Insolvency practices – Page 2 – ░░░ INSOLVENCY INTERFACE

New ASIC guide on how to become, and behave as, a registered liquidator

ASIC, Corporate Insolvency, External administration, Insolvency practices, Regulation Comments Off

Mar 022017

Registered Liquidators: Registration, disciplinary actions and insurance requirements.

ASIC Regulatory Guide RG258, Issued: 1 March 2017

Australian Securities and Investments Commission:

This guide is for individuals who are or wish to become registered liquidators under … the Corporations Act 2001 …. This guide explains how to apply for registration as a liquidator, including the requirements that must be met to become a registered liquidator. This guide also explains the renewal of registration process, the disciplinary and other actions a registered liquidator may be subject to and our policy on adequate and appropriate insurance.

CLICK HERE to read or download a copy of ASIC’s Regulatory Guide RG 258.

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Contents of RG 258

Australian Bankruptcy Laws commencing 1 March 2017

Insolvency Law, Insolvency practices, Personal Bankruptcy, Regulation Comments Off

Feb 172017

Some of the changes to the Australia’s bankruptcy legislation approved when the Insolvency Law Reform Act was passed in 2016 will commence on 1 March 2017. The Australian Financial Security Authority (AFSA), the regulator of the Bankruptcy Act, has issued a table listing those changes and comparing them with the existing provisions. Set out below is a copy of that table. (The original is available for download from AFSA.)

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Comparative Table (Bankruptcy tranche 1 – commencement date 1 March 2017) re Insolvency Law Reform Act.

Table comparing the provisions of the Insolvency Practice Schedule (Bankruptcy) that are to commence on 1 March 2017 with existing provisions of the Bankruptcy Act

