Akers & Ors v Deputy Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 1933/2013)
Judgment date: 14 May 2014
Date published: 12 December 2014

Summary of decision:
This case concerned the liquidation in the Cayman Islands of a Cayman Islands registered company and protection of the Commissioner's interests as a local creditor in Australia under the Cross-Border Insolvency Act 2008 (Cth), in circumstances where there were assets in Australia and where the tax debt would not be admitted to proof in the Cayman Islands liquidation.

Overview of facts:
1. The Model Law on Cross Border Insolvency was developed and adopted by United Nations Commission on International Trade Law (UNICTRAL).The Model Law was designed to address cross border insolvency, generally where an insolvent debtor has assets in more than one State, and to encourage cooperation and coordination between jurisdictions. The Model Law has the force of law in Australia with certain modifications contained in the Cross Border Insolvency Act 2008 (the Model Law). | 2. Saad Investments Company Limited (In Official Liquidation) (Saad) was a Company registered in the Cayman Islands. On 18 September 2009 Saad was wound up in the Cayman Islands and joint official liquidators appointed (the liquidators). The Commissioner subsequently raised income tax and penalty (the tax debt). | 3. On 7 September 2010 the liquidators filed an application in the Federal Court of Australia seeking recognition of a proceeding in the Cayman Islands under the Model Law and certain other relief (the recognition proceedings). | 4. On 22 September 2010 the Deputy Commissioner of Taxation (DCT) filed an interlocutory application in the recognition proceedings. On 22 October 2010 the liquidation of Saad was recognised by the Federal Court of Australia as a 'foreign main proceeding' within the meaning of the Model Law (the recognition orders). | 5. The recognition orders were made subject to certain undertakings, including an undertaking by the liquidators not to remit the proceeds of any realisation of assets outside Australia without giving 14 days notice. If assets had been remitted from Australia to the Cayman Islands, the DCT would not have been able to recover the tax debt, which being a revenue debt, would not be admitted to proof in the Cayman Islands liquidation. The recognition orders also prevented the DCT from taking any legal action, recovery action in respect of the tax debt. | 6. On 21 September 2012 the liquidators gave the Commissioner 14 days' notice of their intention to remit assets from Australia to the Cayman Islands. | 7. The DCT filed an application seeking modification of the recognition orders to issue statutory notices and take other recovery action, including action to obtain payment of the tax debt on a pari passu basis from the assets in Australia. | 8. The DCT was successful before Rares J at first instance and the modification orders were made. | 9. The liquidators appealed the modification orders to the Full Federal Court. | Issues Decided by the Full Federal Court and Special Leave application | On appeal the liquidators contended the primary judge erred in modifying the recognition orders, and that the modification orders were in excess of the jurisdiction under the Model Law and without due regard to the proper interpretation, policy and purpose of the Model Law. | In dismissing the appeal, the Full Federal Court held that: (a) There was nothing in the Model Law which imported foreign insolvency law into Australia so that domestic tax debts could not be recovered (b) There was no legislative or common law basis which destroyed the rights of the DCT to seek leave to proceed against the company in liquidation or to employ his enforcement rights under tax legislation (c) When granting or modifying relief under the Model Law, the Court must ensure that the interest of local creditors are protected, and (d) The primary judge had not misapplied the exercise of discretion by making the modification orders because to have found otherwise would have meant that the DCT's rights as a local creditor would have been transformed into a foreign creditor and that as the primary judge permitted the DCT to recover only a pari passu entitlement, the principles of fairness between all creditors was upheld. | (a) There was nothing in the Model Law which imported foreign insolvency law into Australia so that domestic tax debts could not be recovered (b) There was no legislative or common law basis which destroyed the rights of the DCT to seek leave to proceed against the company in liquidation or to employ his enforcement rights under tax legislation (c) When granting or modifying relief under the Model Law, the Court must ensure that the interest of local creditors are protected, and (d) The primary judge had not misapplied the exercise of discretion by making the modification orders because to have found otherwise would have meant that the DCT's rights as a local creditor would have been transformed into a foreign creditor and that as the primary judge permitted the DCT to recover only a pari passu entitlement, the principles of fairness between all creditors was upheld. | The liquidators sought special leave to appeal the Full Court's decision to the High Court which was heard on 17 October 2014. | The Court dismissed the application noting that whilst it was an interesting issue there was nothing to persuade them that the Full Court judgment was attended with sufficient doubt to warrant the granting of special leave.

