Court upholds ATO’s right to access company records held by liquidators

 Corporate Insolvency, Insolvency Law, Taxation Issues  Comments Off on Court upholds ATO’s right to access company records held by liquidators
Feb 112016
 

Illegal Phoenix Squad

Warners case

Speaking of legal disputes between liquidators and the Australian Taxation Office (ATO)*, the ATO achieved victories in July and November 2015 in the Warner case, a case which arose as part of the ATO’s attack on phoenix company activity.
* See my blogs on the Australian Building Systems case .

Warners case is reported in Commissioner of Taxation v Warner [2015] FCA 659 (the first case) and Commissioner of Taxation v Warner (No 2) [2015] FCA 1281 (the second case).

The first Warners case

A case was brought before the Federal Court because the liquidators of a group of nine companies (creditors’ voluntary winding up, June 2013) which owed millions in tax debts refused to comply with demands by the ATO that they produce company documents. Those demands were issued in the course of investigations by the Phoenix Team of the Private Groups and High Wealth Individuals Business Line at the ATO. The basis for the demands was section 264 of the Income Tax Assessment Act 1936 and section 353-10 of Sch 1 to the Taxation Administration Act 1953.

The liquidators took the position that section 264 of the ITAA 1936 must be read as subject to section 486 of the Corporations Act 2001, which states that: “The Court may make such order for inspection of the books of the company by creditors and contributories as the Court thinks just, and any books in the possession of the company may be inspected by creditors or contributories accordingly, but not further or otherwise”. The liquidators claimed that the ATO, in common with any other creditor, must obtain a court order under section 486 before it can inspect the companies’ records held by the liquidators.

The Federal Court disagreed. It found that the liquidators were required to grant access to the documents demanded by the ATO, and that section 486 of the Corporations Act did not apply.

The group

At the bottom of this post is a list of the nine companies (known as the TJT group) involved in both the first and second case, showing their names, and former names, and their reported debts to the ATO. According to the Federal Court judge (Perry J) the group’s tax debt is/was “approximately $20 million, even without taking account of TJT (No 1)’s tax liability which is yet to be advised”. As is usually the case in phoenix activity, the companies changed their names several times. It appears from their former names that they were in business as employment, recruitment and/or human resources agents.
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Feb 072016
 

On 6 January 2016 the ATO issued a Decision Impact Statement concerning the High Court judgment in the Australian Building Systems case.

[See my previous post for a discussion of the High Court’s majority decision: Australian Building Systems case: plenty of common sense in the dissenting judgment by Justice Michelle Gordon]

It seems that although the ATO accepts the High Court’s majority decision (as, of course, it must), it’s interpretation of the decision is nuanced, and suggests that it has no intention of giving up on the retention obligation.

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Feb 022016
 

On 3 December 2015 the Insolvency Law Reform Bill 2015 was introduced into Australia’s House of Representatives. The Bill is a newer version of the 2014 draft Bill (Insolvency Law Reform Bill 2014), which was released in November 2014.

Ministerial Summary of the Insolvency Law Reform Bill 2015

The Bill was introduced to Parliament with this speech by Mr Alex Hawke, Assistant Minister to the Treasurer. The following is a copy of his speech. I have added headings to improve readability.
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