." (T 14.37-15.20)
On 27 November 1995 Belen Oag (Tony Vella) wrote to Sally Nash & Co as follows:
"We will have the orders for termination before 22 December 1995. That should give your manager ample time within which to consult with the persons actually managing the liquidation. We have the reports. A very short update is all that is required. The company simply cannot afford the services of a liquidator. Tomorrow, [the proceedings were due to be before the Court on 28 November] we propose to discuss the mechanics for achieving the orders we seek. Naturally this involves the moneys held by the liquidator. You are invited to attend."
But on the same day, 27 November 1995, the AGS wrote to Belen Oag advising that the AGS had instructions to act for the DCT and the OT in B; asserting that the application by Belen Oag's client, Mr Portelli, for a termination of the winding up could not succeed, and stating that the DCT and the OT in B both opposed a termination.
On 30 November 1995 the AGS again wrote to Belen Oag. The letter included the following:
" ... out of court Mr Cameron of Counsel indicated that he was attempting to settle all outstanding disputes between Antlers Pty Ltd and Vera Kavich and the Deputy Commissioner of Taxation and the Official Trustee by either paying the outstanding debts or providing security for those debts in some way. Mr Cameron has not provided any details of what debts are to be paid, from what funds they are to be paid, what debts are to be secured, who is to provide security or the nature of the security. He indicated that all these matters can be quickly resolved. I note that: (a) Your client commenced these proceedings without first putting to my clients a proposal to pay/secure all the debts of both Antlers Pty Ltd and the estate of Mrs Kavich; (b) Mr George Kavich had a motion to terminate the liquidation of Antlers Pty Ltd from 20 May 1994 to 27 October 1995. Mr Cameron also appeared for Mr George Kavich in those proceedings. At no time had Mr Cameron put a written proposal to my clients to pay/secure all debts of Mrs Kavich and Antlers Pty Ltd from 20 May 1994 detailing how such a proposal would occur."
The letter also noted that there was approximately $1,050,000 worth of debts which Antlers or Mrs Kavich would have to pay or secure to the satisfaction of the DCT and the OT in B, comprising $438,000 needed to pay in full the proofs of debt lodged in the estate of Mrs Kavich, $362,482.97 needed to satisfy the tax payable by Antlers, and $250,000 in legal costs. The letter concluded:
"I should point out that, as presently instructed, my clients require payment of the outstanding debts and not merely some security being offered."
On 5 February 1996 Sally Nash & Co wrote to Belen Oag in reply to a letter of 30 January from Belen Oag as follows:
"It is not appropriate for the Liquidator to either accept or reject the proposal put forward in this matter. This is a matter for the other parties to the litigation and for the Court. In this regard the Liquidator has prepared a detailed Report to the Court but your proposal does not appear to have taken into account the following matters: 1. If the orders suggested by you are made there will be a shortfall in cash of more than $130,000.00. 2. You have not included in your schedule all the liabilities refer [sic - referred] to in the Liquidator's report. 3. You have not included in your schedule the Liquidator's costs and remuneration estimated to date. 4. You appear to have ignored annexure 'G' to the Liquidator's report. However we repeat that the question of termination of the winding up is a matter for the Court and not for the Liquidator."
On 25 March 1996, Mr Morris swore an affidavit in proceeding NG 131 of 1994 giving an account of the events since the service by Belen Oag the solicitors for Mr Frank Portelli, the applicant in this proceeding (NG 131 of 1994), on 21 November 1995 of his notice of motion for termination of the winding up. Paragraph 14 of the affidavit was as follows:
"The Official Trustee has opposed the termination of the liquidation of Antlers Pty Ltd from, at least, 27 October 1995."
Mr Morris annexed to his affidavit certain pages of the transcript of proceedings before Whitlam J on 27 October 1995 which contained the passages to which I have already referred.
In my view, on the evidence before me the winding up would not have terminated at any point of time earlier than that at which it did in fact terminate (6 June 1996) even if Mr Millar had paid the tax debt to the DCT in 1994 as he should have done. The submission of Antlers and the contributories is, in substance, to the effect that since moneys were found in 1996 to discharge the debts in Mrs Kavich's bankruptcy, it should be inferred that moneys would have been found to do so in 1994 if Mr Millar had paid Antlers' tax debt and Antlers had been ready to come out of liquidation. However, there is no evidence, either contemporaneous or testimonial, to that effect. For all that I know, Mrs Kavich would not have been willing or able in 1994 to find the necessary money to pay her creditors in order to persuade the OT in B to withdraw his opposition to termination of the liquidation.
