Priority Debts – Page 2 – ░░░ INSOLVENCY INTERFACE

ASIC invites comment on use of its new power to wind up companies

ASIC, Corporate Insolvency, Employee Entitlements, GEERS, Insolvency Laws, Insolvency practices, Regulation, White collar crime Comments Off

Jul 182012

How should the public interest test be applied?

The Australian Securities and Investments Commission (ASIC) has released a consultation paper outlining how it intends to implement its new power to wind up companies.

Recent amendments to the Corporations Act have given ASIC the power to order the wind up a company in specific circumstances and appoint a liquidator. The Corporations Amendment (Phoenixing and Other Measures) Act 2012 amends the Corporations Act to add a new part to Chapter 5 – External Administrations. The new part (Part 5.4C) – which comprises new sections 489EA, 489EB and 489EC – gives ASIC the power to wind up companies in FOUR scenarios:

SCENARIO 1:

ASIC may order a winding up if:

(a)	the response to a return of particulars given to the company is at least 6 months late; and
(b)	the company has not lodged any other documents under this Act in the last 18 months; and
(c)	ASIC has reason to believe that the company is not carrying on business; and
(d)	ASIC has reason to believe that making the order is in the public interest.

SCENARIO 2:

ASIC may order a winding up if the company’s review fee in respect of a review date has not been paid in full at least 12 months after the due date for payment.

SCENARIO 3:

ASIC may order a winding up if

(a)	ASIC has reinstated the registration of the company under subsection 601AH(1) in the last 6 months; and
(b)	ASIC has reason to believe that making the order is in the public interest.

SCENARIO 4:

ASIC may order a winding up if

(a)	ASIC has reason to believe that the company is not carrying on business; and
(b)	at least 20 business days before making the order, ASIC gives to:
	(i)	the company; and
	(ii)	each director of the company;
	a notice:
	(iii)	stating ASIC’s intention to make the order; and
	(iv)	informing the company or the director, as the case may be, that the company or the director may, within 10 business days after the receipt of the notice, give ASIC a written objection to the making of the order; and
(c)	neither the company, nor any of its directors, has given ASIC such an objection within the time limit specified in the notice.

Comments on Consultation Paper 180 are due by Friday 10 August, 2012.

Click here to download Consultation Paper 180. (PDF format.)

The following is ASIC’s media release of 12 July 2012:

ASIC today released a consultation paper outlining how it intends to implement its new power to wind up abandoned companies under the Corporations Act 2001 (Corporations Act) to facilitate greater access to the General Employee Entitlements Redundancy Scheme (GEERS).

Consultation Paper 180 ASIC’s power to wind up abandoned companies outlines how ASIC intends to exercise this new power, and how it will prioritise matters for winding up

‘When using this power, our first consideration will be if an order to wind up the company would facilitate employee access to GEERS’, Commissioner John Price said.

GEERS is a scheme funded by the Australian Government to assist employees of companies that have gone into liquidation and who are owed certain employee entitlements. However, companies are sometimes abandoned by their directors without being put into liquidation. This has previously resulted in employees of the company who are owed employee entitlements being unable to access GEERS.

Consistent with the new law, ASIC is proposing to apply a public interest test when deciding whether to wind up a company. This public interest test will consider factors like the cost of winding up, the amount of outstanding employee entitlements and how many employees are affected.

‘ASIC needs to consider the broader public interest when deciding which abandoned companies with outstanding employee entitlements will be wound up’, Mr Price said.

ASIC is proposing not to reinstate companies that have already been deregistered in order to wind them up later. Among other reasons, there are already court processes in place to facilitate the reinstatement of a company where that is needed.

ASIC intends to commence using this new power to wind up abandoned companies in the final quarter of 2012.

Comments on Consultation Paper 180 ASIC’s power to wind up abandoned companies are due by Friday 10 August, 2012.

Background

One of the measures of the Australian Government’s Protecting Workers’ Entitlements Package (announced July 2010) is to assist employees of abandoned companies to access the General Employee Entitlements and Redundancy Scheme when they are owed certain employee entitlements.

