Queensland Supreme Court rules tax refund expectancy bypassed secured creditor under prior equitable assignment

The Supreme Court of Queensland has held that a company’s potential future tax refunds, tied to unresolved R&D incentive disputes, were validly assigned to a third party before they came into existence, with the result that the refunds would never become the company’s property and would not be caught by an earlier registered security interest over after-acquired assets.

Moreton Resources had been involved for years in disputes with the Commissioner of Taxation concerning refundable research and development tax offsets for earlier financial years. For the year ending 30 June 2013, Moreton originally lodged a return declaring nil tax payable and claiming a refundable offset of about $7.1 million, which was later paid by the Commissioner. In March 2015, the company sought amendments that would have increased that entitlement by a further approximately $4.7 million. Additional disputes also related to later income years, with evidence suggesting possible further refunds of about $2.8 million.

The disputes led to proceedings in the Administrative Appeals Tribunal, now the Administrative Review Tribunal. One proceeding commenced in July 2024 related to the 2013 claims. A second proceeding concerned the company’s taxation affairs for later years. If successful, those matters could result in significant sums being payable to Moreton.

Before those potential recoveries crystallised, in October 2019, Moreton had entered into financing arrangements under which it granted security in favour of a security trustee (Melgear) for debenture holders over all present and after-acquired property. That security interest was later registered.

In 2020, Moreton entered administration and was subsequently placed into liquidation. In April 2021, Moreton’s liquidators entered into a deed of assignment with MRL Moreton Resources Pty Ltd, an entity controlled by former director Alexander Elks. Under that agreement, and for consideration of $100,000, Moreton assigned future property likely to arise if it succeeded in one or both of the tax proceedings.

The receiver, appointed by Melgear in May 2022, argued that the claims against the Commissioner were no more than expectancies and did not constitute property at the time of assignment. He submitted that if refunds later came into existence they would become after-acquired property of Moreton, at which point the earlier registered security interest would attach under the Personal Property Securities Act 2009 (Cth). On that basis, he sought declarations allowing him to continue and control the tribunal proceedings on behalf of the company.

MRL Moreton and Mr Elks contended that the prior assignment for value operated in equity so that any refunds, once they came into existence, would pass immediately to the assignee and would never become beneficial property of Moreton. They argued that the company would hold any legal title only as trustee pending transfer.

Justice Wilson accepted that position. His Honour held that the tax claims being pursued by Moreton were mere expectancies and not property, and that Melgear’s security interest could not attach to a mere expectancy. However, longstanding equitable principles recognise that future property may be assigned for value, with the consequence that once the property comes into existence it is automatically bound by the earlier assignment.

The Court held that if any refund were ultimately obtained, it would be automatically and immediately assigned in equity to the assignee without ever becoming property of Melgear, in any beneficial sense. At most, Moreton would hold legal title as a bare trustee for the limited purpose of completing transfer.

That conclusion was decisive for the PPSA argument. Because the company would not obtain rights in the refunds in its own capacity, the statutory attachment requirements for the secured creditor’s interest were not satisfied. The Court rejected the proposition that a mere expectancy was equivalent to after-acquired property for PPSA purposes, drawing a distinction between contingent future possibilities and actual personal property acquired after entry into a security agreement.

The receiver advanced a further argument that rights under the security survived a deed of company arrangement notwithstanding release of the underlying debt. That issue carried potentially wider significance for secured creditors in post-DOCA scenarios. The Court declined to determine it, holding that the assignment issue was sufficient to dispose of the application.

Read the decision here.

Professionals involved:

• Mark Goldsworthy of McPherson Chambers, counsel, and Sasha Legal, solicitors, for Moreton Resources, Alexander Elks, and MRL Moreton Resources

• E J Ananian-Cooper, counsel, and Gadens, solicitors, for the Commissioner

• Craig Wilkins of Level 10, Inns of Court, and Lois Bullen of Level 9, Inns of Court, counsel, and Colin Biggers & Paisley, solicitors, for the receiver, Darryl Kirk of Cor Cordis