In this significant case, Jackson J was faced with the question of whether a liquidators’ remuneration in respect of the winding up of a trustee entity was subject to GST, payable from the corpus of the trust. His Honour found that it was, and that GST amounts should be included in the remuneration amounts claimed by the liquidators.
2 October 2019
LM Investment Management Ltd (“LMIM”) was the responsible entity for several registered managed investment schemes, materially including the LM First Mortgage Income Fund (“FMIF”). . It went into liquidation. . In this application, its liquidators sought judicial determination of the remuneration they were entitled to receive under s 473(3) of the Corporations Act 2001 (Cth). . Most notably, the liquidators sought that amounts of Goods and Services Tax (“GST”) be paid from the property of the FMIF. .
Before Jackson J, the liquidators identified three classes of remuneration: “Corporate Remuneration”, for work generally carried out in the administration of the winding up of LMIM; “Category 1 Remuneration” for work relating to specific registered schemes of which LMIM was the responsible entity; and “Category 2 Remuneration”, for work carried out in relation to the schemes generally. -. It was not in dispute that LMIM had “no assets left to satisfy the liquidator’s claim for general liquidation expenses”. . Accordingly, the liquidators sought orders that the Corporate Remuneration be paid from the property of the schemes in equal proportions. .
In dealing with this aspect of the liquidators’ claim, Jackson J noted on the principle established in In re Berkeley Applegate (Investment Consultants) Ltd (in liq)  Ch 32 that the Court has jurisdiction to order that an office-holder be remunerated out of trust assets for work done in relation to those assets. . However, the Berkeley Applegate principle “does not support any general right of a liquidator to reimbursement from trust property for work necessary for the winding up of the company trustee, where that work is not carried out in relation to the trust or relevant trusts”. . Accordingly, his Honour found that no order could be made that the Corporate Remuneration be paid from any of the schemes’ assets. –. Nevertheless, his Honour fixed the liquidators’ Corporate Remuneration for the period 2 August 2013 to 30 June 2018 at $736,550.65. .
In relation to each of the Category 1 Remuneration and the Category 2 Remuneration, Jackson J considered several objections to the sums claimed made by FMIF and ultimately found that the amounts claimed by the liquidators were reasonable. , , , . Accordingly, the Category 1 Remuneration and Category 2 Remuneration were determined in the amounts claimed. –, , , .
On the topic of whether GST should be included in the sums of remuneration determined by the Court, FMIF accepted that there was a supply under s 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“the GST Act”). . However, it was submitted that the FMIF was a separate entity from LMIM for the purposes of the GST Act. . The liquidators accepted that there was a taxable supply. . Further, they submitted that “as the FMIF is the ‘ultimate’ recipient of the services”, it is proper for them to raise a tax invoice to LMIM in its own right, which should raise a further invoice to itself as responsible entity and trustee for the FMIF, that as trustee it should pay itself in its own right the amount in the tax invoice, and then on-pay that sum to the liquidators. . Each party tried to augment these arguments by claiming that, were orders not made in their favour, the other party would receive a “windfall tax gain” by claiming an input tax credit. –.
In light of these arguments, Jackson J had to identify whether, and to whom, a taxable supply was made. . His Honour commenced by noting that the character of the liquidators’ supply of services was analogous to “a contractual or restitutionary entitlement to services supplied for reward”. . It was thus not controversial that at least one taxable supply had been made. The critical question therefore became identifying the recipient of the supply.
Justice Jackson found the argument that there was one supply to LMIM in its own right and either a second supply or an on-supply by LMIM in its own right to LMIM as trustee for the FMIF to be “attended with very significant difficulties”. . This was both because, generally, it is “artificial to speak of a supply by an entity to itself”, and because it would be in breach of trust law as “it involves self-dealing by the trustee”. –. Further, there is nothing in the GST Act requiring such a characterisation of the transaction. . Instead, “the application of the provisions of the GST Act requires a proper identification of the ‘recipient’ being… ‘the entity to which the supply was made’”. . In the ordinary course, “where services are supplied to a trustee on behalf of a trust, there is no acquisition by the trustee in its own right as an entity”; the trust makes the creditable acquisition. . Thus, here, the provision of services by the liquidators in relation to the FMIF will have been made to it; there is no need for the propounded two-step process. .
Justice Jackson then progressed to an additional point: under s 9-5, the supply must have been made for “consideration” as defined in s 9-15. . His Honour had “some difficulty” with characterising a court’s order under the Berkeley Applegate principle as an independent supply for consideration. –. Instead, one must look to the “character of the supply when it was made”. . In the instant case, the character of the supply was a supply “by the liquidators to LMIM as responsible entity and trustee for the FMIF”, and therefore liable to GST. .
The final question was whether, in light of that analysis, the GST component should be included in the remuneration orders. . Jackson J identified the FMIF’s chief point of opposition to this point as being that it will create a creditable acquisition for LMIM if the liquidators’ favoured process is followed. . However, because there were not two relevant supplies, the inclusion of GST in the amounts ordered “will not, so far as the liquidators are concerned, create any undue benefit”. .
In the event, his Honour ordered that GST be included in the remuneration amounts. .