Federal Court of Australia

Heesh, in the matter of Australian Bullion Company (Jewellery) Pty Ltd (in liq) [2025] FCA 571

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 477(2B) of the Corporations Act 2001 (Cth), leave be granted to the First Plaintiff, as the Liquidator of the Second Plaintiff, to enter into an agreement titled “Deed of Agreement & Indemnity” dated 27 March 2023 with Pallion Group Pty Ltd (ACN 602 662 322).

2.    Costs of this application be costs in the liquidation of the Second Plaintiff.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

CHEESEMAN J:

INTRODUCTION

1    The First Plaintiff, Timothy Paul Heesh, as the Liquidator of the Second Plaintiff, Australian Bullion Company (Jewellery) Pty Ltd (in liquidation), seeks approval nunc pro tunc pursuant to s 477(2B) of the Corporations Act 2001 (Cth), to enter into a Funding Agreement with Pallion Group Pty Ltd (ACN 602 662 322) (the Funder) dated 27 March 2023 on behalf of Australian Bullion.

2    There is a close association between Australian Bullion and the Funder in that the two entities have some common directors and shareholders. There are also personal and familial relationships between the directors and shareholders of the two entities. In addition, the Funder has agreed to and is funding the Liquidator’s costs in the liquidation of Australian Bullion, and other of its related companies. The application for approval was lodged almost a year after the Liquidator caused Australian Bullion to enter into the Funding Agreement.

3    The application has been listed for hearing twice. On the first occasion the matter was listed, the Liquidator did not lead any evidence going to the basis upon which he had formed the view that the proceeding the subject of the Funding Agreement “had merit” and was “not frivolous or vexatious”. The Funding Agreement included a provision for the payment of a success fee of $250,000. The Liquidator did not address in his evidence why such a term was appropriate. The evidence relied on by the Liquidator was opaque in relation to an earlier agreement with the Funder whereby the Funder agreed to pay the Liquidator’s costs. The Liquidator did not disclose how much he had invoiced the Funder under this earlier arrangement or how much he had been paid. Having raised concerns in relation to each of these matters, I adjourned the hearing to enable the Liquidator to lead additional evidence. The hearing resumed after further evidence was filed. Following that hearing, the Liquidator was granted leave to file brief additional submissions, which were subsequently provided. The proceeding was thereafter determined on the papers. For reasons that will become apparent, the prosecution of the proceeding which is the primary focus of the funding to be provided under the Funding Agreement is in effect in abeyance pending the determination of similar issues in other proceedings.

4    The sole creditor of Australian Bullion is the Australian Taxation Office (ATO). The debt claimed by the Deputy Commissioner of Taxation (DCT) is $136 million pursuant to amended assessment notices and penalty assessment notices for the tax periods 1 July 2011 to 30 June 2014 and 1 July 2016 to 30 July 2016.

5    The DCT was represented by counsel on this application as an interested party. The DCT did not oppose the application but took the stance that there were a number of matters which should be drawn to the Court’s attention. Those matters largely coincided with the matters I raised at the initial hearing.

EVIDENCE

6    In support of the application, the Liquidator relies on the following evidence:

(1)    the first affidavit of Mr Heesh sworn on 25 March 2024 (First Heesh Affidavit), together with exhibit TPH-1 and exhibit TPH-2;

(2)    the second affidavit of Mr Heesh sworn on 25 June 2024 (Second Heesh Affidavit);

(3)    the third affidavit of Mr Heesh sworn on 18 July 2024 (Third Heesh Affidavit), together with privileged and confidential exhibit TPH-3;

(4)    the first affidavit of Jeremy Terence Mackenzie sworn on 29 April 2024; and

(5)    the second affidavit of Mr Mackenzie sworn on 19 July 2024, together with privileged and confidential exhibit JTM-1.

7    I note that exhibit TPH-2 contains a copy of the Funding Agreement and was initially described as a confidential exhibit. At the commencement of the hearing, the claim for confidentiality was no longer pressed on the basis that, following consideration and discussion, the Funding Agreement had been disclosed in its entirety to the ATO.

