FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation; in the matter of James Hardie Australia Finance Pty Ltd (Deregistered) [2008] FCA 1181

SUMMARY

The judgment which this summary accompanies relates to a case of some public interest.  I am providing this brief outline of the reasons for judgment in accordance with a common practice of the Federal Court in such cases.  It must be emphasised, however, that this summary does not form part of my reasons, which are to be found only in the certified copy of the reasons for judgment published today.

James Hardie Australia Finance Pty Ltd (JHAF) was deregistered by the Australian Securities and Investments Commission (ASIC) on 23 August 2005.  It then ceased to exist.  The Deputy Commissioner of Taxation (the Commissioner) has applied to the Court for an order reinstating the registration of JHAF and an order appointing Max Christopher Donnelly of Ferrier Hodgson as liquidator.  Immediately prior to the deregistration, JHAF was in liquidation.

The reason why the Commissioner seeks these orders is to enable him to make an amended assessment of JHAF’s taxable income and tax payable by JHAF for the year ended 31 March 2002.  In order to do so, the Commissioner proposes first to make a determination under s 177F of the Income Tax Assessment Act 1936 (Cth) to the effect that JHAF obtained a tax benefit in connection with a scheme.  The amount of the tax and shortfall penalties (but excluding shortfall interest) has been estimated to exceed $150,000,000.

JHAF was the subject of a members’ winding up, the special resolution for which was passed on 16 September 2003.  At that time, JHAF was a wholly owned subsidiary of James Hardie International Finance BV (JHIFBV), a Netherlands company.  The ultimate holding company was James Hardie Industries NV (JHINV), also a Netherlands company.  John Duncan Green was appointed liquidator.

The Commissioner wishes to have Mr Donnelly investigate, relevantly, certain transactions as a result of which JHAF came to have virtually no property by the time of the winding up.  The first three transactions took place on 1 and 2 November 2001:

·         the issued capital of JHAF was reduced without cancellation of any shares by the payment of $735,000,227 to its then sole shareholder James Hardie Finance BV (JHFBV), another Netherlands subsidiary of JHINV;

·         JHAF paid an unfranked dividend of $316,500,000 to its immediate parent JHFBV.

·         JHFBV contributed all its assets and liabilities to JHIFBV which became, in place of JHFBV, the immediate parent of JHAF.

·         in September 2003, there was a further reduction of the share capital of JHAF without the cancellation of shares, by the payment of $7,608,773 to the then sole shareholder, JHIFBV.

As a result of information received by the Commissioner in 2005 and early 2006 from the United States Internal Revenue Service, the Commissioner came to the view that the transactions mentioned were part of a global “REPO arrangement” and that a determination should be made under s 177F and an amended assessment made in consequence of the determination.

JHFBV, the earlier immediate parent company of JHAF, was itself deregistered and ceased to exist on 31 October 2004.  Accordingly, the Commissioner is not in a position to recover from it any part of the two payments totalling $1,051,500,227 that JHAF paid to JHFBV in early November 2001.  Although the later parent company, JHIFBV, continues to exist, the amount that was paid to it by way of return of capital was only $7,608,773 – a small fraction of the estimated tax liability exceeding $150,000,000.

For the accompanying reasons, however, I have concluded that the Commissioner should have the opportunity of funding investigation of the transactions by a liquidator.

It may be that a liquidator would have a right of recovery against persons or entities other than JHFBV.  The orders sought by the Commissioner will enable him to make the s 177F determination and the amended assessment and to fund a liquidator to carry out investigation as to recoverability.

I have made orders that ASIC reinstate the registration of JHAF and that Mr Donnelly be liquidator.  (Mr Green does not seek to be appointed or object to the appointment of Mr Donnelly.)  It will be for the Commissioner and Mr Donnelly to explore the question of the level of funding required to enable Mr Donnelly to carry out the necessary investigations.

I publish my reasons.

DEPUTY COMMISSIONER OF TAXATION v

JAMES HARDIE AUSTRALIA FINANCE PTY LTD

(DEREGISTERED)

NSD 901 of 2008

LINDGREN J

8 AUGUST 2008

SYDNEY