Schedule provision	Current Bankruptcy Act provision	Comment
10-5: Inspector-General (IG) must work cooperatively with Australian Securities and Investment Commission (ASIC) in performing functions and exercising powers	No equivalent	Requirement for the IG to work cooperatively with ASIC applies in relation to persons who are, have been or may become both registered trustees under the Bankruptcy Act and registered liquidators under the Corporations Act.
15-1: IG must establish a register of trustees	No direct equivalent – some trustee information is currently entered on the National Personal Insolvency Index (NPII)	The register will contain information relating to the trustee’s registration, as well as contact details and certain disciplinary action taken against trustees. The information on the register will be publicly available.
20-5: Application to IG for registration as a trustee	154A	An application must be in the approved form and accompanied by the application fee.
20-10: IG may convene committee to consider registration application	155	The committee to consist of the IG; a registered trustee chosen by a prescribed body; and a person appointed by the Minister. The ‘prescribed body’ is the Australian Restructuring Insolvency & Turnaround Association (ARITA).
20-15: IG must refer applications to the committee	No equivalent – 155 assumes referral of applications	The IG must refer an application within two months of receiving it.
20-20: Committee to consider applications	155A	The committee must decide within 45 business days of interviewing an applicant whether he/she should be registered.
20-25: Committee to report	155A(6)	A report must be given to the applicant and the IG.
20-30: Registration as a trustee	155B and 155C	The IG must register an applicant if the committee recommends it and if the applicant has produced evidence in writing that he/she has taken out adequate and appropriate professional indemnity and fidelity insurance, and has paid the registration fee. Registration has effect for three years, and the IG must give the trustee a certificate of registration (may be given electronically).
20-35: Insolvency Practice Rules (IPRs)4 may impose conditions on all registered trustees or on specified class of trustee	No equivalent	Provides for imposition of industry-wide conditions, or conditions limiting the kinds of activity in which a trustee may engage. Conditions include undertaking at least 40 hours of continuing professional education each year (10 hours of which must be capable of being objectively verified by an competent source) and maintaining adequate professional indemnity and fidelity insurance during any period of suspension of registration in relation to work carried out prior to the suspension taking effect. (see IPR 20-5)
20-40: Application to IG to vary or remove condition on registration	155E(1) to (3)	An application must be made in the approved form, but cannot be made if the trustee’s registration is suspended; if the condition is of a prescribed kind; or in prescribed circumstances.
20-45: IG may convene committee to consider application to vary or remove condition	155E(4) & (5)	The committee to consist of the IG; a registered trustee chosen by a prescribed body, and a person appointed by the Minister. The ‘prescribed body’ is ARITA.
20-50: IG must refer application to the committee	No equivalent – 155E assumes referral of applications	The IG must refer an application within two months of receiving it.
20-55: Committee to consider application	155E(6) & 155F(1)	The committee must interview an applicant unless the applicant agrees otherwise, and within 20 business days thereafter decide whether the condition should be varied or removed.
20-60: Committee to report	155F(2)	A report is to be given to the applicant and the IG.
20-65: Committee’s decision given effect	155F(4)	If the committee recommends removal or variation of condition, the condition is removed or varied in accordance with the decision.
20-70: Application for renewal of registration	155D(2) & (3)	Applications for renewal under 20-70 must be made in the approved form.
20-75: Renewal	155D(1)	The IG shall give a trustee a certificate of registration upon renewal.
20-80: False representation that a person is a registered trustee	No equivalent	A new offence that carries a maximum penalty of 30 penalty units (1 penalty unit = $180).
25-1: Registered trustees to maintain adequate insurance	No equivalent, however undertaking to maintain adequate insurance is a requirement for registration and failure to do so can be grounds for the IG to issue a ‘show cause’ notice	New offences introduced for failing to maintain adequate professional indemnity and fidelity insurance. Maximum penalty of 1,000 penalty units (for false or reckless failure); or 60 penalty units (for failure in other circumstances – e.g. inadvertent failure). The IG may, by legislative instrument, determine what constitutes adequate insurance. • No legislative instrument is currently proposed. Requirements relating to insurance will be outlined in Inspector-General Practice Statement (IGPS) 13
30-1: Annual trustee return	No equivalent	A new requirement for trustees to lodge annual return in the approved form, including evidence that adequate insurance has been maintained. The return must be lodged annually within one month of the anniversary of the date of a trustee’s registration. Maximum penalty for failure to lodge, 5 penalty units.
35-1: Notice of significant events to IG	161A	Introduction of new notifiable events that include: • being issued with a bankruptcy notice • disqualification from managing a corporation • ceasing to have adequate insurance • being issued a ‘show cause’ notice in relation to registration as a liquidator, or having registration as a liquidator suspended or cancelled. The notice must be filed in the approved form within five business days after the trustee could reasonably be expected to be aware that the event has occurred. Maximum penalty for failure to notify is 100 penalty units.
35-5: Notification of other events to IG	No equivalent	Introduction of an obligation to notify in the approved form if information in the annual trustee return or annual administration return is, or becomes, inaccurate in a material particular, and any other events prescribed (in the IPRs). The notice must be lodged within 10 business days after the trustee could reasonably be expected to be aware that the event has occurred. Maximum penalty for failure to notify is 5 penalty units.
