An individual taxpayer and related companies have been successful in obtaining a variation to freezing orders under O 37A of the Supreme Court (General Civil Procedure) Rules (Vic) to enable them to mortgage a property subject to the freezing orders as security for a loan of $250,000 to pay legal fees. The Commissioner resisted the application on the basis of his belief that the companies had funds in their own right for this purpose, as evidenced by cash amounts of some $2m flowing from one of the companies into both an interest bearing account held in its name and into the short-term money market.
However, in granting the taxpayers’ application, the Supreme Court of Victoria accepted their explanation that these funds were not the company’s but those of third party investors, and for which the company would be paid a modest brokerage fee for investing the funds on their behalf. This was despite certain inconsistencies with an earlier affidavit given by the taxpayer about the nature of the business activities of the company, and which suggested the company also invested its own funds
Moreover, the Court held that in terms of the basic principles that apply to freezing orders – and particular, the need to allow reasonable access to assets in order to be able to pay legal fees, especially fees associated with litigation in respect of the debt which is the basis of the freezing order – then it was appropriate to grant the variation. In this regard, the Court also noted that the taxpayers were entitled to access any funds of the companies under the existing orders for the purposes of meeting their legal bills.
(DCT v Karas and Ors [2012] VSC 68, Supreme Court of Victoria, Kaye J, 21 February 2012.)
[LTN 41, 1/3]