In the matter of J & Lee Property Investment Group Pty Ltd (in liq)

By Amended Interlocutory Process filed, by leave, on 17 September 2019, the Applicants, Mr Peter Hillig (“Liquidator”) as liquidator of J & Lee Property Investment Group Pty Ltd (in liq) (“Company”) and Messrs Hillig and Smith as joint and several receivers and managers (“Receivers”) of the J & Lee Group Trust (“Trust”) seek a declaration under s 75 of the Supreme Court Act 1970 (NSW) and s 90-15 of the Insolvency Practice Schedule (Corporations) as contained in Sch 2 to the Corporations Act 2001 (Cth) that a statutory charge in favour of the Crown which arose upon the making of the Court orders on 30 October 2015 in other proceedings, number 2010/118966 (“2010 Proceedings”), ceased to have effect upon the commencement of the winding up of the Company. The Respondent to the application was the New South Wales Crime Commission (“Crime Commission”) which put the contrary position that the statutory charge continued in effect after the winding up of the Company.

The Court has power to make declaratory orders under s 75 of the Supreme Court Act, on which the Liquidator and Receivers rely, and in its inherent jurisdiction: McCausland v Surfing Hardware International Holdings Pty Limited (No 2) [2014] NSWSC 163. This application is plainly not purely theoretical, so far as it concerns the continued effect of the statutory charge, and a useful purpose is likely to be served by granting declaratory relief where there is a controversy between the Liquidator and Receivers (and, implicitly, unsecured creditors of the Company in its own right and as trustee of the Trust) and the Crime Commission as to whether the charge has continuing effect. The Liquidator and Receivers also rely on s 90-15 of the Insolvency Practice Schedule (Corporations). This section confers broadly similar powers on the Court to that which it previously had in giving directions to liquidators under former ss 479(3) and 511 of the Corporations Act and similar principles apply to giving such a direction: Re Glengrant Civil Pty Ltd (in liq) [2017] NSWSC 843 at [11]; Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [5]; Re Walley as administrators of Poles and Underground Pty Ltd (admin apptd) [2017] FCA 486 at [41]; Re Reidy; eChoice Ltd (admins apptd) [2017] FCA 1582 at [27].

By way of background, on 30 October 2015, orders were made in the 2010 Proceedings which included a proceeds assessment order under s 27(1) of the Criminal Assets Recovery Act 1990 (NSW) (“CAR Act”) in favour of the Crime Commission against the Company. Order 17, made under s 10A of the Act, restrained the disposal or dealing with specified properties. Order 18 required the Company to pay the Treasurer the amount of $8.5 million and order 19 provided for interest to be payable on that amount from 2 May 2016 under s 101 of the Civil Procedure Act 2005 (NSW). By order 36 of those orders, the Trust guaranteed payment of the proceeds assessment order by the Company. Orders 38 and 39 in turn created a statutory charge in favour of the Crime Commission to secure payment of the amount payable under s 31 of the CAR Act in respect of the Company’s interests in specified properties.

Mr Hillig was appointed as Liquidator of the Company on 13 February 2017 and he and Mr Smith were appointed as receivers and managers of the assets and undertakings of the Trust on 16 August 2017. Two of the properties secured by the Court’s order in the 2010 Proceedings have since been sold, by agreement with the Crime Commission, for a total sale price in excess of $17.5 million and the Liquidator and Receivers hold the substantial bulk of that amount in a term deposit account. A third property remains to be sold.

A controversy has now arisen between the Liquidator and Receivers on the one hand and the Crime Commission on the other as to whether the winding up of the Company affects the continued operation of the charge under s 31 of the CAR Act imposed by the orders in the 2010 Proceedings. The Crime Commission’s position, as set out in letters dated 12 and 25 March 2019 to the solicitor for the Liquidator and Receivers, is that s 31 of the CAR Act charges the interests of the Company against which the proceeds assessment order was made to the extent necessary to secure payment of the assessed amount and that s 31(2)(c) of the CAR Act (to which I refer below) does not terminate the operation of the charge on the winding up of a company, as distinct from the bankruptcy of a natural person under the Bankruptcy Act 1966 (Cth).