8    Exhibit TPH-3 and exhibit JTM-1 are marked as privileged and confidential on the basis that they each contain the content of legal advice received by the Liquidator in respect of the merits of the pending proceedings described within. On 1 August 2024, I made orders pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) that exhibit TPH-3 and exhibit JTM-1 be suppressed and kept confidential until further order of the Court.

9    The Liquidator relied on submissions filed on 29 April 2024 and supplementary submissions filed on 18 July 2024 addressing the issues outlined in the Liquidator’s further evidence. The Liquidator also relies on further confidential submissions dated 6 August 2024 addressing the matters considered by the Liquidator in forming his opinion in relation to prospects. On 12 August 2024, I made orders pursuant to s 37AF of the FCA Act that the further confidential submissions and its attachments be suppressed and kept confidential until further order of the Court. The DCT relied on submissions filed on 25 July 2024.

BACKGROUND

10    Australian Bullion was a wholesale distributor of jewellery, precious metals and stones. It was incorporated on 1 November 1985. The Liquidator submits that the Funder is the largest precious metal services group in Australasia and that it conducts various businesses involved in the design, manufacture and distribution of precious metal products. As mentioned, there is a close association between Australian Bullion and the Funder.

11    By way of overview, Australian Bullion is one of a number of companies each of which is involved in litigation with the ATO concerning dealings involving gold bullion and the applicability of Division 165 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act). The progress of Australian Bullion’s dispute with the ATO is being managed to accommodate the determination of similar GST issues arising in a like context in other cases, which are more advanced than the Australian Bullion proceeding.

Australian Bullion’s tax issues

12    On 13 March 2018, the ATO issued amended assessment notices and penalty assessment notices to Australian Bullion, totalling approximately $136 million for the tax periods from 1 July 2011 to 30 June 2014 and 1 July 2016 to 30 July 2016.

13    On 8 May 2018, Australian Bullion lodged an objection to the assessments and two days later entered into voluntary liquidation.

14    On 14 October 2022, the objection was rejected by the DCT. In rejecting the objections made by Australian Bullion, the DCT concluded that:

(1)    Australian Bullion engaged in sham transactions as part of its gold trading arrangement in order to improperly claim input tax credits; or

(2)    alternatively, Australian Bullion’s supplies were not GST-free exports and therefore Australian Bullion had failed to remit GST on taxable supplies.

15    As mentioned, it appears that the ATO is the sole creditor of Australian Bullion.

Voluntary Liquidation

16    On 10 May 2018, Mr Heesh was appointed as liquidator of Australian Bullion by way of creditors’ voluntary liquidation. The Liquidator describes himself as a registered liquidator. He has not provided any direct evidence as to his experience as a liquidator. Instead, the Liquidator has made bare submissions to the effect that his own experience provided a reasonable foundation for the formation of his opinion. In the usual course in an application such as this where the Court is being asked to grant an approval informed in part by the considered views of the liquidator based on the liquidator’s experience, in relation to the entry into the Funding Agreement, I would expect such evidence to be led.

17    Prior to his appointment, the Liquidator’s evidence is that the Funder had agreed to meet his costs in the liquidation of Australian Bullion. The Liquidator disclosed this in the Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) that he completed, which was tendered and formed part of Exhibit 1. On 22 May 2018, the Liquidator stated that he was “also in the process of entering into a funding agreement with Pallion Group Proprietary Limited for the payment of fees and costs relating to the appointment. However, the agreement is yet to be finalised”. The Liquidator’s evidence on this application is that the agreement made with the Funder in 2018 was not reduced to writing. The Liquidator further deposes that over the period since his appointment, he has issued invoices to the Funder which have been paid by the Funder. The Liquidator has chosen to place only one such invoice in evidence. The Liquidator distinguishes between the 2018 agreement and the present Funding Agreement on the basis that the 2018 agreement was an agreement by the Funder to meet the Liquidator’s costs whereas the Funding Agreement is an agreement for the Funder to meet the company’s costs.