When the employer is a corporation, it must be in liquidation before GEERS can assist an employee.

Amendments to the Corporations Act have given ASIC the power to wind up an abandoned company in specific circumstances.

ASIC may appoint a registered liquidator over a company when exercising its power to wind up an abandoned company.

Employers and unions trade blows on GEERS scheme

Corporate Insolvency, Employee Entitlements, GEERS, Personal Bankruptcy Comments Off

Jul 172012

(From SCR: Supply Chain Review. July 12, 2012 – http://www.supplychainreview.com.au/news/articleid/80211.aspx )

“The General Employee Entitlements and Redundancy Scheme (GEERS) has become an industrial relations and regulatory football, two weeks after its near-death experience in the High Court.

Federal Employment and Superannuation Minister Bill Shorten fast-tracked GEERS payment to 1st Fleet employees amongst others two months ago but industry and union heads are now engaging in robust debate on the issue sparked by a recent surge in payouts.

The latest into the fray is Australian Industry Group (Ai) CEO Innes Willox, who lambasted the Australian Council of Trade Unions (ACTU) over accusations that employers were milking GEERS.

“Union assertions that the $1 billion paid out to the employees of insolvent employers under the scheme over the past decade is money taken by employers from their employees is arrant nonsense,” Willox says.

ACTU Secretary Dave Oliver, in a statement reportedly in tune with the thinking in Shorten’s office, put the issue at the door of managers.

Oliver has called for tougher penalties for company directors who breach corporations laws, including trading insolvent or failing to make superannuation contributions, saying the taxpayer should not have to pay for employer malfeasance.

“The amount of money being covered by taxpayers highlights the important role this scheme plays, but also backs up union calls for greater penalties,” he says.

“It should be the responsibility of employers to make provision for workers’ entitlements, and directors who run their companies into the ground with no funds left for workers should be punished.

“These entitlements have been earned over years of loyal service, and employers have a legal obligation to pay them.

“But all too often businesses go broke leaving nothing in the bank. Frequently, companies treat workers’ entitlements as a kind of unsecured, interest-free loan – without telling the workers and often with no intention of ever paying it back. It is left to taxpayers to come to the rescue.

“This type of behaviour must be punished through tougher penalties.”

But Willox hit back, describing the union imputation as “deserving of the strongest condemnation”.

“Under the Corporations Act, directors have a legal duty not to trade insolvently and penalties for individuals of up to $220,000 or imprisonment for up to five years apply,” Willox says.

“Directors can also become personally liable for debts incurred while the company is insolvent.”

He points out that, under the Act, to enter into an agreement or transaction with the intention of avoiding the payment of employee entitlements is an offence.

A court can order those convicted to compensate employees who have suffered loss or damage because of the agreement or transaction.

Penalties of up to $110,000 or imprisonment for up to 10 years apply.

“When companies go broke there are no winners,” Willox says.

“Often directors and business owners experience great hardship.

“Employees are in a different position; they have the GEERS scheme to prevent hardship in these unfortunate circumstances.”

He adds that Ai had warned the Government in January 2011 that increasing redundancy protection from a maximum of 16 weeks to an entitlement of up to four weeks per year of service “could create a huge budget shortfall” if even one large company with a generous redundancy scheme failed.

New law on companies’ non-compliance with PAYG withholding and superannuation guarantee obligations

Insolvency Law, Insolvency practices, Priority Debts, SGC, Superannuation liabilities, Tax liabilities, Taxation Issues Comments Off

Jun 212012

On 20 June 2012 the following documents concerning proposed new tax laws on non-compliance with PAYG withholding and superannuation guarantee obligations was posted on the website of the Parliament of Australia:

Explanatory Memorandum to law.
Tax Laws Amendment (2012 Measures No. 2) Bill 2012 (Third reading).

Both documents can be read and/or downloaded HERE.

On the 21 June the legislation went to the Senate.