40-5: Registered trustee to remedy failure to lodge documents or give information or documents	No equivalent	The IG may direct a trustee in writing to comply with the requirement to lodge any document or give any information or document required to be given to a person under the Act or to be lodged with the IG. If a trustee fails to comply, the IG can direct the trustee not to accept further appointments and/or apply to the court for an order for compliance.
40-10: Registered trustee to correct inaccuracies etc.	No equivalent	If the IG suspects information provided by a trustee is incomplete or incorrect, the IG can direct the trustee in writing to confirm information is complete or correct, or to provide complete or correct information and/or notify persons of the addition or correction. If a trustee fails to comply, the IG can direct the trustee not to accept further appointments and/or apply to the court for an order for compliance.
40-15: Direction not to accept further appointments	No equivalent	The IG may direct a trustee in writing not to accept further appointments if: • the trustee has failed to comply with a direction under 40-5 or 40-10 • a committee convened to consider the trustee’s ongoing registration decides the IG should give the direction • the trustee has failed to comply with a direction under 7070 (to give information to debtor or creditors) or • the trustee has failed to comply with a direction under 75-20(1) or (2) to convene a meeting of creditors – note 70-70 and 75-20 commence on 1 September 2017. When given, a direction not to accept further appointments becomes a condition on the trustee’s registration.
40-20: Automatic cancellation of registration	182	Cancellation of registration occurs on the death of a trustee or if he/she becomes an insolvent under administration.
40-25: IG may suspend registration	No equivalent	The IG may suspend a registration where the trustee: • is disqualified from managing a corporation • ceases to have adequate insurance • has had his/her registration as a liquidator suspended or cancelled (other than on request) • owes more than the prescribed amount of estate charges • fails to comply with a court order to repay remuneration to an estate • has been convicted of an offence involving fraud or dishonesty or • requests the IG to suspend the registration.
40-30: IG may cancel registration	No direct equivalent (155G provides a trustee may request the IG that registration cease)	The IG may cancel a registration where a trustee requests it, or in circumstances equivalent to those mentioned in relation to the suspension of a registration under 40-25 (except registration as a liquidator must be cancelled, not merely suspended).
40-35: Notice of suspension or cancellation	No equivalent	If the IG decides to suspend (under 40-25) or cancel (under 40-30) a trustee’s registration, the IG must give notice of the decision, along with reasons, to the trustee within 10 business days. The decision comes into effect the day after the notice is given. Failure to give the notice within 10 business days does not affect the validity of the decision.
40-40: IG may give a show- cause notice	155H(1)	A show-cause notice may be issued by the IG where the trustee: • no longer has the requisite qualifications, experience, knowledge and abilities • has committed an act of bankruptcy • is disqualified from managing a corporation • ceases to have adequate insurance • has breached a condition of registration • has breached a provision of the Bankruptcy Act • has had his/her registration as a liquidator cancelled or suspended (other than on request) • owes more than the prescribed amount of estate charges • fails to comply with a court order to repay remuneration to an estate • has been convicted of an offence involving fraud or dishonesty • is permanently or temporarily unable to perform the functions of a trustee due to physical or mental incapacity • fails to carry out adequately and properly the duties of a trustee • fails to carry out adequately and properly the duties of the administrator of a debt agreement • is not a fit and proper person • is not resident in Australia or • has failed to comply with a standard prescribed in the IPRs.
40-45: IG may convene a committee	155H(2) & (3)	The committee is to consist of the IG; a registered trustee chosen by a prescribed body, and a person appointed by the Minister. The ‘prescribed body’ is ARITA.
40-50: IG may refer matter to a committee	155H(2)	The IG may refer a matter to the committee if no explanation is received within 20 business days after a show-cause notice is given; or if not satisfied by the explanation.
40-55: Decision of the committee	155I(1), (2) & (3)	The committee can decide one or more of the following: • the trustee continue to be registered • the trustee’s registration be suspended or cancelled • the IG direct the trustee not to accept further appointments • the trustee be publicly admonished or reprimanded • a condition be imposed on the trustee’s registration • a condition be imposed on the registration of all other trustees that they not allow the trustee in question to exercise powers or perform functions on their behalf • the IG publish specified information in relation to the committee’s decision.
40-60: Committee to report	155I(4)	A report must be given to the registered trustee and the IG.
40-65: IG must give effect to committee’s decision	155I(6)	The IG must give effect to the decision made by the committee.
40-70: Application to lift or shorten suspension	No equivalent	A trustee may lodge an application with the IG in the approved form to lift, or shorten the period of a suspension.
40-75: IG may convene a committee to consider applications	No equivalent	The committee is to consist of the IG; a registered trustee chosen by a prescribed body; and a person appointed by the Minister. The ‘prescribed body’ is ARITA.
40-80: IG must refer applications to a committee	No equivalent	The IG must refer an application within two months of receiving it.