The AAT Proceeding

18    On 8 December 2022, the Liquidator lodged an application for merits review by the Administrative Appeals Tribunal (AAT) of the DCT’s decision (AAT Proceeding). In the Liquidator’s opinion, if the assessments are overturned, Australian Bullion will not be insolvent and may seek to have the liquidation terminated.

19    On 27 March 2023, the Funding Agreement that is the subject of the present application was entered into by the Liquidator, on behalf of Australian Bullion, with the Funder.

20    The preamble to the Funding Agreement describes the Liquidator’s role, including with respect to investigating the legitimacy of the ATO Liabilities that place, or potentially place, the ATO as a, if not the, major creditor of Australian Bullion. “ATO Liabilities” is defined as “the Division 165 Assessment”. “Division 165 Assessment” is defined as “the taxation assessment issued by the ATO to the Company on 13 March 2018 for $71,987,990.00 in Shortfall Tax and $64,517,887.95 in penalties”.

21    In the Liquidator’s view, Australian Bullion did not itself have available funds to initiate such an investigation. The Liquidator sought funding and a guarantee that creditors would not be affected by any adverse finding, including for example any costs orders. The Funder agreed to provide the necessary funding and resources for the Liquidator to investigate and/or challenge the ATO Liabilities. The Funder also agreed to provide an indemnity to the Liquidator in relation to any ATO Liabilities that may be incurred as a result of the investigation.

22    In addition to the expenses and liabilities, the Funder agreed to pay $250,000 “on a Successful Outcome” to a defined bank account held by in the name of “Australian Bullion Company (Jewellery) Pty Limited (In Liquidation)” (Success Fee): cl 2(c). “Successful Outcome” is defined as “a reduction in [Australian Bullion’s] liability to the ATO under the ATO Liabilities upon a finding made by a court or tribunal or by agreement with the ATO”. There is no mention of the payment of a Success Fee in the preamble to the Funding Agreement.

23    Pausing here, I note that any reduction in the ATO Liabilities, whether achieved by a determination by a court or tribunal or by a settlement, will trigger the payment of the whole of the Success Fee to the bank account of Australian Bullion. The amount of the Success Fee that is payable if triggered is not scaled relative to the amount of the reduction in the ATO Liabilities. The definition of Successful Outcome is absolute in this way – the Success Fee will be payable in full or not at all.

24    The following clauses of the Funding Agreement relate to the independence of the Liquidator. Clause 4 provides an indemnity to Australian Bullion and the Liquidator. Clause 5 provides that the indemnity is continuing and “will not be discharged by the payment at any time of any money on account or by any concession given by the Parties to [Australian Bullion], the Liquidator, or a third party, or for any other reason”. “Parties” is defined as the Liquidator and the Funder. Clause 6 is an acknowledgment and agreement by the Funder that expenses and liabilities, which are broadly defined in the Funding Agreement, will be incurred at the Liquidator’s sole discretion (cl 6(a)), that the Funder is prohibited from and must not require review or seek an assessment of expenses or liabilities (cl 6(b)), and that the Liquidator has complete control of the investigation and all associated processes (cl 6(c)). Clause 6(c) also provides that all instructions provided by the Liquidator must be followed and the Liquidator holds absolute and final discretion on all decisions, including in relation to the choice of solicitors and counsel, experts, evidence and whether to stay, dismiss or discontinue a proceeding commenced in relation to the ATO Liabilities.

Related Proceedings

25    This application and the Liquidator’s conduct is informed by two related proceedings ⸻ HNMF v The Commissioner of Taxation [2023] AATA 4067 and ACN 607537548 Pty Ltd v The Commission of Taxation (ACN 607 537 548) (together, the Related Proceedings).

26    The first proceeding, HNMF, was determined by the AAT. This decision concerned similar issues to the AAT Proceeding regarding the applicability of the GST Act.

