The NSW Court of Appeal has unanimously ordered the continuation of a stay of a winding up in relation to outstanding tax debts.
In June 2013, income tax assessments for the 2008, 2009 and 2010 income years totalling just over $7.1 million were issued to Peter Sleiman Investments Pty Ltd (PS Investments), in its capacity as trustee. PS Investments’ objections were disallowed and the DCT commenced proceedings to recover the outstanding tax and penalties (just over $9.6 million in total), plus interest and costs.
PS Investments held 9 or 10 parcels of land on trust for the Sleiman Family Trust. The assessment is unpaid and is subject to challenge in the AAT, but sustains a judgment debt. After the assessment was issued, PS Investments entered into a series of transactions, known in this litigation as “the restructure”. Central to the restructure was the resettlement of real property assets of the family trust so that PS Investments held them as assets of 9 newly established unit trusts. The consequence was that PS Investments as trustee of the Sleiman Family Trust became owed a debt equivalent, in value, to the agreed value of the properties which had been resettled.
The DCT brought proceedings to:
(i) wind up PS Investments on the basis of the judgment debt and a further unchallenged debt relating to GST, and
(ii) set aside the transaction as an alienation of property with intent to defraud creditors within the meaning of s37A of the Conveyancing Act 1919 (NSW).
For its part, PS Investments sought orders:
(i) declaring that the real property was held on trust for the various unit trusts,
(ii) vesting the real property in new trustees of the unit trusts, and (iii) discharging freezing orders to which it was subject pending the outcome of the proceedings.
The primary judge issued a winding up order (DCT v Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust [2016] NSWSC 1657) but refused to set aside the transaction on the basis that the resettlement did not amount to an “alienation” of property within the meaning of s 37A.
The primary judge refused to make any of the orders sought by PS Investments.
PS Investments appealed, and sought an interlocutory stay of the winding up order, which was granted on terms that the GST debt be paid. That occurred.
In addition to the orders sought before the primary judge, PS Investments sought, in the alternative, an additional order that the winding up be adjourned pending the hearing of proceedings in the AAT, in which it challenged the assessment. The Deputy Commissioner brought a cross-appeal, in which it was argued that the transaction had the effect of destroying the right of indemnity, which PS Investments held over the properties as trustee of the Sleiman Family Trust.
The Court of Appeal said the consequence was said to be that the Deputy Commissioner could no longer be subrogated to the trustee’s lien in respect of the properties, and that therefore the transaction effected an alienation of property with intent to defraud creditors.
After reviewing the matter, the Court of Appeal allowed the appeal in part and dismissed the Commissioner’s cross-appeal. It confirmed the winding up order made on 24 November 2016, subject to the following.
- In the event that the assessments giving rise to the judgment debt on which the winding up order was based are materially varied, or there is other material change in circumstances, then the Court said it would grant liberty to apply, on 3 days’ notice, to the Equity Division to discharge the winding up order or, alternatively, to terminate the winding up.
- The Court also ordered that the existing stay of the winding up order continue until 31 May 2017.
(Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust v DCT [2017] NSWCA 81, NSW Court of Appeal, Beazley P, Leeming JA and Emmett AJA, 18 April 2017.)
[Related Tax Month article; LTN 72, 19/4/17]