The Liquidator and Receivers read paragraphs 45 and 46 of Mr Hillig’s affidavit dated 25 October 2018 which referred to claims that family members of a director of the Company had loaned monies to the Company or the Trust, although those claims had not yet been proved or admitted in the Company’s liquidation, and to Mr Hillig’s views as to the net asset and liability position of the Company and the Trust. The Liquidator and Receivers also read paragraphs 18–28 of Mr Hillig’s affidavit dated 28 June 2019 which referred to the sale of the relevant properties and the amount realised by way of sale proceeds, subject to an amount that will be payable for goods and services tax. The Liquidator and Receivers also read an affidavit dated 15 July 2019 of their solicitor, Hayley Hitch, which set out a chronology of the relevant events on which I have drawn for the account set out above.

The parties were broadly agreed as to the approach to statutory construction which the Court should adopt in dealing with this issue. In CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384 at 408, the High Court observed that:

Mr Golledge, who appears for the Liquidator and Receivers, referred to Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, where the majority of the High Court observed (at [69]) that the primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all of the provisions of the statute; that the meaning of a statutory provision must be determined by reference to the language of the statute viewed as a whole; and that “the process of construction must always begin by examining the context of the provision that is being construed”. The majority then summarised the process of statutory construction (at [78]) as follows:

Mr Golledge also referred to the Court of Appeal’s summary of principles of statutory construction in Taylor v Centennial Newstan Pty Ltd [2009] NSWCA 276; (2009) 76 NSWLR 79 at [36]–[37], where the Court noted that “[a]s a matter of statutory construction the Court is required to give effect to the legislative purpose of Parliament in enacting a statutory provision” and that “[t]his is done through the language used by Parliament”, referring to Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 at [320] and to Project Blue Sky Inc v Australian Broadcasting Authority above at [69]ff.

In Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 at [47], the High Court observed in a joint judgment that:

In Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503 at [39], the joint judgment of the High Court quoted the first sentence of the passage cited above from Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue and again emphasised the primacy of the text in statutory interpretation, observing that:

Similarly, in Certain Lloyd’s Underwriters v Cross [2012] HCA 56; (2012) 248 CLR 378, French CJ and Hayne J observed (at [25]-[26]) that the purpose of a statute resides in its text and structure; that a determination of a statutory purpose does not permit or require a search for what was in the mind of those who promoted or passed the legislation when it was enacted; and the Court must avoid making an a priori assumption about a statute’s purpose in construing it.

Ms Stern and Mr Hume, who appear for the Crime Commission (although only Mr Hume attended and made oral submissions at the hearing) in turn refer to Thiess v Collector of Customs [2014] HCA 12; (2014) 250 CLR 664 at [22]-[23] as authority that the Court must construe a statute by reference to its text, context, purpose and legislative history. The High Court there observed, with reference to Federal Commissioner of Taxation v Consolidated Media Holdings Ltd above at [39], that

The matters raised by the application essentially turn on questions of construction of s 31 of the CAR Act and the Corporations Act, and, in particular, their interaction when a company which is the subject of orders made under the CAR Act is placed in liquidation. I should refer to the structure of the CAR Act before turning to that section.

By way of background, s 3 of the CAR Act describes the principal objects of the Act as follows:

Part 3 Division 2 of the CAR Act deals with proceeds assessment orders and unexplained wealth orders. Section 31 of the CAR Act then relevantly provides that:

The question in contest here is whether the reference to “the bankruptcy of the person” in s 31 of the CAR Act is limited only to a natural person who has been made bankrupt under the Bankruptcy Act or extends to the position where a company is in liquidation under the Corporations Act.