27    On 30 November 2023, the AAT found in favour of HNMF. The decision is the subject of an appeal to this Court.

28    The second proceeding, ACN 607 537 548, is a proceeding in this Court between another corporate taxpayer and the DCT. ACN 607 537 548 was heard in June 2024 around the same time as this proceeding. That proceeding is said to involve materially similar transactions to the Australian Bullion transactions the subject of the AAT Proceeding.

29    The AAT Proceeding has been timetabled to follow delivery of the decisions in the Related Proceedings because of the similarities between the issues concerning the application of the relevant GST regime. The Liquidator approached this application on the basis that the AAT Proceeding was effectively, but not formally, stayed pending the resolution of the Related Proceedings. The AAT Proceeding was timetabled to facilitate any substantive steps being taken after the Related Proceedings are completed. The Liquidator confirmed that the corporate taxpayers in the Related Proceedings are not related to Australian Bullion. They were, however, previously controlled by the Funder.

LEGAL PRINCIPLES

30    The principles concerning the application of s 477(2B) are well-established and have been set out in many cases including One.Tel Limited [2014] NSWSC 457; 99 ACSR 247; Stewart, Re; Newtronics Pty Ltd [2007] FCA 1375; Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755 at [21]-[27]; Pinnacle Fire Protection Pty Ltd (in liq) v Woods [2021] FCA 1402; 157 ACSR 217 at [13] to [15]; and Naidenov, in the matter of AJW Interiors and Constructions Pty Ltd (in liq) [2024] FCA 25 at [83]. I adopt and apply those principles.

31    I also have had regard to the considerations which I outlined in Naidenov at [88]-[92] which are particularly relevant to this application given the Liquidator’s delay in bringing this application, the opacity of the evidence led on the application and the necessity for the Court to interrogate the Liquidator to elucidate the issues about which the Liquidator should have been forthcoming from the outset.

CONSIDERATION

32    The Court’s approval is necessary under s 477(2B) because the Funding Agreement will operate for more than three months. It had already been on foot for over a year when approval was sought.

33    The powers under s 477(2B) are directed to promoting the interests served by the liquidation regime including those of creditors, not the exercise of disciplinary functions over liquidators: Re Dudley (as liquidator of Freshwater Bay Investments Pty Ltd (in liq) (ACN 105 274 226)) [2021] FCA 608; 152 ACSR 532 at [8]. However, the Court will be hesitant to grant approval nunc pro tunc, or at all, where there is some substantial delay in seeking approval which is not adequately explained.

34    The proper course is for a liquidator to seek approval in advance of entering into agreement to which s 477(2B) applies. The Liquidator accepts that he did not seek the approval of the Court prior to entering into the Funding Agreement and that there has been a period of delay of one year in seeking approval. In addition, the course taken in prosecuting this application was unnecessarily protracted as a result of the material gaps in the Liquidator’s evidence, which required substantive supplementation.

35    The Liquidator submits that there has been no protraction of the liquidation by reason of his delay because the progression of the Australian Bullion litigation is delayed for other reasons. That may be so, but it is not for the Liquidator to impose his own decision for that of the creditors or the Court as is required by s 477(2B).

36    It was put on behalf of the Liquidator that he has been candid and fulsome in his explanation for the delay. That is an overstatement. I do, however, accept that the Liquidator has now provided an explanation for his delay in seeking the requisite approval. In short, the delay was caused by the Liquidator’s fundamental misapprehension of his obligation to obtain approval under s 477(2B), as well as by his readiness to adopt a “wait and see” approach over a prolonged period, well after the Funding Agreement had been executed in circumstances where it was clear that it would in all likelihood continue in operation for over three months and that approval in one guise or another was required.