E. If otherwise liable, should Mr Millar be excused from liability pursuant to s 365 of the Companies Act 1961 (NSW)?
Section 365 of the Companies Act 1961 (NSW) provides:
"365. (1) If in any proceeding for negligence default breach of duty or breach of trust against a person to whom this section applies it appears to the court before which the proceedings are taken that he is or may be liable in respect thereof but that he has acted honestly and reasonably and that, having regard to all the circumstances of the case including those connected with his appointment, he ought fairly to be excused for the negligence default or breach the Court may relieve him either wholly or partly from his liability on such terms as the court thinks fit."
Subsection 365 (4) provides that the section applies to, inter alia, liquidators. Mr Millar acted honestly. The questions arising under the provision are whether he acted "reasonably" and "ought fairly to be excused."
I have held that Antlers, Mrs Kavich and Mr Portelli have not established that the winding up would have terminated earlier than it did if Mr Millar had paid the amounts of the two income tax assessments as soon as reasonably practicable after his appointment on 1 June 1994. In the result, it is not shown that Mr Millar would have ceased to be liquidator earlier than 6 June 1996. He would have continued to earn remuneration as liquidator down to that time.
On the other hand, if he had paid the income tax when he should have done, additional tax by way of penalty would not have accrued. I presume, however, that Antlers derived some benefit from the fact that Mr Millar did not pay the tax as early as he should have done, in the form of interest earned on the money which Mr Millar, in breach of duty, did not pay to the DCT.
It is not in dispute that to the extent that it is alleged that in this proceeding that Mr Millar was in breach of duty in not paying the amounts of the two assessments when he should have done, the proceeding is one for negligence, default or breach of duty against him as liquidator, and is therefore a proceeding to which s 365 (1) applies. On the hearing there was debate as to whether it could be concluded that Mr Millar acted reasonably if it were found that he had acted negligently. Reference was made to Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29 (Moffitt J). In that case, Moffitt J found that auditors had acted negligently. His Honour discussed the relationship between the requirement of s 365 (1) that it appear to the court that the person in question has acted reasonably and a finding of negligence. In the event, his Honour concluded that there was no ground for excusing the defendant-auditors under the section because of the sustained and serious nature of their negligence, and, alternatively, because of the particular manner in which they had contested the client's claims against them. His Honour did not suggest, however, that a finding of negligence prevents a defendant being relieved from liability under s 365 because a defendant's conduct cannot be at the one time both "negligent" and, for the purpose of s 365 (1), "reasonable".
In the present case, the liability of Mr Millar is for breach of a statutory obligation imposed on him by s 292 of the Companies Act 1961 (NSW) and s 215 of the Income Tax Assessment Act 1936 (Cth). He did not act reasonably in failing to pay the tax and in, apparently, not being sufficiently familiar with s 215 of the Income Tax Assessment Act 1936 (Cth) and ss 14ZZM and 14ZZR of the Taxation Administration Act 1953 (Cth). The substance of the complaint is the failure to observe an express statutory requirement. But it is also appropriate to describe as "unreasonable" Mr Millar's failure to pay the tax, having regard to the statutory provisions mentioned, the provision for accrual of additional tax by way of penalty for late payment and the recoverability by Mr Millar of any amount paid with interest from a "good payer" if any application for review or appeal should succeed.
Another factor which militates against Mr Millar's being granted relief is that it seems that he may have derived some benefit from his failure to pay the tax. Two matters should be noted immediately. The first is that I do not suggest that Mr Millar was moved by a desire for personal advantage in not paying the tax early: on the contrary, it should be made clear that there is no evidence or suggestion whatever of this. The second matter is that, as I have concluded earlier, even if Mr Millar had paid the tax early, so far as the evidence before me reveals, he would have remained liquidator and earned remuneration as such until 6 June 1996. However, it is a possibility that if he had paid the tax, in fact Antlers would have come out of liquidation earlier: Antlers, Mrs Kavich and Mr Portelli have failed on that issue because the evidence before me does not establish that Antlers would have come out of liquidation earlier in the circumstances contemplated. More importantly, Mr Millar's firm has, no doubt, albeit with the Court's approval, earned fees in connection with the taxation issues and with the litigation which he has waged, admittedly at the instance of Antlers and the contributories, in challenging the income tax assessments.
