October 2011 – ░░░ INSOLVENCY INTERFACE

Parliament sees new tax laws to protect superannuation and deter phoenix companies

Insolvency Laws, Regulation, Tax liabilities, Taxation Issues Comments Off

Oct 182011

On 13 October 2011 the Australian Government presented a bill which the Minister says “amends the tax law to better protect workers’ entitlements to superannuation, strengthen the obligations of company directors and enhance deterrence of fraudulent phoenix activity”.

Schedule 3 of the Tax Laws Amendment (2011 Measures No.8) Bill 2011 is described in the Second Reading speech by the Minister, Mr Bill Shorten, as follows:

“These amendments will provide disincentives for directors to allow their companies to fail to meet their existing obligations, particularly obligations to employees. They do not introduce new obligations on the company but, rather, penalise company directors who are failing to ensure that their companies meet their obligations.

These outcomes are achieved by extending the director penalty regime to superannuation guarantee. This will make directors personally liable for their company’s failure to meet its obligations to pay employee superannuation.

Secondly, this will allow the commissioner to commence recovery against company directors under the director penalty regime without issuing a director penalty notice. This power is limited to situations where the company’s unpaid pay-as-you-go (or PAYG) withholding or superannuation liability remains unpaid and unreported, three months after becoming due.

Thirdly, it is making company directors and, in some limited cases, their associates liable to a tax which, in effect, reverses the economic benefit of a PAYG withholding credit. This tax only applies if directors or their associates are entitled to a credit for amounts that have been withheld from payments made to them by the company and the company has failed to meet its obligation to pay PAYG withholding amounts to the commissioner. Further criteria must be satisfied before associates are liable.

Together, this package of amendments will improve the likelihood that employees will receive the superannuation they are entitled to. It will reduce the ability of directors to avoid paying director penalties for their company’s superannuation guarantee and PAYG withholding debts. Further, it will increase the disincentives for directors to allow their company to fail to meet its existing obligations.”

Introduced with the Pay As You Go Withholding Non-compliance Tax Bill 2011, the bill amends, inter alia, the Taxation Administration Act 1953 to allow the Commissioner of Taxation to commence proceedings to recover director penalties in certain circumstances without issuing a director penalty notice; the Income Tax Assessment Act 1997, Taxation Administration Act 1953 and Taxation (Interest on Overpayments and Early Payments) Act 1983 to make directors and their associates liable to pay as you go withholding non-compliance tax in certain circumstances; and the Corporations Act 2001, Superannuation Guarantee (Administration) Act 1992 and Taxation Administration Act 1953 to make directors personally liable for their company’s unpaid superannuation guarantee amount.

LINKS:

Minister’s Second Reading speech on 13/10/2011.

Text of Bill (See Schedule 3)

Explanatory memoranda (See Chapter 3) For a concise comparison of key features of the new law and the current law, see the chart at pages 30 & 31 of the Explanatory Memorandum.

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On 18 October 2011 the Treasury published the thirteen submissions it received in response to the consultation on an earlier exposure draft of this legislation. To view these click HERE.

Government says no to single regulator of insolvency laws

ASIC, Official Inquiries, Personal Bankruptcy, Productivity Commission 2010, Regulation Comments Off

Oct 142011

The Government has examined the case for making one regulator responsible for both personal insolvency laws and corporate insolvency laws and decided to retain the status quo.

Hence, it will be business as usual for the Insolvency Trustee Service Australia (personal insolvency) and the Australian Securities and Investments Commission (corporate insolvency).

The Australian Productivity Commission (APC) recommended in its report on the Annual Review of Regulatory Burdens on Business: Business and Consumer Services (the Report) that the Government consider the option of having a single regulator of what are, in many respects, similar laws.

In response to this recommendation (part of number 4.3), the Government says:

“The Government is not proposing to establish a new single regulator of personal and corporate insolvency regimes. There would be major upfront costs of merging the regulators, which may not necessarily be offset by long-term savings. The extent to which simply unifying the regulators would result in an improved regulatory environment is not clear. Separate policy considerations apply to many aspects of personal and corporate insolvencies and there is not currently sufficient evidence that a one-size-fits-all approach for all issues would necessarily optimise outcomes for stakeholders. The removal of the responsibility for regulation of corporate insolvency from the corporate regulator would result in corporate insolvency losing its important connection with other parts of ASIC, for example in relation to major corporate administrations, regulation of insolvent trading and of director and corporate misconduct that may have occurred in the lead up to, or during, an insolvency event.”

The Government’s formal response to the Report was released by the APC on 13 October 2011 and may be found HERE.

