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) [2013] 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 million.
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 dollar.
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 found:
- 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 interests;
- 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 October.
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.