40-85: Committee to consider applications	No equivalent	The committee must interview an applicant unless the applicant agrees otherwise, and within 10 business days thereafter, decide whether the suspension should be lifted or shortened.
40-90: Committee to report	No equivalent	A report must be given to the applicant and the IG.
40-95: Committee’s decision given effect	No equivalent	If the committee decides to lift or shorten the suspension, the suspension is lifted or shortened in accordance with that decision.
40-100: Notice by industry bodies of possible grounds for disciplinary action	No equivalent	An industry body may lodge with the IG a notice in the approved form stating that it reasonably suspects there are grounds for the IG to impose a condition on, or suspend or cancel the registration of, a trustee, or issue a show-cause notice to the trustee. The IG must consider the information but is not bound to act on it.
40-105: No liability for notice given in good faith etc.	No equivalent	An industry body is not liable civilly, criminally or under any administrative process for a notice given in good faith and where the suspicion that is the subject of the notice is a reasonable suspicion. That protection extends to persons who give information to the industry body that is contained in a notice to the IG and to persons who make a decision as a result of which the industry body gives a notice.
40-110: Meaning of industry body	No equivalent	The IPRs may prescribe industry bodies–ARITA and the peak accounting and legal professional bodies are prescribed (see IPR 40-1).
45-1: Court oversight of registered trustees	No direct equivalent (some of the same subject matter is contained in 176 and 179. Other provisions of the ILRA also partially replicate 179 – e.g. 9015)	A Court may make such orders as it thinks fit in relation to a registered trustee, either on its own initiative, or on application by the IG or the trustee. In making orders the court may take into account: • whether the trustee has faithfully performed his/her duties • whether an action or failure to act by the trustee complies with the Act or IPRs, or the order of the court • whether any person has suffered, or is likely to suffer, loss or damage as a result of the trustee’s act or failure to act • the seriousness of the consequences of any act or failure to act by the trustee, including the effect on public confidence in registered trustees as a group.
45-5: Court may make orders about costs	No direct equivalent, but some overlap with 176	Without limiting 45-1, the Court may make orders in relation to a registered trustee that deal with the costs of a matter considered by the Court.
50-5: Prescribed body appointing a person to a committee	No equivalent	The IPRs may prescribe knowledge and experience requirements for members of a committee chosen by a prescribed body (at least 5 years’ experience as a registered trustee is prescribed – see IPR 50-15). The ‘prescribed body’ is ARITA.
50-10: Minister appointing a person to a committee	No equivalent	The Minister must be satisfied that a person is qualified by virtue of his or her knowledge of, or experience in, one or more of: business; law; economics; accounting; public policy relating to bankruptcy.
50-15: Single committee may consider more than one matter	No equivalent	A single committee may consider one or more of the following: • matter(s) relating to one application for trustee registration • matter(s) relating to more than one applicant for registration • matter(s) relating to one or more registered trustees.
50-20: Ongoing consideration of matters by committee	No direct equivalent (but similar in some respects to the subject matter in Bankruptcy Regs 8.05G and 8.23)	The committee’s powers are not affected by a change in membership of the committee; the committee may adjourn consideration of a matter (and may do so more than once). A matter may be transferred to another committee.
50-25: Procedure and other rules relating to committees	No equivalent	The IPRs may provide for (see division 50 of the IPRs): • the manner in which committees perform their functions including: (i) meetings (ii) quorum requirements (iii) disclosure of interests and (iv) how questions are decided • the reconstitution of a committee and • the termination of consideration of a matter by a committee and the transfer of matters to another committee.
50-30: Remuneration of committee members	No equivalent	Committee members are entitled to receive remuneration as determined by the Remuneration Tribunal. If no Tribunal Determination is in place, the members are entitled to receive such remuneration as the Minister determines in writing.
50-35: Committee must only use information etc. for purposes for which disclosed	No equivalent	A committee member commits an offence if he/she uses or discloses information or a document that was disclosed to him/her for the purposes of serving on the committee (50 penalty unit maximum penalty). Exceptions apply where the document or information is disclosed to: ASIC; other committees under this Part or the corresponding Part of the Insolvency Practice Schedule (Corporations); prescribed bodies; authorities in States, Territories or overseas exercising similar functions to the committee or the IG; or a court or tribunal.
96-1: Review by the Administrative Appeals Tribunal (AAT)	155A(7) – registration application 155F(3) – application to vary/remove condition 155I(5) – disciplinary action by committee	The following decisions are reviewable by the AAT: • a committee decision under 20-20 (registration application) • a committee decision under 20-55 (application to vary or remove condition on registration) • IG decision under 40-15 (directing trustee not to accept further appointments) • IG decision under 40-25 (suspending registration) • IG decision under 40-35 (cancelling registration) • Committee decision under 40-55 (disciplinary action by committee) • Committee decision under 40-85 (application to lift or shorten a suspension).
105-1: The Insolvency Practice Rules	No equivalent	The Minister may, by legislative instrument, make rules providing for matters required or permitted by the Bankruptcy Act to be made by the Rules, or necessary or convenient to be provide for in order to carry out or give effect to the Act.