Mr Golledge points out that, once a proceeds assessment order is made under the CAR Act, then all of the person’s assets and property become charged with payment of the statutory debt under s 31(1) of the CAR Act. Mr Golledge submits that that charge is in aid of the objective of debt recovery, having regard to the several circumstances set out in s 31(2) in which that charge ceases to have effect. Mr Golledge rightly submits that attention must be given to the phrase “bankruptcy of the person” which appears in s 31(2)(c) and that neither the term “bankruptcy” or the term “person” is defined in the CAR Act. Mr Golledge also submits that there is nothing in the CAR Act which suggests the reference to “bankruptcy” in s 31 of the CAR Act is intended to pick up the “specialised meaning” which applies under the Bankruptcy Act where a debtor has been made or become a bankrupt by a sequestration order or the acceptance of a debtor’s petition. Mr Golledge submits that the use of that term in s 31 of the CAR Act extends to circumstances where a company’s assets are made available for the benefit of all creditors in a winding up under the Corporations Act. The Crime Commission responds that s 31(2)(c) of the CAR Act has no application where a proceeds assessment order is made against a body corporate and is directed only to the bankruptcy of a natural person.

Mr Golledge points out that the term “person” which appears in s 31 of the CAR Act is defined in s 21(1) of the Interpretation Act 1987 (NSW) in terms which include not only an individual but also a corporation and body corporate. He fairly recognises that some uses of the term “person” in the CAR Act, for example to the imprisonment of a person, only refer to a natural person, but submits that does not mean, or necessarily mean, that term has that limited meaning elsewhere, and also points to several provisions in the Act where the term likely includes a body corporate. I accept that the term “person” in s 31 of the CAR Act would be capable of including a company, but that proposition does not assist the Liquidator and Receivers unless the term “bankruptcy” is also capable of including a winding up of a company.

Ms Stern and Mr Hume in turn point to the statutory history of s 31(2) of the CAR Act, which appears to have developed from a similar provision included in the Customs Act 1901 (Cth) by the Customs Amendment Act 1979 (Cth), which provided for recovery of pecuniary penalties in relation to the import of narcotics. Section 243J of the Customs Act, as amended, relevantly provided that:

Ms Stern and Mr Hume point out that the language of s 243J of the Customs Act was then used in subsequent statutory provisions to similar effect, including ss 50 and 90 of the Proceeds of Crime Act 1987 (Cth), dealing with a pecuniary penalty order and an interstate restraining order respectively, which relevantly provided that the charges created by ss 50(2) and 90(2) of that Act cease to have effect “upon the person becoming bankrupt”. That language was then adopted in s 83 of the Confiscation of Proceeds of Crime Act 1989 (NSW) which provided that a charge created under s 83(1) in respect of an “interstate restraining order” would cease to have effect “on the person becoming a bankrupt”. That section was substantially continued in s 31 of the Drug Trafficking (Civil Proceedings) Act 1990 (NSW), which was subsequently continued as the CAR Act.

Ms Stern and Mr Hume point to the “principal objects” of the CAR Act, to which I have referred above, including enabling recovery of the proceeds of illegal activities as a debt due to the Crown in the specified circumstances, and to the provision for a “proceeds assessment order” made under s 27 of the CAR Act to advance that purpose, which is in turn treated as creating a debt payable by the relevant person to the Crown under s 28C(6) of the Act and as giving rise to the relevant charge over “all the interests of the person in property” under s 31(1) of the Act. They also point out that some assistance as to the purpose of the charge in s 31(1) of the CAR Act can be found in an explanatory note to its predecessor, the Drug Trafficking (Civil Proceedings) Bill 1990 (NSW) which indicated that:

Ms Stern and Mr Hume point out that that explanation treats the relevant charge as continuing until payment, not, by contrast with Mr Golledge’s submission, until the property passes under the control of an independent person. Ms Stern and Mr Hume also point out, and I accept, that the intent of Parliament in enacting s 31 of the CAR Act was at least to give the Treasurer rights ahead of other creditors once a proceeds assessment order was made. That proposition is necessarily implicit in the creation of a charge “to secure” that right, so that the Treasurer ranks in priority to unsecured creditors of that person, subject to the relevant exceptions.

