FEG-friendly decision on circulating assets overturned

Olvera Advisors’ Kate Barnet.
Olvera Advisors’ Damien Hodgkinson.

The NSW Supreme Court of Appeal has overturned a decision that favoured the Commonwealth over a secured creditor in a dispute over which them was entitled to almost $2 million in Research & Development (R&D) tax refunds.

In the primary decision delivered in March last year, NSW Supreme Court judge Ashley Black found that the refunds constituted property of Spitfire Corporation at the time it was placed into administration.

His honour also found that the funds were circulating assets pursuant to s 340(1)(a) of the Personal Properties Securities Act (PPSA).

The findings came after Spitfire’s liquidators – Kate Barnett and Damien Hodgkinson of Olvera Advisors – applied to the court for directions as to how the refunds should be distributed and for a declaration as to their claim to an equitable lien. See: In the matter of Spitfire Corporation Limited (in liquidation) and Aspirio Pty Ltd (in liquidation) [2022] NSWSC 340.

Seeking to be heard on the liquidators’ application were entrepreneur Peter Crown in his capacity as owner of secured lender Resilient Investment Group (Resilient) and the FEG Recovery collectivists on behalf of the Commonwealth which funds the Fair Entitlements Guarantee (FEG).

The appeal was heard in November last year and the decision was delivered yesterday.

In Resilient Investment Group Pty Ltd v Barnet and Hodgkinson as liquidators of Spitfire Corporation Limited (in liq) [2023] NSWCA 118 the court of appeal judges found that Crown succeeded on two of his four grounds of appeal, namely that Justice Black erred in finding that the R&D Refunds were “personal property” of Spitfire for the purpose of s 340(1) of the PPSA; and that the R&D Refunds are circulating assets pursuant to s 340(1)(a) of the PPSA.

The upshot is that Barnett and Hodgkinson can now distribute the R&D funds to Resilient, minus any claim they have via their equitable lien while the Commonwealth has been ordered to pay 70 per cent of Resilient’s costs of the appeal.

As at the time of this report it was unknown if the Commonwealth will seek to challenge yesterday’s decision.

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