The Federal Court recently held that it was appropriate to
use the Model Law implemented under the Cross-Border Insolvency Act
to enable the Commissioner of Taxation to recover funds held in
Australia before remitting them to the Cayman Islands liquidator.
An appeal by the liquidators is pending.
In July this year, Justice Rares delivered his decision in
Ackers (as joint foreign representative) v Saad
Investment;' in the matter of Saad Investments Co Ltd (in
official liq)  FCA 738. Saad was incorporated in the
Cayman Islands and was wound up by the Grand Court of the Cayman
Islands in 2009.
Saad's assets included ASX listed securities worth millions.
Saad was not registered as a foreign company under the
Corporations Act 2001 (Cth) and conducted no business in
Australia. The Commissioner of Taxation was the only Australian
creditor of Saad and had submitted a proof of debt to the
liquidator of Saad in respect of unpaid tax of approximately $83
In October 2010 the Federal Court, on the application of the
liquidators of Saad, made orders recognising the Cayman Islands
liquidation as a foreign main proceeding under Article 17 of the
Model Law. Those orders included orders entrusting the liquidators
in the Cayman Islands with the realisation and distribution of
Saad's Australian assets. The Federal Court also accepted
undertakings from the liquidators not to remit the proceeds of
realisation from Saad's Australian assets without first giving
notice to the Commissioner.
Under Cayman Island law, a foreign tax creditor is not entitled
to distribution from the assets by the liquidator. The Commissioner
therefore, upon receiving notice that the liquidator intended to
remit the assets to the Cayman Islands, applied to vary the 2010
orders to prevent the remittance of until after the Commission had
received a distribution from those proceeds not exceeding the
amount he would have been entitled to receive had the winding up
taken place in Australia.
In October 2012, the Cayman Islands liquidators estimated that
unsecured creditors of Saad would, subject to liquidation expenses
being met, receive a return of 20˘ to 24˘ in the
The application was opposed by the liquidators on a number of
grounds including that:
the Commissioner had no entitlement to the pari passu
distribution of the Australian assets as no Australian Courthad
jurisdiction to wind up Saad;
the principles of modified universalism did not require that
tax liabilities rank equally with other unsecured creditors
The consequence of those arguments, said the liquidators, was
that the interests of creditors and other interested parties
(including Saad itself) would not be adequately protected for the
purposes of Article 22(1) of the Model Law.
In granting the Commissioner's application to modify the
2010 orders Rares J rejected the arguments of the liquidators and
nothing in the Model Law sought to discriminate against the
operation of domestic taxation laws on a debtor's estate before
those assets are remitted to the debtor's centre of main
nothing in the Model Law diminished or denied a state's
right to collect taxation claims;
Saad's unsecured creditors would receive a windfall if the
Australian assets were remitted without the Commissioner being
allowed to prove or being paid his pari passu entitlement in
Australia, which would be contrary to the efficient administration
of Saad's winding up.
The liquidators have lodged a notice of appeal with the Full
Federal Court, and Commissioner has recently lodged a notice of
cross appeal. The matter is listed for directions in late
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This Update highlights two recent cases that considered circumstances where liens could take priority over a registered security interest.
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