____________ end of post _______________________

Second attempt at tax laws to impose director liability for employee superannuation entitlements

Corporate Insolvency, Employee Entitlements, Insolvency Laws, Offences, Tax debts, Tax liabilities, White collar crime Comments Off

Apr 202012

The Government is again proposing to extend the director penalty regime to cover employee superannuation entitlements.

The original Bill was introduced to Parliament on 13 October 2011. (I wrote about this in my blog post on 18/10/2011: see “Parliament sees new tax laws to protect superannuation and deter phoenix companies”.)

In its media release on 18 April 2012, the Government says it “held further consultation with industry after withdrawing an earlier version of the legislation in November. Following this consultation, the Government has made amendments to the draft Bill, including to ensure that new directors have time to familiarise themselves with corporate accounts before being held personally liable for corporate debts and requiring the ATO to serve director penalty notices on directors in all cases before commencing action.”

This is the full GOVERNMENT MEDIA RELEASE of 18 April 2012:

“Draft legislation released today will help to protect workers’ superannuation entitlements, said Assistant Treasurer, David Bradbury.

Under the director penalty regime, which has been in operation since 1993, company directors are personally liable for amounts withheld by their company that have not been remitted to the Australian Taxation Office (ATO). The Tax Laws Amendment (2012 Measures No. 2) Bill 2012: Companies’ non-compliance with PAYG withholding and superannuation guarantee obligations will extend the regime to cover Superannuation Guarantee amounts.

As well as strengthening directors’ obligations to arrange for their companies to meet Pay As You Go (PAYG) withholding and superannuation obligations, the measure will also help counter phoenix behaviour.

“The Gillard Government is committed to protecting workers’ entitlements,” said Mr Bradbury.

“This legislation makes it clear that directors have an obligation to ensure that provision is made for the ongoing payment of workers’ superannuation.

“It also ensures that fraudulent directors who use phoenix companies to try and avoid their debts will be held personally liable for their PAYG withholding and superannuation obligations.”

The Government held further consultation with industry after withdrawing an earlier version of the legislation in November. Following this consultation, the Government has made amendments to the draft Bill, including to ensure that new directors have time to familiarise themselves with corporate accounts before being held personally liable for corporate debts and requiring the ATO to serve director penalty notices on directors in all cases before commencing action.

The draft legislation also includes a new defence for directors liable to penalties for superannuation debts where, broadly, they reasonably thought the worker was a contractor and not an employee,” he said.

“The measure strikes the appropriate balance between protecting workers’ entitlements while not discouraging people from becoming company directors.”

The Government looks forward to receiving submissions from the public about this important reform. Submissions close on 2 May 2012 to allow for the introduction and passage of the legislation in the Winter 2012 sittings of Parliament.

The draft legislation, explanatory memorandum, and a summary of the policy changes can be found on the Treasury website.

CANBERRA 18 April 2012″

Click on the following link to go to THE TREASURY WEBSITE LOCATION WHERE DETAILS WILL BE FOUND. The closing date for submissions regarding the proposed legislation is 2 May 2012.

End

Draft laws released on director liability for unpaid super

Employee Entitlements, Insolvency Laws, Insolvency practices, Priority Debts, Taxation Issues, White collar crime Comments Off

Jul 142011

Draft Australian tax laws intended “to better protect workers’ entitlements to superannuation, strengthen director obligations and enhance deterrence of fraudulent phoenix activity” were released on 5 July 2011 for public consultation. Treasury states that:

” The main aspects of these amendments involve:

extending the director penalty regime beyond its current application to Pay As You Go (PAYG) withholding to make directors personally liable for their company’s unpaid superannuation guarantee amounts;
allowing the Commissioner of Taxation (the Commissioner) to immediately commence recovery of all director penalties when the company’s unpaid liability remains unpaid and unreported three months after the due day, regardless of the character of the company’s underlying liability; and
providing the Commissioner with the discretion to prevent directors and, in some instances their associates, from obtaining PAYG withholding credits where the company has failed to pay amounts withheld to the Commissioner.”

To see the Explanatory Memorandum and/or the Exposure Draft Legislation CLICK HERE.