Endnote (edited)

This table deals only with provisions in Parts 1 and 2 of the Schedule (and sections 96-1 and 105-1 in Part 4, to the extent those provisions relate to Parts 1 and 2).

Transitional arrangements apply in respect of some new provisions – the transitional arrangements are not covered in this table.

This table does not present a full description of the new provisions, but highlights their main features and/or how they differ from existing.

A reference to the IPRs is a reference to the Insolvency Practice Rules, which underpin the Insolvency Practice Schedule (Bankruptcy) and provide greater detail in relation to various requirements of the Parts 1 and 2 of the IPRs commence on 1 March 2017.

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End of table

Australian Building Systems case: nuanced ATO view of decision

Capital Gains Tax, CGT, Corporate Insolvency, Insolvency Law, Insolvency practices, Priority Debts, Tax debts, Tax liabilities, Taxation Issues Comments Off

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.

Introducing the Insolvency Law Reform Bill 2015

Corporate Insolvency, Insolvency Law, Insolvency practices, Personal Bankruptcy, Regulation Comments Off

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.
Continue reading »

Causes of business failure in personal insolvency

Debt Administration, Insolvency Law, Insolvency practices, Insolvency Statistics, Personal Bankruptcy, Phoenix company activity Comments Off

Aug 132015

What reasons are given for the failure and insolvency of non-corporate businesses, i.e., those owned by individuals as sole traders or in partnership? Is there any alignment between the reasons given for non-corporate business failures and the reasons given for corporate failures? And where a non-corporate (aka personal) business insolvency has been brought about by the phoenix scheme of a corporate customer or client, is this made known to the regulator for statistical purposes?

This article is an extension of the discussion in my post “Confusing causes of corporate insolvency”. Continue reading »

Creditors’ voluntary winding up – fundamentals – flowchart

Checklists and guides, Corporate Insolvency, Insolvency Law, Insolvency practices Comments Off

Jun 242015

(24 June 2015: copyright P J Keenan)

OVERVIEW OF Creditors’ Voluntary Winding up IN AUSTRALIA

Resolutions by shareholders to wind up the company and to appoint a liquidator

Liquidator takes control of business, property and affairs

Liquidator prepares report of proposed remuneration

Liquidator makes declarations of indemnities, up-front payments and relevant relationships

Directors’ statement about business, property, affairs and financial circumstances of company (Report as to Affairs)

Meeting of creditors (possible committee of inspection; fix remuneration of liquidator; confirm or change liquidator; etc.)

Investigations, realisations of assets and unpaid share capital, recovery of property and (possibly) recovery of compensation	Liquidator’s statutory reporting, accounts and returns
Examination and determination of creditors claims	Payment of expenses and liquidator’s remuneration
Distribution of residual funds to creditors	Annual meeting of creditors or annual report

Final meeting of creditors and shareholders

Deregistration of the company

LAW: Corporations Act 2001, Chapter 5; Corporations Regulations 2001.
PRACTICE STANDARDS: The Third Edition of the Code of Professional Practice of the Australian Restructuring Insolvency & Turnaround Association

ARITA publishes tax guide for insolvency practitioners

Checklists and guides, Corporate Insolvency, Insolvency practices, Personal Bankruptcy, Practitioners Association (ARITA), Taxation Issues Comments Off

Jun 112015

Tax Checklist for IPs
The Australian Restructuring Insolvency and Turnaround Association (ARITA), with the help of professional services firm PricewaterhouseCoopers Australia (PWC), has published a tax guidance checklist to assist insolvency practitioners with identifying tax issues and their obligations on taking insolvency appointments. (Publication date 10 June 2015)

The checklist has 57 questions, alerts, recommendations and tasks concerning income tax, goods and services tax, fringe benefits tax, PAYG withholding, and superannuation guarantee.

