On February 8 the High Court of Australia gave its decision on a stamp duty case involving one of the Dick Smith companies.
The case provides an important reminder of the manner in which the Commissioner of State Revenue will approach assessments of duty where the consideration extends to benefits other than the simple payment of a purchase price.
Dick Smith Electronics Holdings Pty Ltd (Dick Smith Electronics) agreed to acquire all of the shares (held by two vendors) of a company that carried on the businesses of Tandy Electronics and Radio Shack in Australia and New Zealand.
In round figures and simplified terms, the transaction was as follows:
• $88 million was paid to the vendor shareholders by Dick Smith Electronics;
• on the day prior to settlement, the company paid dividend to the two shareholders in the sum of $25 million; and
• the $25 million paid by way of dividend was provided, by loan funds, to the company by Dick Smith Electronics.
The case turned on whether the duty was assessed on $88 million, being purely the purchase price, or $114 million, being the purchase price plus the value of the dividend amount advanced to the company and ultimately the vendor shareholders.
The 3:2 majority of the High Court held that the correct characterisation of the transaction for stamp duty purposes rested upon an analysis of what moved the transfers by the vendors, namely the performance of the various stipulations in the agreement.
These included the promises by Dick Smith Electronics to pay the purchase price as well as the facilitation of the payment of the dividend amount by the company to the vendor shareholders by provision of sufficient funding to allow that payment to be made.
The fact that Dick Smith Electronics had acquired an asset in the right to obtain repayment of the loan for the dividend amount from the company did not prevent that amount being counted as the "consideration" for the transaction.
The dividend amount was ultimately received by the vendor shareholders pursuant to the transaction, albeit from the Company rather than the purchaser directly.
The case again illustrates that the courts will look at the practical effect of the agreement in assessing duty.
As the court stated in this instance, it was only in return for the total sum ($114 million), paid by the various steps and in the various forms required by the agreement, that the vendors were willing to transfer to the purchaser from the bundle of rights which their shareholding in the company represented.
Tony Heaver-Wren, senior associate
9288 6920 Dean Hely, partner
9288 6772 Phillips Fox
