LIQUIDATORS CLAW BACK $2 MILLION FROM THE ATO
In the matter of Western Port Holdings Pty Ltd (receivers and managers appointed) (in liq) [2021] NSWSC 232, the Supreme Court of New South Wales found that 37 payments made by the Company while subject to a deed of company arrangement over the course of an 18-month period to the Australian Taxation Office (ATO) was an unfair preference. The ATO was ordered to repay $2 million in voidable transactions, plus costs and interest, to the Company.
Author: Angel Luong
15 October 2021
In total, 37 payments were made over an 18-month period while the Company was the subject of a deed of company arrangement (DOCA):
- 26 payments were made by the Company directly to the ATO (direct payments); and
- 11 payments were made by a third party to the ATO (third party payments).
The Court considered two issues in the proceedings, namely:-
- whether the payments were “receiv[ed] from the company” within the meaning of section 588FA(1)(b) of the Corporations Act 2001 (Cth); and
- whether both direct and third party payments were made “by, or under the authority of the administrator of the deed” within the meaning of section 588FE(2B)(d)(i) of the Corporations Act 2001 (Cth).
This article addresses the latter.
‘Under the authority administrator of the deed’
Section 588FE(2B)(d)(i) provides that a transaction is not considered voidable if it was entered into under the authority of the administrator of the deed.
In this case, the Court found that the payments were not made under the authority of the deed administrators based on factors including:-
- Although the DOCA empowered the deed administrators to permit someone to operate the Company’s bank accounts, that power was not exercised. The DOCA returned control of day-to-day management of the Company to the director.
- The administrator was not involved in preparing and lodging tax returns or BAS.
- The role of the administrator was limited to monitoring the Company’s compliance with the DOCA – including an obligation of the directors to ensure that the Company’s existing and ongoing tax lodgement and payment obligations were being met.
- While the administrator and his staff liaised with the ATO with respect to the Company’s efforts to reduce its tax debt, including seeking information about any payment arrangements the Company had entered into, he did not negotiate payment arrangements on behalf of the Company and was not consulted by the Company or its directors in respect of the proposed payment arrangements.
- The administrators did not make the payments to the ATO nor direct the Company to make the payments. Rather, the payments were made under the authority of the “Director”, to whom management of the Company had been returned on execution of the DOCA.
Key takeaways
Creditors need to take care when receiving payments from a company that is subject to a DOCA, where control of the company has reverted to its directors. Payments made by such a company without the authority of the deed administrator, even if it is within their knowledge, can be clawed back by a liquidator pursuant to the unfair preference provisions of the Corporations Act 2009 (Cth). Creditors ought ensure that the administrator has expressly authorised payments, though in reality this might be difficult to obtain.
How can we help?
Our team work daily with insolvency disputes. ALG can bridge the gap between insolvency law and you. Contact us for your free 30-minute initial consultation on 02 4220 7100, or email lawyers@alg.com.au.