ARITA suggests that “Members should note that while ARITA will endeavour to ensure that this guidance is kept up to date, tax is an area subject to constant change and the guidance is current, to the best of our knowledge, as at the date included in the footer of the document. Members should ensure that they are always using the most current version of the guidance”.

The checklist is intended to provide assistance and help to insolvency practitioners in the complicated field of tax compliance. There is no suggestion from ARITA that use of their tax guide is mandatory or necessary or even recommended.

Extract from ARITA tax guide

Access to the full guide is available through the ARITA website: CLICK HERE.

Update 14 July 2015:

From ARITA on 13 July:

ARITA has received a number of queries from members regard the relevant PAYG Withholding Rates for dividends paid to employees by external administrators in light of the increase to the Medicare Levy.

On consultation with the ATO, we have been advised that the 2005 Notice of Variation is still current and the 31.5% standard rate still applies and will continue to do so until the notice of variation ceases on 1 October 2015.

The ATO further advises that it is looking to renew the notice but before that occurs will consult with relevant stakeholders, including ARITA and external administrators, about whether changes need to or should be made to the current notice, including any changes to the rates on the notice.

Tax Office wins right to appeal in test case regarding liquidators’ tax obligations

Capital Gains Tax, CGT, Corporate Insolvency, Insolvency Law, Insolvency practices, Priority Debts, Taxation Issues Comments Off

Apr 272015

{UPDATE 10/12/2015: The ATO lost in the High Court case. See my post of 10/12/2015.}

On 17 April 2015 the High Court granted special leave for the Australian Taxation Office to appeal the decision by the Full Federal Court in the Australian Building Systems case.

Previously … The liquidators of Australian Building Systems Pty Ltd disposed of company property for a capital gain. The Commissioner of Taxation claimed that the liquidators were required to retain funds from the sale proceeds to pay tax arising from the gain. The Federal Court (21/2/2014) and the Full Federal Court (8/10/2014) rejected the Commissioner’s position, holding that the payment and retention obligations in s 254 of the Income Tax Assessment Act arose only when a notice of assessment was issued by the Commissioner.

Commenting on the High Court’s grant of leave to appeal against those decisions of the Federal Court, David Pratley of Minter Ellison, Lawyers, says:

“Regrettably, the tax obligations of insolvency practitioners will continue to be uncertain for some time. It will likely be at least 12 months before the High Court hands down its decision on the appeal. If the appeal is allowed it would generally have retrospective application. Hence practitioners that rely on the Full Federal Court decision in releasing funds could be exposed to the risk of personal liability.”

Extracts from the transcript of the application for special leave

Below are extracts I have made from the High Court transcript number [2015] HCATrans 082. CLICK HERE to see full transcript. The application for special leave to appeal was before KIEFEL J and KEANE J. The full name of the case is : Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation); Commissioner of Taxation v Ginette Dawn Muller and Joanne Emily Dunn as Liquidators of Australian Building Systems Pty Ltd (In Liquidation) [2015] HCATrans 82 (17 April 2015)
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MR J T GLEESON, SC (representing the Commissioner of Taxation):

…. So, in practical terms, a commissioner contends that if the liquidator sells a block of land on a certain date in the year for, let us say, a $10 million gain, the section requires the liquidator as a trustee to ensure that sufficient moneys remain in his or her hands to meet the tax when it is assessed at some future point. The obligation cuts in because the gain has been derived and it has its particular force at the time the liquidator is contemplating paying away money from the fund. So, in the example I have given, assuming they were the only facts known to the liquidator and the corporate tax rate was 30 per cent, the liquidator before making distributions to creditors or contributories would always make sure $3 million remained in the bank to pay the tax.

KIEFEL J: Do you say the obligation arises upon the receipt on each occasion of income or each transaction by which profit or gain is – – –

MR GLEESON: Yes, it arises because the derivation under paragraph (a), which is treated as being a derivation by the trustee or agent, and he thereby is bound under the obligation for the very good purpose that the whole point is so that the money remains there rather than the liquidator pay it away and then, when an assessment is later issued, the Commissioner would have to try and chase the creditors or the contributories.

