Re: KEVIN RICHARD SHIRLAW And: BARRY ANTHONY TAYLOR No. G163 of 1991 FED No. 531 Corporations - Taxation - Equity 91 ATC 4768 (extracts) 5 ACSR 767/22 ATR 533/102 ALR 551 (1991) 31 FCR 222
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION Sheppard(1), Burchett(1) Gummow(1) JJ.
CATCHWORDS
Corporations - provisional liquidation followed by liquidation - assets gathered in by provisional liquidator - whether the costs charges and expenses of the provisional liquidator may be recouped from those assets - whether secured by equitable lien - whether deferred to rights of liquidator under his statutory priority and to the rights of the Commissioner of Taxation under s. 221P of the Income Tax Assessment Act 1936 ("the Act").
Taxation - priority given by s. 221P of the Act - whether ranked before the equitable lien of provisional liquidator of the taxpayer.
Equity - equitable lien - may arise other than from contractual dealings - court appointed administrator of a fund - whether lien arises for costs charges and expenses of the administration.
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
In the case of Shirlaw v Taylor, the parties involved were Shirlaw, the provisional liquidator, and Taylor, the liquidator of R. and G. Shelley Pty Limited (In Liquidation). The dispute centred on the costs, charges, and expenses incurred by the provisional liquidator during the provisional liquidation phase, and whether these could be recouped from the assets gathered in by the provisional liquidator. Additionally, the case examined whether these costs were secured by an equitable lien, and if they were deferred to the rights of the liquidator under their statutory priority and the rights of the Commissioner of Taxation under section 221P of the Income Tax Assessment Act 1936.
The central legal issues the court had to address were whether the provisional liquidator had an equitable lien on the assets for the costs, charges, and expenses of the provisional liquidation, and if these costs were deferred to the rights of the liquidator under their statutory priority and to the rights of the Commissioner of Taxation. The court was also required to determine the hierarchy of these claims in the event that the assets in the trust account were insufficient to cover all the claims.
The court's reasoning was that the provisional liquidator had an equitable lien on the assets for the costs, charges, and expenses of the provisional liquidation, which were to be paid before any other claims. However, these costs were to be deferred to the rights of the liquidator under their statutory priority and to the rights of the Commissioner of Taxation. Given the specific declarations and orders made, the appeal was allowed, and the orders of Higgins J. were set aside. In their place, the declarations regarding the equitable lien and the liquidator's rights were made. The respondent was also ordered to pay the appellant's costs of the appeal and of the proceedings before Higgins J., and the order of the Master as to the costs of the proceedings before him was restored.
In conclusion, the court's final orders established that the appellant had an equitable lien on the funds for the payment of the specified sum, plus taxed legal costs, while the respondent, as the liquidator, was entitled to any remaining balance after satisfaction of the equitable lien. This decision clarified the priority of claims in cases of provisional liquidation followed by liquidation.
Orders
Orders of the court
The appeal be allowed.
The orders of Higgins J. made 22 March 1991 be set aside, and in lieu thereof the declarations set out in the Schedule hereto be made.
The respondent pay the costs of the appellant of the appeal and of the proceedings before Higgins J.
The order of the Master made 28 November 1990 as to the costs of the proceedings before him be restored.
THE SCHEDULE
(1) The appellant has an equitable lien upon the funds in his
trust account in respect of the provisional liquidation of R. and G. Shelley Pty Limited (In Liquidation), for the payment to him of the sum of $96,466.20, together with his taxed legal costs.
(2) The respondent is entitled as the liquidator of R. and G.
Shelley Pty Limited (In Liquidation), after satisfaction of the said equitable lien, to have any balance remaining in the said trust account accounted for by the appellant to him and paid to or at his direction.
NOTE: Settlement and entry of Orders is dealt with by Order 36 of the Federal Court Rules.