15 May 14 Cross-border insolvency: Deputy Commissioner can proceed against funds in Australia - Saad Investments Co Ltd
The Full Court of the Federal Court has held that a Deputy Commissioner of Taxation is free to proceed, for Australian tax debts and penalties, against funds held in Australia by a foreign-resident company which is being wound up in its home jurisdiction. The Deputy Commissioner is not debarred from enforcing the tax debt by the provisions of cross-border insolvency laws.
Saad Investments Company Limited was incorporated in the Cayman Islands. The company was a private investment company involved in money market operations and investments in marketable securities and real estate in various locations around the world. Prior to August 2008, the company held shares in a number of publicly listed Australian companies. In 2008, the company sold shares which it held in an Australian company. The Deputy Commissioner took the view that this transaction gave rise to a taxable capital profit in Australia, and issued a default assessment for tax and penalties.
Saad Investments went into liquidation in its home jurisdiction, the Cayman Islands. The problem for the Deputy Commissioner was that Saad Investments was not a registered foreign company in Australia, did not carry on business in Australia, and could not be wound up by an Australian court under the Corporations Act 2001 (Cth). The Cayman Islands winding up was recognised as the foreign main proceedings, and the foreign liquidators sought transfer of funds in Australia to the Cayman Islands free of any claim of the Deputy Commissioner. The question was whether, under the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law, which is made part of Australian law by the Cross-Border Insolvency Act 2008 (Cth), the court should refuse to remit the remaining funds in Australia (in the order of $7 million) to the Cayman Islands, and permit the Deputy Commissioner to proceed against the funds within Australia for the claimed tax and penalties.
At first instance in the Federal Court a judge made orders granting leave to the Deputy Commissioner to exercise his rights to recover from the company’s assets in Australia in respect of any taxation debt owed by the company.
The Full Court unanimously dismissed an appeal by the foreign representatives. Allsop CJ said:
“I am prepared to accept that formal submission of a proof of debt to the insolvency administration will generally be adequate to support a conclusion that the court supervising the administration thereafter has jurisdiction to make orders in matters connected with the administration against the creditor who has proved. Such a conclusion does not, however, answer the question whether, as a matter of law and discretion, a court should not make orders under Art 20.3 and 22.3 [of the Model Law] to protect local creditors in circumstances where the local creditor has lodged a proof of debt in the foreign main proceeding. There is no evident principle that, by the minimum act of submission to the foreign court supervising the foreign main proceeding, such as by the submission of a proof of debt, exclusive jurisdiction is placed in the hands of that court in respect of all possible issues concerning the insolvency, or that the local creditor becomes disentitled to make an application of the kind with which the Court is concerned. The Model Law assumes complementary authority of the local court and the court supervising the foreign main proceeding. No provision of the Model Law denies that complementary authority by reason only of lodgement of a proof in the Cayman Islands.”
De Akers as a joint foreign representative of Saad Investments Company Limited (in Official Liquidation) v DCT  FCAFC 57 (Federal Court, Allsop CJ, Robertson and Griffiths JJ, 14 May 2014).