Oliver Hume Decision: Victorian Landholders Duty Applies on Capital Raising based on “substantially one arrangement”
By unanimous decision on 8 August 2024, the Victorian Court of Appeal in Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175 (the Oliver Hume Decision) confirmed that landholder duty applied on the separate acquisition of shares by 18 investors arising from a single capital raising. The Court held that that capital raising was substantially one arrangement and therefore was a relevant acquisition for landholder duty purposes.
Background
Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd (Company) was a special purpose vehicle established for property development project known as the ‘Diamond Creek Project’.
In 2011, the Company purchased a property in Diamond Creek, Victoria and paid duty on the acquisition.
In 2014, the Company circulated an Information Memorandum to potential investors, seeking to raise $1.8 million by the issue of shares . Under the Information Memorandum, 18 persons applied for a total of $1.92 million of shares. As the offer was over-subscribed, the Company scaled back application amounts for three investors.
On 2 July 2014, the Company issued 1.8 million shares to the 18 investors (equating to 99.99% of the issued shares in the Company). The shares issued to the 18 investors ranged from $50,000 to $200,000 (being from 2.78% to 11.11% of the new shares being issued).
On 1 July 2020, after correspondence between the State Revenue Office and the Company, landholder duty was imposed on the transaction. This duty was assessed on the basis that the acquisition of shares by the 18 investors constituted a relevant acquisition of a 99.99% interest in the landholdings of the Company.
Chapter 3 of the Duties Act 2000 (Vic) (Act) imposes a duty on the acquisition of a ‘significant interest’ in a landholder. A ‘significant interest’ is, among other things, the acquisition of 50% of more shares in a private company, and a ‘landholder’ is an entity (including a company) that has landholdings in Victoria with a total unencumbered value of 1,000,000 or more.
The acquisition threshold may be reached by a single acquirer or the interest of one person may be ‘aggregated’ with other persons. In particular, this may occur in instances where a person acquires interest with others in an ‘associated transaction’… In the Olivier Hume Decision, the 18 investors were not associated persons, therefore landholder duty could only apply if the investors were making acquisitions as an associated transaction.
The term ‘associated transaction’ is defined in the Act as “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—
those persons are acting in concert; or
the acquisitions form, evidence, give effect to or arise from substantially one arrangement, one transaction or one series of transactions;”
There was mutual understanding that the investors were not ‘acting in concert’.
Decision
Ultimately, Kennedy, Macaulay and Lyons JJA upheld the Commissioner’s landholder duty assessment.
The Court had to determine whether the separate acquisitions of shares by the 18 unrelated and unacquainted investors of the Company under the one Information Memorandum was a relevant acquisition because they arise from substantially one arrangement.
It was considered by the Court that the relevant test was an objective test whether there was a “oneness” to the acquisitions. Relevantly, the Court had to consider whether there was some connection or interdependence between the circumstances by which the persons acquired their interests.
The Court turned to 3 key factors from the investments that together showed that there was necessary “oneness”:
the acquisitions were interconnected as no individual acquisition could go ahead unless a total of $1.8 million was raised;
the investors entered into a statutory contract constituted by the Company’s constitution. This showed a singularity of the undertaking; and
the effect of the acquisitions of the shares on the same day, and in the same way, was to substantively alter the shareholding in the Company from being owned by the Oliver Hume Group to being owned by a group of private investors.
Accordingly, the Court considered that the total acquisition of 99.99% interest in the Company gave effect to a ‘singular arrangement or plan’ for the Company to conduct a single property development project through an agreed management structure for the benefit of the investors.
Key Takeaways
Following the Oliver Hume Decision and subject to any further appeals, it is now settled in Victoria that aggregation applies to the acquisition of any shares or units by unrelated and unacquainted investors under the one syndication or capital raising process, for the purposes of landholder duty.
Any syndication process of a company or unit trust which holds an existing interest in land is potentially subject to two lots of duty, namely:
on the purchase of the property; and
on the sell down to investors.
For more information or advice on landholder duty or any other State Tax issues, please contact us:
Alasdair Woodford
Principal
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal
Joseph Flanagan
Senior Associate
T: 03 5226 8504
E: jflanagan@ha.legal
Ben Smith
Lawyer
T: 03 5225 5262
E: bsmith@ha.legal
Jemimah Fitzgerald
Graduate Lawyer
T: 03 5225 5219
E: jfitzgerald@ha.legal