I would not grant Mr Millar relief under s 365 (1).
REASONING - THE MEETINGS OF DIRECTORS
Subsection 232 (3) of the Companies Act 1961 (NSW) provides:
"232. (3) A liquidator shall be entitled to receive such salary or remuneration by way of percentage or otherwise as is determined - (a) by agreement between the liquidator and the committee of inspection (if any); (b) failing such agreement or where there is no committee of inspection by resolution passed at a meeting of creditors by a majority of not less than three-fourths in value and one-half in number of the creditors present in person or by proxy and voting at the meeting and whose debts have been admitted to proof, which meeting shall be convened by the liquidator by a notice to each creditor to which notice shall be attached a statement of all receipts and expenditure by the liquidator and the amount of remuneration sought by him; or (c) failing a determination in a manner referred to in paragraph (a) or (b) of this subsection, by the Court."
The first of the two meetings of creditors was held on 27 February 1995. Only two creditors were represented: the DCT and the Chief Commissioner of Land Tax. The DCT was admitted for voting in an amount of $291,298.45 and the Chief Commissioner of Land Tax was admitted for voting in an amount of $12,105.20. The two creditors resolved unanimously that Mr Millar's remuneration for the period from his appointment on 1 June 1994 to 31 December 1994 be approved and paid in an amount of $47,911.00 and that his remuneration for the month of January 1995 amounting to $5,673.80 be also approved and paid, making a total amount approved and to be paid of $53,584.80.
The second meeting of creditors was held on 31 August 1995. On this occasion, the DCT was again admitted for voting in a sum of $291,298.45 but the Chief Commissioner of Land Tax was admitted for the purpose in an amount of only $3,085.20. As well, a further creditor, Paul Baiada, who was represented at the meeting by Mrs Kavich, was admitted for voting purposes in a sum of $90,000 (Mrs Kavich said that she believed that the amount should be only $65,000). It was resolved that Mr Millar's remuneration for the period from 1 February 1995 to 31 July 1995 amounting to $39,901.70 be approved and paid (the DCT and the Chief Commissioner of Land Tax voted for the resolution and Mrs Kavich voted against it). It was also resolved that Mr Millar's remuneration for the period from 1 August 1995 to 24 August 1995 amounting to $5,858.85 be approved and paid (the voting pattern was the same as for the previous resolution). In the result, an amount of $45,760.55 was approved at this second meeting for payment to Mr Millar as his remuneration for the period 1 February 1995 to 24 August 1995.
At both meetings the DCT and the Chief Commissioner of Land Tax were in fact not entitled to vote because the debts in respect of which they were admitted to vote were not debts in respect of which they were creditors of Antlers at the commencement of the winding up. The only creditor who was entitled to vote at either meeting was Mr Baiada, and, as noted above, his representative, Mrs Kavich, voted on his behalf at the second meeting against payment of the remuneration.
The result is that Mr Millar appropriated to himself moneys for his remuneration for which, it transpires, there was not due authority. No reason was suggested on the hearing as to why he should not be liable to make restitution of the amounts in question and pay interest on them from the dates when they were extracted from Antlers' coffers down to the date of repayment.
However, I have held that it has not been shown that if Mr Millar had paid the tax debts when he should have paid them, the company would have come out of the winding up and he would have ceased earning remuneration. The parties are not in dispute as to the work done by Mr Millar or as to the amounts of remuneration payable to him in respect of that work. In the result, as I understand it, the parties agree that Mr Millar will be liable to pay to the company only an amount representing interest on the remuneration which was, albeit it innocently, paid to him out of Antlers' funds without lawful authority.
No independent submission was made as to why Mr Millar should be relieved from this liability under s 365 (1) and I do not think that he should be. At the time of the holding of the two meetings, the facts which rendered the DCT and the Chief Commissioner of Land Tax ineligible to vote were known to Mr Millar. He had the benefit, and Antlers was denied the benefit, of the amounts paid to him for remuneration.
REASONING - FOUR REMAINING ISSUES
1. Should Mr Millar be released as liquidator?
The present question would be a live one only if the net result of the application of the foregoing reasons is that Mr Millar remains liable to pay money to Antlers. Senior counsel for the respective parties appeared to agree that two courses would be available in such a case: to withhold a release until payment is made and the liability is thereby discharged, or to grant a conditional release, being a release save as to the particular liability remaining.