Government says taskforce to align insolvency laws is unnecessary

Official Inquiries, Productivity Commission 2010, Regulation Comments Off

Oct 142011

The Australian Productivity Commission (APC) recommendation that a taskforce be established to identify personal and corporate insolvency provisions and processes that could be aligned has been formally rejected by the Government.

The APC recommendations were made in its report in October 2010 on the Annual Review of Regulatory Burdens on Business: Business and Consumer Services (the Report). The Government’s formal response to the Report was released by the APC on 13 October 2011 and may be found HERE.

In response to the APC’s recommendation (number 4.3) for a taskforce, the Government says that it:

” agrees that there should be greater consistency between the personal and corporate insolvency systems. Significant work is already being progressed by relevant government agencies to identify areas for greater harmonisation, and therefore the Government believes that establishing a taskforce is unnecessary and may duplicate work already being undertaken. The Government will facilitate the closer alignment of the personal and corporate insolvency laws through its options paper, A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia, which was released on 2 June 2011. This paper canvasses options for the registration, regulation and remuneration of participants in the corporate and personal insolvency industries.”

Claim that UK insolvency practice was wrongly valued.

Insolvency practices Comments Off

Oct 112011

In 2006 Primary Capital, a UK private equity firm, acquired (for £27 million) the UK company Credere Limited, the vehicle formed to acquire the Haines Watts Business Recovery & Insolvency (HWBRI) practice.

In 2008 the HWBRI practice entered into a pre-pack administration and was sold to Tenon Limited, as part of Tenon Plc, an AIM listed accountancy firm.

Now (7 October 2011) The Times of London reports that the accounting firm Ernst & Young is being sued for £8.5 million by Primary Capital, claiming that the accountants incorrectly valued its investment into HWBRI. Primary Capital claims it lost its investment when the insolvency firm (HWBRI) was sold to Tenon Limited.

Apparently Primary Capital has so far been unavailable for comment.

Hopefully there is plenty more news to come.

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SOURCES: 1. Accountancy Age http://www.accountancyage.com/aa/news/2115496/-sued-pe-firms-lost-insolvency-business-investment#ixzz1aRE1dbTB 2. Unquote http://www.unquote.com/unquote/news/1574751/uk-primary-capital-acquires-haines-watts-business-recovery-insolvency 3. Jones Day http://www.jonesday.com/experiencepractices/ExperienceDetail.aspx?experienceid=15002

“Australian Insolvency Decisions” September 2011 edition

Industry People, Insolvency practices, Personal Bankruptcy Comments Off

Oct 032011

by Michael Ennis. Michael developed an interest in insolvency case law, while a Deputy Registrar in Bankruptcy at the Federal Court of Australia and while undertaking various roles at the Insolvency Trustee Service Australia (ITSA). He has maintained this interest since retiring. If you would like to receive the Insolvency Decisions schedule direct, advise Michael of additional decisions, or share your observations, you may contact Michael direct on rmci53mje@spin.net.au.

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Bankruptcy Act – Prior to Date of Bankruptcy

Four judgments attached to BN – Dowd v Garde [2011] FMCA 713 (14 September 2011) BANKRUPTCY – Opposed Creditor’s Petition on the basis of an error in the Bankruptcy Notice where the stated sum does not equate to the amount contained in the four judgments attached – whether defect or irregularity curable under s.306 of the Bankruptcy Act 1966 – Bankruptcy Notice invalid – Creditor’s Petition dismissed http://www.austlii.edu.au/au/cases/cth/FMCA/2011/713.html

Applications to Stay Sequestration Orders always seemed to come in clumps after reasonable intervals of not seeing any, so we will have to keep an eye out for some more – Trustees can take the normal precautionary actions, these are not the actions contemplated by the Stay Order – Favell v Mbuzi [2011] FMCA 710 (5 September 2011) BANKRUPTCY – Creditor’s Petition – service of Bankruptcy Notice – deemed service – delivery in ordinary course of post – no receipt because of no mailbox – cl. 24.1.3 of Australia Post Terms and Conditions – no proved non-delivery. BANKRUPTCY – Stay of Sequestration Order – refused http://www.austlii.edu.au/au/cases/cth/FMCA/2011/710.html

Parnell Corporate Services Pty Ltd v Lieurance [2011] FMCA 709 (31 August 2011) BANKRUPTCY – Creditor’s petition – no appearance by debtor – sequestration order made http://www.austlii.edu.au/au/cases/cth/FMCA/2011/709.html

Trkulja v Gibsons Solicitors Pty Ltd [2011] FMCA 655 (26 August 2011) BANKRUPTCY – Application to review – application to set aside bankruptcy notice out of time – leave opposed – extension of time for compliance – adjournment of proceedings http://www.austlii.edu.au/au/cases/cth/FMCA/2011/655.html

