The NSW Supreme Court has ordered that a company with a significant tax debt be wound up.
PSI Pty Ltd was the trustee of a discretionary family trust (SFT). The primary beneficiary of the trust was PS (also the appointor).
In July 2014, the DCT obtained a default judgment against the Trustee (PSI) for income tax assessed to the Trust of just over $7.1m, although proceedings to review the assessments were pending (under Pt IVC TAA).
The Trustee also owed just under $100,000 in GST, but it never lodged an objection against the relevant amended GST assessment.
Earlier, in late 2013, the Trust’s (SFT’s) property holdings were restructured, purportedly “to reduce the incidence of land tax attaching to the properties”.
- The restructure involved the creation of 9 separate unit trusts, declarations of trust by PSI that it held one property on trust for each unit trust and then the sale of that particular property to the relevant unit trust.
- The consideration for the sale consisted of units in the unit trust and money.
- The restructure also involved a payment of $2.9m to PSI, which it used to repay beneficiary loans.
The NSW Supreme Court initially decided that the declarations of trust executed by PSI did not constitute an “alienation of property” in terms of s37A of the Conveyancing Act 1919 (NSW) and therefore could not be set aside.
However, the Court went on to order that PSI be wound up on grounds of insolvency, notwithstanding that PSI’s challenge to the income tax assessments had not been finalised.
The Court refused to delay the order as PSI failed to establish that it had a reasonably arguable case and that the adjournment of the winding up would not prejudice the collection of revenue.
(DCT v Peter Sleiman Investments Pty Ltd as trustee for the Sleiman FamilyTrust [2016] NSWSC 1657, Supreme Court of NSW (Equity Division), Black J, 24 November 2016.)
[LTN 232, 30/9/16]
Catchwords from the NSWSC decision
PROPERTY — Alienation of property — where defendant was corporate trustee that held properties on trust for a discretionary trust – where defendant as trustee of the discretionary trust had significant tax debts – where defendant executed declarations of trust by which it declared it held the relevant properties on trust for certain land tax unit trusts and the defendant received units in the unit trusts – where defendant as trustee of discretionary trust redeemed units for cash and subsequently paid monies to a third party – where Australian Taxation Office alleged declarations of trust were void under s 37A of the Conveyancing Act 1919 (NSW) – whether there was intent to defraud creditors – whether declarations of trust constituted an “alienation of property” in the relevant circumstances.
EQUITY – Declaratory relief – where corporate trustee sought declarations from the Court that it holds each of the relevant properties on trust for the land tax unit trusts free from any interest in favour of the corporate trustee as trustee of the discretionary trust – whether declarations sought inconsistent with corporate trustee’s right of indemnity over trust assets – where liquidator to be appointed to corporate trustee may have grounds to set aside transactions – whether declarations should be made.
TRUSTS AND TRUSTEES — Corporate trustee in liquidation — where corporate trustee sought orders under s 70 of the Trustee Act 1925 (NSW) removing it as trustee of certain land tax unit trusts and appointing other corporate trustees in its place – whether orders ought be made.
CORPORATIONS — Winding up — where Australian Taxation Office (“ATO”) applied to wind up company in circumstances where there was a debt in respect of GST liability and a judgment debt against company in respect of other tax debts – where company applied to the Administrative Appeals Tribunal (“AAT”) to review the ATO’s decision to reject the company’s objection to taxation assessments – where no evidence of substance adduced as to likelihood of success of AAT proceedings – whether company is insolvent – whether winding up orders ought be made.