Closing date for submissions: Monday, 1 August 2011

I intend to write more about this soon.

Insolvency Practitioners Assoc urges member caution on tax liability

Practitioners Association (IPAA), Priority Debts, Tax debts, Tax liabilities, Taxation Issues Comments Off

Mar 102011

Australia’s Insolvency Practitioners Association (IPA) has told members to:

“be aware that the sale of an asset of the insolvent company or individual may trigger a capital gains tax (CGT) liability. The practitioner then needs to determine the status of that liability. The law in relation to where CGT liability falls on the sale of an asset by an insolvency practitioner is not clear”.

The warning appears today (March 10, 2011) on the IPA website.

The issue of post-appointment tax debts has been highlighted on this blog as follows:

o Post-appointment income tax debts of liquidator (October 10, 2010)

o Taxing capital gains made during liquidation (October 15, 2010)

o Legal opinion warns external administrators about personal liability for company taxes (November 16, 2010)

The IPA’s complete statement reads:

“Capital gains tax – need for caution in insolvency administrations

Insolvency practitioners should be aware that the sale of an asset of the insolvent company or individual may trigger a capital gains tax (CGT) liability. The practitioner then needs to determine the status of that liability. The law in relation to where CGT liability falls on the sale of an asset by an insolvency practitioner is not clear.

For example, in the case of a controllership, the liability may be a liability of the company itself, or a personal liability of the controller. In the case of a bankruptcy, the CGT liability may fall on the bankrupt or become a liability of the trustee or simply be a post-bankruptcy debt.

The IPA has been in discussions with the ATO for some time in an attempt to come to a correct position. The ATO is yet to give its view or issue any ruling.

The IPA will advise members of any developments in clarifying the legal position with the ATO. In the meantime, members should be aware of this issue and take their own advice as necessary in relation to CGT liabilities in their administrations.

Any questions, please contact us.”

It would be interesting to know what the IPA’s point of view is on this tax issue. Presumably there is disagreement between it and the ATO as the two of them work together to “come to the correct position”. More than likely the point of contention concerns the personal liability of external administrators.

Legal opinion warns external administrators about personal liability for company taxes

Priority Debts, Returns, Tax debts, Tax liabilities, Taxation Issues Comments Off

Nov 162010

A paper presented recently by two Melbourne barristers to a group of insolvency practitioners suggests that administrators, liquidators and receivers (external administrators) who do not take precautions risk personal liability for post-appointment capital gains/income tax liabilities.

Helen Symon SC is a Senior Counsel at the Victorian bar specialising in taxation and insolvency. Mark McKillop has been a junior barrister at the Victorian Bar since 2008 specialising in insolvency, banking and taxation.

Their paper, “Taxation – Common Issues for Insolvency Practitioners” (10 November 2010), looks at external administrators as viewed through the eyes of taxation legislation. The authors make three key points:

“(a) Insolvency practitioners are required to ensure that the entities to which they are appointed comply with most common tax obligations;

(b) although the entities to which they are appointed are legally separate, insolvency practitioners can be personally liable, under some circumstances, for the payment of post appointment tax liabilities of the insolvent entity: income tax, capital gains tax, PAYG collections and GST;

(c) choice of the type of appointment may affect the practitioner’s personal liability to pay capital gains tax liabilities of the appointee and, accordingly, the assets available to the secured creditor.”

Personal Liability under Taxation Law

In the debate so far the most troublesome law for external administrators has been Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936), which deals with agents and “trustees”, and raises the prospect that, as an agent or “trustee”, a external administrator may be personal liable for a company debt.

Section 254(1)(d) states that every “trustee”, as defined in ITAA 1936 (*), and every agent is “hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains.

Section 254(1)(e) states that every “trustee”, as defined in ITAA 1936, and every agent is “hereby made personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount that he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax.

According to Helen Symon SC and Mark McKillop, “Section 254, then, preserves the position of the Revenue vis a vis tax liabilities which arise following appointment of a liquidator, receiver or administrator …. Casting personal liability on the liquidator or receiver or administrator ensures the tax liabilities are met before funds are applied to satisfy creditors.”