Thomas & Anor v Nash [2011] FMCA 661 (24 August 2011) BANKRUPTCY – Petition – sequestration order granted http://www.austlii.edu.au/au/cases/cth/FMCA/2011/661.html

Demandem Holdings Pty Ltd & Anor v Christou [2011] FMCA 489 (24 August 2011) BANKRUPTCY – Contested creditor’s petition – whether the debtor is solvent and whether the debtor has an off-setting claim that provides a reason for the Court to refrain from making a sequestration order considered. http://www.austlii.edu.au/au/cases/cth/FMCA/2011/489.html

A most curious matter – I’ve never heard of an application to rescind a Set Aside order, let alone such an application being successful – also, I had thought only a Judge could set aside a Seq Order, but Registrar Luxton is very experienced in the jurisdiction = a comment from a member of this email group: ‘yes, a very interesting case concerning the rescission of a setting aside of a sequestration order. I have not heard of that happening before.

I wonder when the bankruptcy starts from?

It appears that there was some “creative accounting “going on concerning the debtor’s financial status which just a bit too creative and bore little resemblance to his actual state of insolvency. I did note that in the setting aside proceedings, the RT was able to get an order that he be paid $12,000 for his remuneration which was well done when you look at how Mr Pattison failed to receive remuneration in a number of his matters where the SO s were set aside. – Barro Group Pty Ltd v Poljakovic & Jacaranda Cooperative Housing Society Ltd [2011] FMCA 706 (23 August 2011) BANKRUPTCY – Application to rescind setting aside of sequestration order – application successful http://www.austlii.edu.au/au/cases/cth/FMCA/2011/706.html

Novel matter in relation to a Bankruptcy Notoce – Lewis v Lamru Pty Ltd; In the Matter of Lewis (No 2) [2011] FCA 1025 (31 August 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1025.html

Bankruptcy Act – following Date of Bankruptcy

David Lombe as trustee of the bankrupt estate of Salah Eddine Dib v Mohamed Dib & Anor [2011] NSWSC 1062 (9 September 2011) CONTRACT – general contractual principles – offer and acceptance – first party alleges he provides advance to assist in funding purchase of property by others – whether agreement to repay the funds advanced to first party or whether first party agreed to receive other benefits for advance – HELD: no agreement to repay funds advanced – TRUSTS AND TRUSTEES – resulting trust – constructive trust – allegations of resulting trust and constructive trust arising from first party’s advance of funds to purchase property in the names of others – whether contrary agreement – HELD: no resulting or constructive trust http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/1062.html

Very interesting decision – thanks to Bob for alerting me to it – note use of s. 77c transcript – note ‘heavies’ appearing – Nelson v Mathai & Ors [2011] FMCA 686 (2 September 2011) BANKRUPTCY – Trustee Application pursuant to s.121 of the Bankruptcy Act 1966 – meaning of ‘creditor’ http://www.austlii.edu.au/au/cases/cth/FMCA/2011/686.html

A Section 139ZQ matter – Combis (Trustee) v Spottiswood [2011] FCA 1082 (16 September 2011) PRACTICE AND PROCEDURE – substituted and deemed service – whether service can be deemed after multiple unsuccessful attempts – where no evidence that documents came to the attention of respondent – where impracticable to personally serve respondent – substituted service ordered in lieu of deeming service http://www.austlii.edu.au/au/cases/cth/FCA/2011/1082.html

Singh v Official Trustee In Bankruptcy & Anor [2011] FMCA 677 (6 September 2011) BANKRUPTCY – Leave to commence, continue and take fresh steps in proceeding – whether leave to be granted – where failure to comply with undertaking – costs – payment by solicitor personally http://www.austlii.edu.au/au/cases/cth/FMCA/2011/677.html

Harrison v Ponting & Anor [2011] FMCA 680 (2 September 2011) BANKRUPTCY – Application by the Trustee for possession of the property http://www.austlii.edu.au/au/cases/cth/FMCA/2011/680.html

A Ferrari is a nice bankruptcy asset, if it can be located!! – BMW Australia Finance Limited v Cheihk [2011] FMCA 720 (26 August 2011) BANKRUPTCY – Application to declare for or against trustees title – claim for declarations against the bankrupt, her trustees and another in respect of the ownership and right to possession of a chattel – no dispute – no proper claim under the Bankruptcy Act 1966 – no proper claim under the Court’s associated jurisdiction http://www.austlii.edu.au/au/cases/cth/FMCA/2011/720.html