37    The Liquidator’s evidence is that he believed there was urgency regarding entry into the Funding Agreement due to the possibility of a resolution being reached between the DCT and the Funder with respect to various proceedings, including the AAT Proceeding and the Related Proceedings. To date, none of the proceedings have resolved. The Liquidator deposes that once it became clear to him in around May 2023 that no resolution would be reached in the AAT Proceeding, he gave instructions for steps to be taken to contact the ATO in order to have a resolution under s 477(2B) put before the creditors. The Liquidator’s efforts in this regard miscarried because his solicitors’ attempts to email the ATO on 29 May 2023 and 9 June 2023 were sent to the incorrect email address and the ATO did not receive the emails. This error was rectified by further correspondence sent in April 2024.

38    The Liquidator deposes that he regarded entering into the Funding Agreement to be justified on the basis that:

(1)    there was no other creditor willing to fund an investigation or challenge the assessment as the ATO was the sole creditor;

(2)    he was unable to find any alternative funding options;

(3)    the AAT Proceeding may have significant ramifications for Australian Bullion if the assessments are overturned and the company can be taken out of external administration; and

(4)    the Funding Agreement does not impede his ability to investigate or examine the circumstances that precipitated the liquidation because under the Funding Agreement he retains complete control of the investigation and all associated processes.

39    The Liquidator has now placed evidence before the Court as to the basis for his view that it is reasonable for Australian Bullion to continue the AAT Proceeding. The Liquidator first relies on his own experience. I repeat my earlier observation as to the paucity of the evidence led to give the Court comfort in this regard. The Liquidator next relies on the legal advice that he received, and which was belatedly introduced into evidence. That evidence is confidential and privileged. On the basis of the advice that the Liquidator received and the pivotal impact that the debt claimed by the DCT has on the future of the company, I accept that the Liquidator has now exposed in evidence that he has a reasonable basis for concluding that entry into the Funding Agreement is in the interests of the company, notwithstanding that the company’s only known creditor is the ATO. In reaching this conclusion, I have relied on the fact that the Liquidator is a registered liquidator. I would have been assisted by evidence as to the Liquidator’s experience that was relevant to the circumstances of this application and which he said informed his views in relation to the entry into the Funding Agreement. Evidence of that nature should in the ordinary course be led on an application such as this. Regrettably, here it was not. I am, however, satisfied on the basis of the privileged and confidential evidence that the relevant proceeding is not frivolous or lacking in merit in the requisite sense.

40    In his third affidavit, the Liquidator deposed that the Funder offered to include the Success Fee in the Funding Agreement. Based on legal advice and his own experience as a liquidator, the Liquidator is of the opinion that the Success Fee does not represent a conflict for him in the execution of his duties as liquidator and would have no bearing on how the liquidation will be conducted. The Liquidator further opines that the Success Fee will not disadvantage the ATO if it ultimately prevails as a creditor of Australian Bullion. The Liquidator submits that he holds a duty of independence to all parties with interests in the winding up of Australian Bullion, including members, shareholders and creditors. The Liquidator further submits that:

(1)    in the event Australian Bullion’s ATO Liabilities are not reduced, then the Success Fee is not payable;

(2)    if the outcome of the AAT Proceeding results in the ATO Liabilities being reduced to nil, then the ATO is not a creditor and the Success Fee will accrue to Australian Bullion whether in its liquidation or in the ordinary course if Australian Bullion comes out of liquidation; and

(3)    if the outcome of the AAT Proceeding results in a lesser reduction in Australian Bullion’s ATO Liabilities such that the ATO remains a creditor and the liquidation of Australian Bullion proceeds, the Success Fee increases the assets of Australian Bullion available for distribution.