Ms Stern and Mr Hume made very detailed submissions as to the history of insolvency and bankruptcy law. I have had regard to the detail of those submissions, although I summarise them in shorter form here. Ms Stern’s and Mr Hume’s submissions commenced with the general law at 1283 and proceeded through developments in debt collection in the 14th and 15th centuries, before reaching the introduction of the term “bankrupt” in English statute law in 1542 with the passage of An Act against Such Persons as Do Make Bankrupt, 34 & 35 Henry 8 c4, (1542), and then turning to subsequent legislative developments in the late 16th and 17th centuries and the development of the term “insolvency” as referring to writs available against non-trading creditors in the 18th and 19th centuries; for example, An Act for the Relief of Insolvent Debtors in England, 53 Geo 3, c102 (1812) and Insolvent Debtors Act, 5 & 6 Vict, c116 (1842).

Ms Stern and Mr Hume rightly recognise that, until the passage of the Joint Stock Companies Winding-Up Act, 7 & 8 Vic c111 (1844), joint stock companies were not subject to the law of bankruptcy although a member of such a company might become bankrupt, and proceedings for the winding up of a joint stock company would ordinarily proceed in Chancery. The Joint Stock Companies Winding-Up Act introduced (in s 2) the concept of the “bankruptcy” of a joint stock company, as distinct from the bankruptcy of a member of that company on, inter alia, the company’s failure to pay, secure or compound for payment of a judgment debt or failure to comply with a court order for the payment of money or a resolution of the board that the company was unable to meet its engagement. As they point out, the effect of that Act as described by Lord Cranworth LC in Ex Parte Shore; Re Royal British Bank (1857) 26 LJ Bank NS 17 at 20 as follows:

Ms Stern and Mr Hume also point out that, from 1848, the Joint Stock Companies Act, 11 & 12 Vict, c 45 (1848) permitted shareholders in a joint stock company to petition for a winding up of that company in Chancery, with the potential for concurrent proceedings brought by members in Chancery or brought by creditors in bankruptcy. In 1856, the Joint Stock Companies Act, 19 & 20 Vict, c 47 (1856) removed joint stock companies from the scope of bankruptcy laws, including under the 1844 Act and introduced, by s 67, provision for a Court to order the winding up of a company, including when the company was unable to pay its debts. They point out that the Joint Stock Companies Act 1856 therefore ended the relatively brief period in which limited liability companies were subject to a bankruptcy regime which also applied to individuals. They address the further development of winding up regimes through the latter part of the 19th century, but I do not consider it necessary to review that latter history for the purposes of this judgment.

Ms Stern and Mr Hume also point to the absence of a specific bankruptcy law in early colonial New South Wales and until the passage of insolvency legislation commencing with the Insolvency Act 1841 (NSW) which permitted the “partners” of a company to seek sequestration of its estate. The concept of winding up of a company was then introduced by the Companies Act 1874 (NSW) which referred to “bankruptcy” only in relation to the bankruptcy of individuals, and the Bankruptcy Act 1887 (NSW) excluded, by s 109, companies from the bankruptcy laws. The result of that review of the legislative history in New South Wales is that, as Ms Stern and Mr Hume point out, companies have never been subject to “bankruptcy” laws or made “bankrupt” in New South Wales, although there has been provision for a company to be wound up in insolvency. The Commonwealth Parliament was in turn given power to make laws with respect to “bankruptcy and insolvency” by s 51(xvii) of the Constitution, and that power was exercised in respect of bankruptcy when the Bankruptcy Act 1924 (Cth) was introduced.

Mr Golledge in turn submits that the term “bankruptcy” has been used in ordinary English since prior to the enactment of formal insolvency statutes and refers to a formal insolvency administration by which a debtor loses control over his or her assets and they are made available for creditors. He refers to a definition of the term in the Collins English Dictionary as including:

Mr Golledge also refers to the observation of Kekewich J in Re James; Clutterbuck v James (1890) 626 LT 454 at 455 that:

Mr Golledge also draws attention to the decision in Anderson Group Pty Ltd (in liq) v Davies [2001] NSWSC 356; (2001) 53 NSWLR 401, where Barrett J considered whether the phrase “bankruptcy of any partner” in s 33(1) of the Partnership Act 1892 (NSW) extended to the bankruptcy of a partner who was a body corporate. His Honour did not there reason that the term “bankruptcy” could not have extended to the winding up of a company which was a partner, but held that it did not do so in the particular circumstances, pointing to the distinction that the property of a company in winding up was not divested in the manner that the property of a natural person was divested in bankruptcy. That decision is not authority that the term “bankruptcy” can extend to a company, but a case where the general law assisted in the resolution of the question.