….

KIEFEL J: What do you say – I think you have dealt with this in your reply – to the respondents’ argument that your construction leads to difficult results about how the liquidator has to estimate exact amounts?

MR GLEESON: It may or may not require attention by the liquidator to those questions. If it does, that does not call for any different construction, because the point of being a liquidator or a trustee or an agent, by taking on that responsibility the Act has placed upon you the duty to sufficiently inform yourself of the circumstances of the trust estate or the principal’s affairs with which you are acting in a representative capacity.

What the liquidator does – I have given a simple example where the liquidator says, “I must keep $3 million back from the creditors”, and if later on in the year there are further transactions on the tax account which the liquidator has information which might adjust the amount that he or she needs to keep, he or she makes an adjustment. But the critical thing is, the purpose of it is, do not pay away the money which needs to be there to make sure the Commissioner can recover the tax. By taking on the duty of trustee or agent you take on a statutory responsibility to ensure that is done. May it please the Court.

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MR S DOYLE, QC (representing the liquidators of Australian Building Systems Pty Ltd Acn 094 238 678 (In Liquidation)):

….

The respondent’s contention is “due” there means payable and our learned friend’s contention is that it means “owing” and it turns therefore on the question of whether there need be or need not be an assessment.

The construction for which the respondent contends, we would submit, is plainly right. It is required by the language of 254(1)(d), which speaks of a sum which is due but, more importantly, of a sum which will become due, not as the case against us requires that it be understood as if it might become due because our learned friend’s capital gain tax case is a good example upon the sale for a capital gain one can postulate that tax might become due, one cannot say that tax will become due without having regard to the totality of the affairs of the principal, the underlying taxpayer.

Additionally, the construction for which we contend gives defined content to the obligation to retain sufficient to pay because it is only when there is an assessment that one can know what that figure is. Our learned friend says against us that a liquidator has an obligation to understand the affairs of the company or a trustee has an obligation to understand the estate assets. This is not a question of diligence. This is a question of certainty. There is a defined obligation which requires one to be able to say, what is the sum sufficient to pay for the tax? The construction for which the respondent contends – which was favoured below – permits that to occur; the opposite construction does not.

KIEFEL J: Are you saying that the liquidator should only be required to be in a position to understand the overall obligations to pay tax on behalf of the company for the whole year rather than it being considered on a transactional basis?

MR DOYLE: It can only be when there is an assessment made. Assuming there are other affairs of the company within that period, it is only when there is an assessment issue that one can say that there is tax which will become due and that gives definition to the content of the obligation to retain a sum sufficient to pay it. It also gives content to – I hope I have answered your Honour’s question.

….

MR DOYLE:

…. To answer your Honour Justice Keane’s question, it is right to say the liquidator conducts the affairs of the company and has the obligation to put the tax return in. But our learned friend’s contention is the content of the obligation to withhold the money from the principal and to retain it under relevantly (d) and (e) arises long before that is done – arises at the moment of each receipt as it was put to you. That requires one to be able to say, the statute imposes a definable obligation on someone to withhold – as is the case here – a sum sufficient to pay the tax due upon a sale which gives rise to a capital gain in circumstances where there is no sum which can be defined as the tax due, or will become due, because of the other uncertainties which will influence the amount, if any, of tax which will become due.

That is, in our submission, the real difficulty with the case which is put by the applicant. It requires you to be able to say that when a liquidator makes a sale at a capital gain, he is obliged to do something to retain that money – that is, obliged by the Tax Act – forgetting his obligations as a liquidator – obliged by the Tax Act to do something with that money in circumstances where it is not possible to say how much. It is not possible to say there will, in fact, be tax due because subsequent events may mean there is no tax due.

….

KIEFEL J: Yes, there will be a grant of special leave in this matter. The Court notes the Commission is undertaking to pay the respondent’s costs, regardless of the outcome in this matter. The parties should obtain a copy of the directions for the filing of submissions with respect to this matter and, of course, to adhere strictly to the timetable there set out. Time estimate? No more than a day? ….