It is premature, in my view, to determine this question before the parties have had an opportunity to consider these reasons and to attempt to agree upon quantification of the result of them.
2. Are Antlers, Mrs Kavich and Mr Portelli estopped from challenging Mr Millar's claim for remuneration?
This issue arises by reason of certain consent orders which Foster J made on 10 May 1996 in NG 131 of 1994. In that proceeding, Mr Portelli was applicant, Antlers was first respondent, Mr Millar was second respondent and the Official Trustee in Bankruptcy as trustee of the bankrupt estate of Mrs Kavich was third respondent. The consent orders made by his Honour on 10 May 1996, and, it may be noted, entered on 27 May 1996, were as follows:
"By consent the Court orders that:- 1. Pursuant to s.232(3)(c) of the Companies Act 1961: (a) the remuneration of the liquidator of Antlers Pty Limited (in liquidation), James Morrison Millar, his partners and staff, subject to any other Order of the Court, be calculated and charged at the hourly rates recommended as a guide by the Insolvency Practitioners Association of Australasia, from time to time during the administration. (b) the liquidator of Antlers Pty Limited (in liquidation), James Morrison Millar lodge with the Registrar of the Federal Court for assessment and approval his bill of costs of remuneration for the period 1 June 1994 to 1 April 1996 inclusive and that upon approval of such bill of costs of remuneration by the registrar such approval shall constitute approval to by the Court. (c) the liquidator of Antlers Pty Limited (in liquidation), James Morrison Millar lodge with the Registrar of the Federal Court for assessment and approval his bill of costs of remuneration for such periods of time not less than 3 monthly after the date being the last date of the bill of costs referred to in paragraph (b) (or such shorter date as may be fixed by the Court) and that upon approval of such bill of costs of remuneration by the Registrar such approval shall constitute approval to by the Court. 2. Liberty to apply in respect of a variation of the above orders on 3 days notice."
The possibility that Antlers and Mrs Kavich and Mr Portelli might be in some way estopped from denying the entitlement of Mr Millar to remuneration for any part of the period from 1 June 1994 to 1 April 1996 was referred to by me in passing during argument and was not developed by senior counsel for Mr Millar. In particular, it was not submitted that the estoppel in question belonged to any particular one of the categories of res judicata, issue estoppel or "Anshun estoppel". In the absence of any development of the proposition that Antlers and the contributories are estopped, perhaps it is not incumbent upon me to deal with it.
The issues posed for decision in the proceeding were not, and did not include, Mr Millar's entitlement to remuneration: rather, that issue was raised by the filing of a notice of motion by Mr Millar. As events have transpired, I have held that the winding up would not have terminated any earlier than it did in fact terminate, with the consequence that Mr Millar remained liquidator and entitled to remuneration as such from 1 June 1994 to 6 June 1996. It is therefore not obvious that any estoppel would have any work to do. Mr Millar's liability arising from his failure to pay income tax earlier than he did is a distinct matter and would not be affected by the suggested estoppel.
Finally, senior counsel for Antlers, Mrs Kavich and Mr Portelli said that he would, if necessary, apply for a variation of the orders pursuant to the liberty reserved by order (2) set out above, if this should be necessary in order to overcome any estoppel. I would, if it were necessary, vary the orders of 10 May 1996 by allowing Antlers, Mrs Kavich and Mr Portelli the right to put the submissions which they have in fact put in the present case, but I do not think it necessary to do so.
3. If the tax debt had been paid when it should have been paid, what expenses would have been saved?
I have previously decided that on the evidence, it does not appear that Antlers would have come out of liquidation any earlier than it in fact did, if Mr Millar had paid the tax when he should have done. Accordingly, although additional tax for late payment would have been avoided, Mr Millar's remuneration and out of pocket expenses as liquidator would have been ongoing.
However, agreed issues 3.4 and 3.5 raise two particular questions. Those agreed issues are, it will be recalled, as follows:
"3. If the tax assessed ought to have been paid earlier than it was in fact paid, what loss or damage, if any, did the company incur, having regard to: ... 3.4 the prospect that the additional tax may be waived, in whole or in part, by the Commissioner; 3.5 the costs of the conduct of any application for directions or other costs attendant on making the payment?"
In my view, the prospect that the additional tax will be remitted by the Commissioner is non-existent. Mr Millar has already made strenuous efforts to have it waived by letters dated 24 May 1996, 30 August 1996, 2 September 1996 and 18 December 1996, all in vain. Moreover, so far as the evidence reveals, there is little chance of a successful application for review to the Administrative Appeals Tribunal.