Mr Golledge also referred to case law, of which there is some, which adopts the term “bankrupt” or “bankruptcy” in reference to a company. In particular, the term “bankruptcy” was used with reference to a company in McTiernan J’s judgment in Hooker-Rex Pty Ltd v Commissioner of Taxation (1969-70) 123 CLR 71 at 85, where his Honour referred to Counsel’s submission as to the purpose of using a “bankrupt” company in land dealings. His Honour placed the term “bankrupt” in quotation marks, perhaps recognising that the usage was that adopted by Counsel or was, in its context, referring to a company in financial difficulty rather than one in insolvency administration. In Re Karaganison (Construction) Pty Ltd [1982] Qd R 695; (1982) 6 ACLR 627 at 705, McPherson J (who had, of course, substantial expertise in the law of insolvency) compared the examination regimes applicable to an individual as a bankrupt and as an officer or director of a “bankrupt company”. In Pickles v Gratzon [2002] NSWSC 688; (2002) 55 NSWLR 533 at [92], O’Keefe J noted that “it is common at the examination of company directors and officers of bankrupt companies in Australia that there be representation of witnesses”. That observation does appear to adopt the concept of bankruptcy in respect of an insolvent company. In Crane Distribution Ltd v Hunter [2003] NSWSC 120 at [30]–[31], Dowd J, in referring to proceedings in the Local Court, noted that the defendant had admitted “indebtedness by the bankrupt company in an amount” and referred to an “admission by a director that a bankrupt company owed the debt.” It is not clear whether his Honour is there approving, or merely quoting, the concept of a “bankrupt company” as used in the Court below.

There are other decisions which clearly distinguish between the concept of bankruptcy, used in respect of an individual, and the insolvency of a corporation. For example, in New South Wales v Commonwealth (Work Choices Case) [2006] HCA 52; (2006) 229 CLR 1 at [848]–[849], to which Ms Stern and Mr Hume referred, Callinan J (citing I Fletcher, The Law of Insolvency (Sweet & Maxwell, 3rd ed, 2002) at 13 [1–022]) observed that:

Ms Stern and Mr Hume in turn refer to the recognition of the distinction between the insolvency of a company and the bankruptcy of an individual in the Law Reform Commission, General Insolvency Inquiry (Australian Government Publishing Service, 1988) (“Harmer Report”) (at Vol 1, 11 [20]) as follows:

Mr Golledge seeks to identify a rationale for an exclusion of property under the control of a liquidator under s 31 of the CAR Act as follows:

It seems to me that the policy for which Mr Golledge contends, while plausible, does not find any support in the terms of s 31 of the CAR Act. With respect, it seems to me that Mr Golledge finds that policy outside the terms of the section, and he then seeks to read that section in the light of that external policy. It does not seem to me that that approach is open to me, having regard to the case law as to statutory construction to which I have referred above. Mr Golledge also submits that it is incomprehensible that Parliament would seek to have the statutory charge in s 31 of the CAR Act operate differently depending upon whether the “person” which was the subject of a proceeds assessment order or unexplained wealth order was a corporate entity rather than an individual. He asks, rhetorically, why Parliament would have such an intent? It seems that approach also relies on an assumption external to the terms of the CAR Act, namely that Parliament ought to treat bankruptcy and winding up similarly in this context. Again, it seems to me that the terms of s 31 of the CAR Act or that Act generally do not support such an assumption, and it would be open to Parliament to choose to extend an indulgence to the creditors of natural persons that it does not choose to extend to the creditors of a company. I more readily reach that view where there are a range of other differences of substance between the regime for winding up of companies and the regime for bankruptcy of natural persons, including, for example, the vesting of property of a natural person in the trustee in bankruptcy, by contrast with the approach adopted in winding up. Mr Golledge points out that that approach for which the Crime Commission contends could result in different outcomes for creditors of the debtor, depending on whether the debtor is a natural person or a company. While I also accept that proposition, it again assumes that such creditors should obtain similar outcomes in two different situations.