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Links to previous post about tax on this blog site:

“Post-appointment income tax debts of liquidator” – 10 October 2010
“Taxing capital gains made during liquidation” – 15 October 2010
“Legal opinion warns external administrators about personal liability for company taxes” – 16 November 2010
“Decision only partly resolves tax puzzle for liquidators” – 7 March 2014
“ATO appeals against decision in Australian Building Sysytems case” – 19 March 2014
“Tax Office loses to liquidators in test case regarding tax obligations” – 10 October 2014

Policy positions of the insolvency practitioners association

Corporate Insolvency, External administration, External administrators, Insolvency Law, Insolvency practices, Official Inquiries, Practitioners Association (ARITA) Comments Off

Mar 052015

A set of “policy positions” on insolvency law and practice has just been issued by Australia’s insolvency practitioners association – the Australian Restructuring Insolvency and Turnaround Association (ARITA).

The policies are titled:

Policy 15-01: ARITA Law Reform Objectives (Corporate)
Policy 15-02: Aims of insolvency law
Policy 15-03: Current Australian corporate restructuring, insolvency and turnaround regime and the need for change
Policy 15-04: Creation of a Restructuring Moratorium (Safe Harbour)
Policy 15-05: Stronger regulation of directors and creation of a director identification number
Policy 15-06: Advocate for Informal Restructuring
Policy 15-07: Reworked Schemes/Voluntary Administration regimes to aid in the rehabilitation of large enterprises in financial distress
Policy 15-08: Extension of moratorium to ipso facto clauses
Policy 15-09: Streamlined Liquidation for Micro Companies
Policy 15-10: Micro Restructuring
Policy 15-11: Pre-positioned sales

ARITA’s 17-page paper – named Policy Positions of the Australian Restructuring Insolvency and Turnaround Association – is the final version of its discussion paper, A Platform for Recovery 2014. It is attached to its submission on 2 March 2015 to the Productivity Commission’s public inquiry into ” barriers to setting up, transferring and closing a business”.

It seems ARITA’s policy positions paper is not yet (mid-day 5/3/15) published as a separate document on ARITA’s website. However, I have created a copy, which is available on my website now.

ARITA’S full 59-page submission to the Productivity Commission is available on its site, as is its useful summary of the key points made in the submission. ARITA says that the policies in the Policy Positions paper form the key basis of ARITA’s submission to the Productivity Commission.

Other link: To the website of the Productivity Commission’s Business Set-up, Transfer and Closure inquiry.

ATO modifies website page for insolvency practitioners

Corporate Insolvency, External administration, Insolvency practices, Payments to ATO, Personal Bankruptcy, Taxation Issues Comments Off

Feb 042015

The Australian Taxation Office (ATO) has modified the section of its website that provides advice and information to insolvency practitioners on the various taxation questions and topics that pertain to them. (Modifications made 29 January 2015.)

The following headings in red are links to the subjects on the ATO page:

Insolvency Practitioners

Contacting us about insolvency

“How to contact us regarding insolvency matters.”

Online services and forms

“Here you will find the Business Portal FAQ, Voidable transaction claim form, Appointment or cessation of a representative of an incapacitated entity form and Debt insolvency cover sheet.”

Responsibilities

“Administrative obligations of external administrators in both personal and corporate insolvency.”

Disclosure of taxpayer information – insolvent entities

“You may need to access information we hold to help you administer an insolvent estate. The information we disclose varies depending on the type of insolvency administration. Find out how to obtain this information from us.”

Preference payments

“Information for insolvency practitioners seeking recovery of voidable transactions.”

Indemnities for trustees and liquidators

“What trustees and liquidators need to consider when making an indemnity request to the Deputy Commissioner of Taxation.”

Superannuation and insolvency

“Information about how superannuation affects insolvency administrations.”

Reports on our management of insolvent entities

“Independent reviews into our decisions to enforce insolvency.”

Shares and securities

“Claiming capital losses on shares and securities that are declared worthless.”

PAYG withholding

“Pay as you go (PAYG) withholding is a system that collects tax from the payments businesses make to employees and other businesses, so they can meet their tax liabilities. Information is provided here for external administrators and trustees of bankrupt estates to understand what they need to do to meet their administrative obligations under the PAYG withholding system.”

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