The Commissioner obtains interim charging order and mareva injunction over trust assets
2007 case note - CIR obtained an interim mareva injunction and pre-judgment charging orders over assets held by a corporate trustee.
Judicature Act 1908
Summary
The Commissioner obtained an interim mareva injunction and pre-judgment charging orders over assets held by a corporate trustee, which were prima facie beneficially owned by the taxpayer
Facts
The taxpayer is a successful property developer/speculator and the Commissioner has sued him for in excess of $3.5 million in unpaid tax debt. The substantive proceedings are currently before the Taxation Review Authority.
During the course of an investigation into the taxpayer's tax affairs it was identified that he generally operated behind the veil of trading trusts and/or limited liability companies. The taxpayer maintains full and unfettered control of these entities but does not own any significant assets in his own name. All entities which the taxpayer is associated with have an unsatisfactory compliance history in terms of their return filing and payment obligations. The taxpayer is the director and shareholder of Athena Professional Trustees Limited ("Athena"), a corporate trustee company, and settlor and final beneficiary of the CBD Properties Trust (CBD Trust"). A number of properties owned by Athena were actively being marketed by the taxpayer.
The Commissioner's case was that if those properties were sold before judgment is given against the taxpayer there may be no assets left against which the Commissioner could seek to recover the unpaid tax debt. Effectively, the taxpayer would be judgment proof.
The Commissioner sought a mareva injunction and pre-judgement charging orders over the properties held by Athena.
Decision
To obtain a pre-judgment charging order the burden of proof rests on the Commissioner to show that the taxpayer is making away with his property with the intent to defeat his creditors. For a mareva injunction all that needs to be shown is there is a real risk the properties are going to be sold with the intention to defeat the Commissioner as a creditor.
The Commissioner relied on evidence of the taxpayer's previous non-compliance with his tax obligations and the tax obligations of entities which he controlled. The Court accepted that previous behaviour was likely to evidence future such conduct and in that regard held:
[20] Given the apparent level of revenue being generated by the properties and the fact that no income tax has ever been paid voluntarily it is difficult to resist the inference that the taxpayer has deliberately conducted his affairs over several years so as to avoid meeting tax obligations. It is reasonable to assume that he is likely to continue this pattern when it comes to the sale of the properties in question ie that he will act with the underlying intention of avoiding his tax obligations.
The Court then examined the question of whether or not the orders sought could be given in view of the fact that Athena was the registered proprietor of the properties over which the orders were sought. The Court stated that if a prima facie case could be made out showing beneficial ownership vested in the taxpayer, then the orders sought could be granted.
The Commissioner presented affidavit evidence showing the taxpayer dealt with the properties as if they were his personal property. In addition, the taxpayer was the director and shareholder of Athena, he was the settlor and final beneficiary of the CDB Trust. The Court accepted that the taxpayer via Athena and the CBD Trust had complete control of the assets and it was more likely than not that the taxpayer was the beneficial owner and held:
[31] I am therefore satisfied that, at the least, there is an arguable case that the taxpayer is the beneficial owner of the properties. In fact, I think that the position is actually stronger than that and that it is more likely than not that he is the beneficial owner.
In the result the Court was satisfied that the Commissioner had discharged the onus for the Court to grant interim pre-judgement charging orders and mareva injuctions over the properties in question.