Ms Stern and Mr Hume developed an elaborate written submission, which was in turn advanced orally by Mr Hume at the hearing, to seek to support a policy that an exception from the charge under the CAR Act should be available only in respect of bankruptcy and not in respect of the winding up of a company. That submission relied on s 58A(1) of the Bankruptcy Act, inserted into the Bankruptcy Act in 2002, which has the result that property of a bankrupt does not vest in the trustee in bankruptcy if that property is covered by a forfeiture order made before the date of the bankruptcy. That submission in turn raised a question whether s 31 of the CAR Act could properly be characterised as a “forfeiture order made under a proceeds of crime law” for the purposes of the definition in s 5(1) of the Bankruptcy Act, and whether a provision inserted in the Bankruptcy Act some years later can provide assistance as to the proper construction of s 31 of the CAR Act. I am not persuaded that the creation of a charge under s 31 of the CAR Act can properly be characterised as a “forfeiture order”, where it does not in fact bring about a forfeiture of property, and can be removed, for example, by payment of the relevant amount. The explanation of the policy advanced by Ms Stern and Mr Hume therefore fails, and it is not necessary to address the timing difficulties that might otherwise have arisen in respect of that explanation.

It seems to me that the Crime Commission’s submission must be accepted, perhaps on a rather simpler basis than it was put. As Ms Stern and Mr Hume point out, the term “bankruptcy” has had an established meaning in Anglo-Australian law, to refer to a status which a natural person can have and a company cannot have since the mid-nineteenth century. It seems to me that the use of the term “bankruptcy” in s 31(2) of the CAR Act and the several provisions which preceded it adopt that well-established legal meaning, rather than any wider colloquial usage.

That approach may reflect a legislative focus on the position of the bankruptcy of a natural person, which would not be surprising where the legislation may well be more often applied to activities of natural persons than to those of companies. That approach may also reflect a policy that an exception should be available for natural persons, which was not extended to companies, for reasons that are not apparent. While Mr Golledge advances a normative proposition that companies and natural persons, and their creditors, should not be treated differently in this context, the legislation itself does not provide any support for that normative proposition, or that a concession available to a bankrupt natural person or his or her creditors in this context should also be available for a company or its creditors. While the legislature could have taken that view, it could also have taken the view that it preferred the public interest in the recovery of the proceeds of criminal activity in respect of companies to the interests of the creditors of such companies. The latter view would be consistent with the scope of that exception in s 31(2) of the CAR Act, read by reference to the established usage of the term “bankrupt”.

A further consideration provides strong support for this conclusion. Ms Stern and Mr Hume also point out that, if the view put by Mr Golledge were correct, there would be substantial uncertainty as to the scope of the exception available under s 31(2) of the CAR Act on the “bankruptcy” (when read as meaning winding up or liquidation) of a company. The terms of that exception would then provide no guidance as to whether and when it would apply to a company in a members’ voluntary winding up that was in fact insolvent but had not yet transitioned to a creditors’ voluntary winding up; or to a company in a creditors’ voluntary winding up; or only to a company in a Court-ordered winding up on the basis of insolvency; or, indeed, whether it would also apply to a company that was wound up by the Court on, for example, the just and equitable ground, but was in fact insolvent at the time it was wound up. It seems to me that, if the legislature had intended the exception in s 31(2) of the CAR Act to extend to companies in winding up or in liquidation, then it would have defined which companies in winding up fell within that categorisation and when they did so.

For all these reasons, I am not persuaded that I can or should give a direction in the form sought by the Liquidator and Receivers. It is likely to be desirable, in these circumstances, to give a contrary direction so that the Liquidator and Receivers have clarity that they are justified in proceeding on the basis for which the Crime Commission contends. I will hear the parties in that regard.