Issues decided:
On appeal the liquidators contended the primary judge erred in modifying the recognition orders, and that the modification orders were in excess of the jurisdiction under the Model Law and without due regard to the proper interpretation, policy and purpose of the Model Law. In dismissing the appeal, the Full Federal Court held that: (a) There was nothing in the Model Law which imported foreign insolvency law into Australia so that domestic tax debts could not be recovered (b) There was no legislative or common law basis which destroyed the rights of the DCT to seek leave to proceed against the company in liquidation or to employ his enforcement rights under tax legislation (c) When granting or modifying relief under the Model Law, the Court must ensure that the interest of local creditors are protected, and (d) The primary judge had not misapplied the exercise of discretion by making the modification orders because to have found otherwise would have meant that the DCT's rights as a local creditor would have been transformed into a foreign creditor and that as the primary judge permitted the DCT to recover only a pari passu entitlement, the principles of fairness between all creditors was upheld. (a) There was nothing in the Model Law which imported foreign insolvency law into Australia so that domestic tax debts could not be recovered (b) There was no legislative or common law basis which destroyed the rights of the DCT to seek leave to proceed against the company in liquidation or to employ his enforcement rights under tax legislation (c) When granting or modifying relief under the Model Law, the Court must ensure that the interest of local creditors are protected, and (d) The primary judge had not misapplied the exercise of discretion by making the modification orders because to have found otherwise would have meant that the DCT's rights as a local creditor would have been transformed into a foreign creditor and that as the primary judge permitted the DCT to recover only a pari passu entitlement, the principles of fairness between all creditors was upheld. The liquidators sought special leave to appeal the Full Court's decision to the High Court which was heard on 17 October 2014. The Court dismissed the application noting that whilst it was an interesting issue there was nothing to persuade them that the Full Court judgment was attended with sufficient doubt to warrant the granting of special leave.

ATO view of decision:
The Full Federal Court's decision and the subsequent dismissal of the special leave application support the ATO view that Australian Courts have the power to make orders under the Model Law to protect the Commissioner's ability to recover revenue liabilities from assets located in Australia in circumstances where the revenue liability would not be admitted in a foreign liquidation.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | No existing Public Rulings or Determinations are affected by this decision.

Legislative references: Cross-Border Insolvency Act 2008 (Cth)(Model Law) The Act Corporations Act 2001 (Cth) The Act Income Tax Assessment Act 1936 (Cth) The Act Taxation Administration Act 1953 (Cth) The Act Model Law on Cross-Border Insolvency (UNICTRAL, 1997) The Act Companies Law (2011 Revision) (Cayman Islands) The Act
Case references: In re HIH Casualty and General Insurance Ltd [2008] UKHL 21 Rubin v Eurofinances SA [2013] 1 AC 236 Bruton Holdings Pty Ltd (In liquidator) v Commissioner of Taxation [2009] HCA 32 2009 ATC 20-125 (2009) 72 ATR 856 Re Alfred Shaw and Commissioner Ltd Ex parte Mackenzie (1897) 8 QLJ 93 In re Matheson Brothers Ltd (1884) 27 Ch D 225 New Zealand Loan and Mercantile Agency Commissioner v Morrison [1898] AC 349 Primary Producers Bank of Australia v Hughes (1931) 32 SR (NSW) 14 Re Oriental Inland Steam Commissioner (1874) 30 LT 317 (1874) 9 Ch App 557 (on appeal) In re Vocalion (Foreign) Ltd [1932] 2 Ch 196 Re Bank of Credit and Commerce International SA (No 10) [1997] Ch 213 English and Scottish Australian Chartered Bank [1893] 3 Ch 385 In re The Australian Federal Life and General Assurance Commissioner Ltd (in liquidator) [1931] VLR 317 Re ABC Learning Ctrs 3rd Circuit 27 August 2013 Debis Financial Services (Aust) Pty Limited v Allied Bellambi Collieries Pty Limited [1999] NSWSC 935 In Re Atlas Shipping A/S, a Danish Corporation (2009) 404 BR 726 Re Standard Insurance Commissioner Ltd [1968] DqR 118 Selkrig v Davies (1814) 2 Dow 230 In re Dr Jurgen Toft 22 July 2011, United States, Bankruptcy Court for the Southern district of New York Re Sefel Geophysical Ltd ( 7 October 1988) 3542 (AB QB) 70 CBR 9
Subject references: International Cross-Border Insolvency company not a registered foreign company and not amenable to being wound up in Australia joint foreign liquidators sought to transfer funds in Australia to Cayman Islands free of any Australian tax debt whether DCT should be permitted to proceed against the Australian funds subject to equal treatment of other creditors meaning of 'adequate protection' in the Model Law hotchpot and equality