I accept the submission of senior counsel for Antlers and the contributories that the case for a waiver by the DCT has been put as well as it could be by Mr Millar and that those parties would probably be no more successful if they were to advance the same submissions. If anything, Mr Millar might be more persuasive than they would be, on the basis that from the DCT's perspective, they would be seen to have a financial self interest in the result and he would be seen to have none.
In relation to issue 3.5, it was reasonable for Mr Millar to obtain consent directions on 23 May 1996 for payment of the tax and it would have been reasonable for him to apply for directions in 1994, when he would have had his costs of the application in my view. It seems reasonable that there should be a deduction from the amount of Mr Millar's liability on account of such costs.
4. Should Mr Millar be ordered to discharge the mortgage in his favour securing payment of the remuneration and out of pocket expenses?
The mortgage should remain in place until the parties have gone through the exercise of quantification and it is clear that there is no longer any money payable to Mr Millar secured by the mortgage.
CONCLUSION
For the foregoing reasons, the agreed issues for trial are answered as follows:
"1. Whether Millar, as Liquidator, ought to have paid the income tax assessed on the company, Antlers Pty Ltd (Receiver and Manager Appointed and in Liquidation), out of funds on hand, on some date earlier than May 1996 (and, if so, what date) by reason of: 1.1 the financial position of his liquidation on and after the date of his appointment; and 1.2 notwithstanding the circumstances of the liquidation and in particular, the receivership of the assets of the Company?"
Answer: Yes, by 1 October 1994.
"2. If the answer to 1 is 'no', should the Liquidator have applied to the Court for directions before February 1996 for directions to permit the payment of the said assessment, notwithstanding the financial position of the company and, if so, would the Court necessarily have directed payment of the sum assessed at a time earlier than it was in fact paid?"
Answers: Not necessary to answer, but it would have been reasonable for the Liquidator to make such an application and if he had done so the Court would necessarily have so directed.
"3. If the tax assessed ought to have been paid earlier than it was in fact paid, what loss or damage, if any, did the company incur, having regard to: 3.1 the additional tax incurred in fact; 3.2 the additional tax incurred before the appointment of Millar as liquidator; 3.3 interest earned by the company on monies not paid; 3.4 the prospect that the additional tax may be waived, in whole or in part, by the Commissioner; 3.5 the costs of the conduct of any application for directions or other costs attendant on making the payment?"
Answer: The additional tax for late payment incurred from 1 October 1994 subject to deductions on account of the interest referred to in 3.3 and the costs referred to in 3.5.
"4. If the said amount assessed has been paid to the Commissioner of Taxation, would there have been any earlier determination of the liquidation of the company than in fact occurred?"
Answer: No.
"5. If the answer to 4 is 'yes', would there have been any change, by way of reduction in the aggregate of costs, charges and expenses of the liquidation than were in fact charged by or incurred by Millar in his capacity as Liquidator and as Receiver having regard to the work performed, and the directions of the court?"
Answer: Unnecessary to answer.
"6. Has the company suffered any loss if the liquidation ought to have determined earlier than it did in fact, when some of the work and services charged for by the liquidator are work and services apparently for the benefit of the company, eg. in the prosecution of appeals against the assessment of tax; preparing reports to the Court in termination proceedings?"
Answer: Unnecessary to answer.
"7. Is the Liquidator liable to the company in an amount by way of interest on payments on remuneration and out of pocket costs made in reliance on resolutions of creditors where no approval by the Court was obtained?"
Answer: Yes as to remuneration; no as to out of pocket costs.
"8. If 7 is answered yes as to both remuneration and out of pocket costs, for what period of time and on what amounts?"
Answer: Unnecessary to answer.
"9. If 7 is answered yes as to remuneration, for what period of time and for what amounts?"
Answer: From the dates when the respective amounts were paid to Mr Millar, on those amounts down to 10 May 1996.
"10. If the answer to 3, 6 or 7 is yes, ought the liquidator be excused from liability to the company in all the circumstances in respect to all or any of the matters?"
Answer: No.
Orders giving effect to the above Reasons for Judgment will not be made at this stage. Rather, the proceeding will be stood over to a date for the purpose of the making of orders, hopefully in conformity with short minutes to be agreed upon by the parties.
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