41    On the face of the Funding Agreement, it is completely silent as to the manner in which the Success Fee is to be applied or for whose benefit it is paid. The Funding Agreement establishes an unconditional obligation to pay the Success Fee in full upon a Successful Outcome being achieved. The payment of the Success Fee if triggered is to be paid into a designated account that bears the name of the company in liquidation. That is as far as the Funding Agreement takes it. In the privileged and confidential advice tendered on this application, there appears to have been an assumption made when the Funding Agreement was being negotiated that the Success Fee would be payable to the Liquidator per se. The terms of the Funding Agreement as executed do not provide for the Success Fee to be payable to the Liquidator as opposed to the company. When I raised concerns regarding the potential for the Success Fee to compromise his independence, the Liquidator did not submit that the effect of the Funding Agreement was that he was entitled to the Success Fee. On the proper construction of the Funding Agreement, the Success Fee if paid is to be treated as an asset of the company. If Australian Bullion continues in liquidation, then the Success Fee would fall to be applied by the Liquidator as part of the assets of the company. If Australian Bullion is taken out of liquidation, then it would be a matter for the company as to how the Success Fee is applied. One of the later waves of evidence and submissions of the Liquidator was advanced on this basis. Understood in this way, the Success Fee may ultimately benefit the ATO as the sole creditor of the company because it is triggered and payable in full by even a minor reduction in the ATO Liabilities. Although the gaps in the Liquidator’s evidence were initially of concern, I do not regard the inclusion of the Success Fee as being decisive in relation to whether the Funding Agreement should be approved.

42    Taking all of the above into account and notwithstanding my initial concern about whether the Success Fee was being paid to the Liquidator and as such may have compromised his independence, I am satisfied that the payment of the Success Fee is not an insurmountable impediment to approving entry into the Funding Agreement. That is because although there is some ambiguity in the Funding Agreement as to whether the Success Fee is paid for the benefit of the Liquidator or the company, the Liquidator’s submissions on this application make it plain that the Liquidator will treat the Success Fee if paid as a payment to the company (not to the account of the Liquidator). Had it been otherwise, the inclusion of the Success Fee and the impact of it on the Liquidator’s independence would have weighed against approval of entry into the Funding Agreement.

43    In the present circumstances, although the obligations under the Funding Agreement extend beyond three months, the passage of the related litigation in relation to the operation of the relevant GST scheme provides the relevant context against which to assess the general expectation that the winding up of the company will proceed expeditiously. The authorities make it plain that it is not the court’s task to second guess a liquidator’s commercial judgement. Here, after interrogating the Liquidator’s position and requiring the Liquidator to clarify in evidence and in submissions the position in relation to a number of unusual features of this application, I am satisfied that viewed as a whole the evidence does not support a lack of good faith, or an error of law or principle, or another good reason to refuse to approve entry into the Funding Agreement. If the company prevails in the litigation concerning its ATO Liabilities, that will be significant in determining the future course of the company. If the company does not prevail in the litigation, then the erosion of its assets as a result of prosecuting the AAT Proceeding will be limited by reason of the Funding Agreement. The Liquidator’s decision to enter the Funding Agreement is supported by evidence of the lawyers engaged by the Liquidator that the AAT Proceeding has merit. The investigations contemplated are within the proper exercise of the Liquidator’s powers. The Liquidator is not subject to control by the Funder by reason of the Funding Agreement that would adversely impact his independence.

44    Finally, although I have been persuaded that it is an appropriate exercise of discretion to grant relief in the whole of the circumstances, it bears recording that the Liquidator’s actions depart markedly from the proper course that a liquidator should take. The Liquidator knew that he was required to obtain approval, yet he chose not to obtain approval. Instead, he proceeded to take the benefit of the Funding Agreement, notwithstanding he had not obtained approval. He did this for about a year. It is appropriate to record that to take such an approach is likely to undermine the protective purpose served by s 477(2B). An experienced liquidator acting prudently and consistently with their obligations should be familiar with what is required under s 477(2B) and take steps to obtain approval from either creditors or the Court in a timely fashion.

45    I am satisfied that the information contained in the privileged and confidential material is of such a nature that it is in the public interest to preserve its confidentiality and that it is appropriate that the confidentiality orders made on 1 August 2024 and 12 August 2024 continue in operation according to their terms.

CONCLUSION

46    Having regard to all of these matters, I am satisfied that pursuant to s 477(2B), leave be granted to the Liquidator of Australian Bullion to enter into the Funding Agreement with the Funder and that costs of this application be costs in the liquidation of Australian Bullion.

Associate:

Dated:    3 June 2025