Sheikholeslami v Tolcher [2011] FCA 1050 (9 September 2011) BANKRUPTCY AND INSOLVENCY – whether certain real property part of bankrupt’s divisible property – whether bankrupt held property on trust for another at the commencement of her bankruptcy TRUSTS AND TRUSTEES – whether an express trust exists – informal family arrangement between siblings in respect of the ownership of real property EQUITY – defence of unclean hands – whether applicant should be denied equitable relief in circumstances where notice under s 26A of the Foreign Acquisitions and Takeovers Act required but not given http://www.austlii.edu.au/au/cases/cth/FCA/2011/1050.html

Jones Lang Lasalle (NSW) Pty Ltd v Simpson; In the Matter of Simpson (Bankrupt) [2011] FCA 1006 (26 August 2011) BANKRUPTCY – whether the applicant should have leave to proceed pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth) against the first and second respondents in a proceeding in the Supreme Court of New South Wales in which the applicant (as plaintiff) alleges that the first and second respondents were knowing participants in a breach of trust by a corporation of which they were directors and executives http://www.austlii.edu.au/au/cases/cth/FCA/2011/1006.html

Bankruptcy Act – Other Schemes under the Act

Nil

Corporations – pre-appointment

Statewide Secured Investments Pty Ltd v Tarrant [2011] FCA 1067 (15 September 2011) CORPORATIONS – application to set aside statutory demand – interlocutory application for substituted service http://www.austlii.edu.au/au/cases/cth/FCA/2011/1067.html

Deputy Commissioner of Taxation v Marro (SA) Pty Ltd, in the matter of Deputy Commissioner of Taxation [2011] FCA 1024 (1 September 2011) CORPORATIONS – winding up – setting aside winding-up order made in the absence of a party – procedural irregularity – agreement to seek adjournment departed from without notice – irregularity cured by subsequent giving of notice before making of winding-up order http://www.austlii.edu.au/au/cases/cth/FCA/2011/1024.html

Corporations – post appointment

Ann Street Mezzanine Pty Ltd v Beck [2011] FCA 1047 (8 September 2011) PRACTICE AND PROCEDURE – order for interrogatories sought – interrogatories seeking identity of ASIC delegates who, on behalf of ASIC, made decisions to wind up relevant companies – relevant principles – claim of misfeasance in public office – order made http://www.austlii.edu.au/au/cases/cth/FCA/2011/1047.html

S & V Nominees Pty Ltd (in liquidation) v Rabobank Australia Limited (Formerly known as Primary Industry Bank of Australia Limited) (No 2) [2011] FCA 1039 (6 September 2011) PRACTICE AND PROCEDURE — Application by plaintiffs to amend their statement of claim in a manner which includes claim for declarations that defendant had breached s 427 and s 432 of the Corporations Act 2001 (Cth) (‘Corporations Act’) without any further claim with respect to alleged breaches — where defendant said claim for declarations was untenable — where plaintiffs had no real interest in determination of the question and where declaration served no practical purpose Held: Leave to file a statement of claim incorporating a claim for declarations of breaches of the Corporations Act refused http://www.austlii.edu.au/au/cases/cth/FCA/2011/1039.html

Singleton, in the matter of Lehman Brothers Australia Limited (in Liq) [2011] FCA 1068 (2 September 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1068.html

Vickers, in the matter of York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028 (1 September 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1028.html

Miscellaneous

A Bank & Coleiro and Anor [2011] FamCAFC 157 (2 August 2011) FAMILY LAW – APPEAL – where the Federal Magistrate made an order joining the bank to the property settlement proceedings between the husband and wife – where there was no application before the Federal Magistrate seeking that the bank be joined as a party to the proceedings – where the bank was not given notice of the proposed joinder order, or the opportunity to make submissions in relation to the proposed joinder order – appealable error found – appeal allowed – order set aside. FAMILY LAW – APPEAL – where the Federal Magistrate made an order which purported to relieve the husband and wife from compliance with the provisions of s 121 of the Family Law Act 1975 (Cth) – where there was no application before the Federal Magistrate seeking such an order – where the Federal Magistrate did not provide the opportunity for the bank to be heard prior to the making of the order – where the Federal Magistrate failed to give reasons for the making of the order – appealable error found – appeal allowed – order set aside. FAMILY LAW – APPEAL – where the Federal Magistrate made an order that the bank provide further material to the Court – where it was argued that the bank should not have to disclose further material to the Court until the determination of the bank’s application for summary dismissal of the wife’s amended application was determined – appeal allowed – order set aside. FAMILY LAW – CONTEMPT – in face of the Court – observations made concerning the Federal Magistrate’s use of the contempt procedure against the husband http://www.austlii.edu.au/au/cases/cth/FamCAFC/2011/157.html