The Victorian Supreme Court decision of Aviation 3030 Pty Ltd (in liq) v Lao Holdings Pty Ltd [2024] VSC 800 has considered the ability for a company to recover landholder duty from the shareholders that had made the relevant acquisition.
A recent decision of Croft J in the Victorian Supreme Court has considered the operation of section 85 of the Duties Act 2000 (Vic) (the Duties Act) and the ability for a company to recover landholder duty from the shareholders that made the relevant acquisition.
Most relevantly, the decision provides that the ability to recover is not confined to statute law and arises independently of the operation of section 85. More particularly, the Court found that, in addition to the statutory right of recovery, recovery under the doctrine of contribution (an equitable remedy) was also available.
This decision is important where, for commercial reasons or to prevent penalties/interest, one party pays a landholder duty assessment (eg a landholder) and seeks to be reimbursed from other party (eg the acquirer of shares/units).
Legislation
The landholder duty provisions in part 2 of chapter 3 of the Duties Act provide for stamp duty on certain acquisitions of shares in companies or units in unit trusts that hold an interest in underlying land in Victoria. These impose the same duty as if a corresponding interest in the underlying land assets were acquired.
A “landholder” includes a private company with land assets in Victoria with an unencumbered value of $1 million or more (under section 71 of the Duties Act). The threshold rises to $2 million if the land assets are only leasehold improvements or other fixtures on third party land.
An acquisition of a significant interest of 50% or more of the shares in a private company is dutiable as a “relevant acquisition” (under sections 78 and 79). This includes acquisitions of interests of less than 50% where they amount to a significant interest on aggregation under the legislation with other interests held by the acquirer, by associated or related persons or by persons under “associated transactions”.
Subsection 3(1) of the Duties Act defines an associated transaction as:
associated transaction, in relation to the acquisition of an interest in a landholder by a person, means an acquisition of an interest in the landholder by another person in circumstances in which—
(a) those persons are acting in concert; or
(b) the acquisitions form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions;
If a relevant acquisition is made, landholder duty is charged at rates up to 6.5% on the unencumbered value of the Victorian land held by the landholder (the top rate of duty was 5.5% at the time of the transaction in this case).
Section 85 provides for joint and several liability for landholder duty between the acquirers and the landholding company:
85 Who is liable to pay the duty?
(1) The following are jointly and severally liable to pay duty chargeable under this Part—
(a) the person who makes the relevant acquisition; and
(b) the landholder or, if the landholder is a unit trust scheme, the trustee of the landholder; and
(c) if the relevant acquisition results from an aggregation of the interests of the person referred to in paragraph (a) and other persons—each of those other persons.
(2) A person, other than a person referred to in subsection (1)(c), may recover as a debt from the person who made the relevant acquisition or a person referred to in subsection (1)(c) the amount of any duty chargeable under this Part and any penalty paid by the first person in respect of that duty.
These provisions were substantially redrafted in 2012.
All other States and Territories have landholder duty provisions and many have an equivalent of section 85.
Background
The landholder, Aviation 3030 Pty Ltd operated as an unregistered managed investment scheme (see Australian Securities and Investment Commission v Aviation 3030 Pty Ltd [2019] FCA 377).
Aviation 3030 Pty Ltd acquired a property at Point Cook in December 2015 under a 2011 contract of sale for $7.8 million. The property was on sold in October 2018 for $135 million.
In 2011-2012, capital of $10.59 million was raised by Aviation 3030 Pty Ltd from third parties through the direct issue of shares to investors and through the issue of units in shareholding unit trusts. This was accepted as a breach of the Corporations Act 2001 (Cth) provisions relating to operating unregistered managed investment schemes. After the decision of Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175, share issues to otherwise unrelated investors may also be a landholder duty concern (see our summary here).
In 2016, Aviation 3030 Pty Ltd issued 76 million shares to each of Khay Suong Taing Aviation 3030 Pty Ltd as trustee for the Khay Suong Taing Aviation 3030 No 1 Trust and Lao Holdings Pty Ltd as trustee for the Lao Holdings Trust (amounting to 31.79916% of the total shares on issue each). These new shareholders were related to the some of the directors of Aviation 3030 Pty Ltd and issued for $1,000 per 1 million shares – described as being “next to nothing” compared to their value (see paragraphs 41 and 47 of Australian Securities and Investment Commission v Aviation 3030 Pty Ltd [2019] FCA 377).
The validity of this share issue was the subject of litigation and became relevant for landholder duty purposes.
After an ASIC investigation and Federal Court litigation (Australian Securities and Investment Commission v Aviation 3030 Pty Ltd [2019] FCA 377 referenced above), Aviation 3030 Pty Ltd was placed into liquidation in March 2019.
Landholder duty
In 2019, the Commissioner of State Revenue issued an assessment of duty of $3,418,116 in primary duty, plus a further $854,529 in “penalty tax” (incorrectly described as “penalty interest” in the judgement) and $215,818.52 in interest at the market rate. On a successful valuation objection, this was reduced in 2023 to $2,630,426 in landholder duty, $657,606.50 in penalty tax and $166,084.09 in interest.
The assessment was issued on the basis that the issues of shares to Khay Suong Taing Aviation 3030 Pty Ltd as trustee for the Khay Suong Taing Aviation 3030 No 1 Trust and Lao Holdings Pty Ltd as trustee for the Lao Holdings Trust were “associated transactions”. This was considered by the Commissioner to be the case as the two shareholders acquired their respective interests:
“… as a result of the exercise of options on the same day, pursuant to the same agreement and for the same consideration. Accordingly, the acquisitions form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions. Whilst not necessary to establish an association between the acquisitions in this matter, the available evidence also suggests that the acquisitions have occurred as a result of parties acting in concert.”
Under section 85 of the Act, assessments for the same amount were issued to the two acquiring shareholders and to Aviation 3030 Pty Ltd as landholder.
Objections to the assessments were lodged by each of the parties (separately represented).
The landholder, Aviation 3030 Pty Ltd paid the landholder assessment in October 2021 (being the higher amount prior to the subsequent successful outcome of the valuation objection).
Federal Court litigation
The March 2016 share issues were the subject of litigation. Crucially, this Federal Court was asked to determine whether the March 2016 share issues were void ab initio (which would remove the landholder duty liability).
The proceedings relating to Khay Suong Taing Aviation 3030 Pty Ltd as trustee for the Khay Suong Taing Aviation 3030 No 1 Trust were settled in October 2021 by the liquidators who agreed not to recover the duty paid from the Taing related entities (see paragraph 31 of Aviation 3030 Pty Ltd (in liq) v Lao Holdings Pty Ltd [2024] VSC 800).
In Aviation 3030 Pty Ltd (in liq) v Lao, in the matter of Aviation 3030 Pty Ltd (in liq) [2022] FCA 458, Anastassiou J held that the March 2016 share issues were “unreasonable director-related transactions” within the meaning of section 588FDA of the Corporations Act 2001 (Cth). Lao Holdings Pty Ltd as trustee for the Lao Holdings Trust therefore had to pay an additional $9,044.000 for the March 2016 share issue.
Crucially, this meant that the share issues in March 2016 were not void ab initio and therefore were acquisitions of interests for landholder duty purposes.
Recovery of landholder duty paid by the landholder company
As the objections to the assessment of landholder duty was successful on the valuations, but unsuccessful on the question of liability to duty (as the share issues were not voided) and unsuccessful on the imposition of penalties or interest, the reduced final 2023 assessment was not challenged in the supreme court litigation.
Instead, the issue in question was whether the landholding company, having paid the assessment, was able to claim reimbursement from Khay Suong Taing Aviation 3030 Pty Ltd as trustee for the Khay Suong Taing Aviation 3030 No 1 Trust of the half-share of the duty paid relating to its share acquisition.
The company, Aviation 3030 Pty Ltd was successful in recovering 50% of the primary duty, interest and penalty tax under section 85 of the Act.
The Court rejected the Defendant’s arguments that the right of recovery under section 85 was not available as the Defendant disputed that the landholder duty liability existed, that it had been compromised by an estoppel or was only available prior to payment of the duty.
Interestingly, no position was taken that interest was not included in the meaning of the words “the amount of any duty chargeable under this Part and any penalty paid by the first person in respect of that duty”.
Lastly, a separate right of contribution was held to exist.
It was held at paragraph 144:
Whilst I acknowledge that s 85(2) of the Act provides a remedy akin to the doctrine of contribution, I accept the Plaintiff’s submissions that both remedies are available to it. I accept that the Defendant and Plaintiff had a common obligation to make payment. This is evidenced by the delivery of the Notice of Assessment to both the Plaintiff and the Defendant. Further, I accept the distinction drawn between the two remedies as put by the Plaintiff—that a claim in contribution is a claim for one third, whereas a claim pursuant to s 85(2) is for the full amount of duty paid.
While this is only for one third of the duty payable (as there were two acquirers and the landholder jointly and severally liable for duty under section 85), there would be no bar under this separate right of contribution for an acquirer to seek contribution from a landholder, if the acquirer made the payment of duty.
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Phil Broderick
Principal
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E pbroderick@sladen.com.au
Nicholas Clifton
Principal Lawyer
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Meera Pillai
Associate
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