Personal Liability under Other Laws

Helen Symon SC and Mark McKillop also refer to instances where personal liability may arise outside the income tax legislation.

In this context they refer to the case of Deputy Commissioner of Taxation v Tideturn Pty Ltd (In Liquidation) [2001] NSWSC 217 (26/3/2001). This case concerned a liquidator who kept the business of the company going after he was appointed and, in the process, deducted income tax instalments (group tax) from the post appointment wages of the employees. The court held that the group tax deductions gave rise to a post liquidation debt payable in the liquidation as a priority payment under Section 556(1)(a) of the Corporations Law, as an expense properly incurred by the liquidator in carrying on the company’s business.

The liquidator failed to pay any of the group tax, but paid other priority debts. By failing to ensure that priority debts were paid proportionately in the circumstances of there being insufficient funds available (as is required by section 559 of the Corporations Law) the Court stated that this “would be a breach of duty by the liquidator”. For this breach of duty the court ordered that “The liquidator must pay personally the sum of $75,000”, which was the group tax debt discounted for certain mitigating circumstances. (**)

Other interesting judicial comments on “expenses properly incurred by a liquidator in carrying on the company’s business” and liability for breach of duty in not paying post appointment debts include:

Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd and Others [2002] VSC 576 (20/12/2002);
Bell v Amberday [2001] NSWSC 558 (4/7/2001); and
Charlie Pace & Anor v Antlers Pty Ltd (In liq) [1998] FCA 2 (12/1/1998).

Conclusion

Helen Symon SC and Mark McKillop conclude their paper with the following warning:

“Practitioners need to be aware that, in effect, they will be liable either directly or under penalty provisions for CGT, income tax and GST applying to the entity to which they are appointed. They are also required to ensure that administrative requirements, such as filing returns, are completed. Accordingly, prudent practice requires withholding sufficient funds to cover the liabilities until they are paid.”

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Note: The profile and contact details of Helen Symon SC are available at http://www.vicbar.com.au/find-a-barrister/advanced-search/search-results/barrister-profile?RollNumber=1884. Mark McKillop’s profile and contact details are at http://www.vicbar.com.au/find-a-barrister/advanced-search/search-results/barrister-profile?RollNumber=4135

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ADDITIONAL NOTES:

(*) A “trustee” for taxation purposes is defined in Section 6(1) of the ITAA 1936 [and ITAA 1997] as: “in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of the law, includes –

(a) an executor or administrator or, guardian, committee, receiver, or liquidator; and

(b) every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession control or management of the income of a person under any legal or other disability.”

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(**) It is worth noting also, that as a result of his behaviour in this external administration – including his failure to pay all the expenses incurred in carrying on the business of the company after his appointment – the liquidator (William Edward Andrew) was brought before the Companies Auditors and Liquidators Disciplinary Board (CALDB) in 2001 and was persuaded to cease acting as a liquidator. (See ASIC Media Release 01/312 at http://www.asic.gov.au/asic/asic.nsf/byheadline/01%2F312+Time+limit+imposed+on+liquidator’s+registration?opendocument#. )

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(***) For my previous posts on this subject see “Post-appointment income tax debts of liquidator” and “Taxing capital gains made during liquidation.”

The comments and materials contained on this blog are for general information purposes only and are subject to the disclaimer.

$154 million used under GEERS to pay employee entitlements.

Employee Entitlements, GEERS, Priority Debts Comments Off

Nov 092010

An annual report recently tabled in Parliament reveals that under the Australian Government’s “safety net” scheme over $154 million had to be paid out in 2009/10 to compensate 15,565 Australian workers who lost their jobs as a result of their employers’ insolvency.

This $154 million takes the total paid since the scheme began in 2001 to about $1,083 million.

The Department of Education, Employment and Workplace Relations (DEEWR) runs a scheme called the General Employee Entitlements and Redundancy Scheme (GEERS). The scheme is officially described as follows:

“GEERS is a safety net scheme which protects the entitlements of employees who have lost their jobs as a result of the bankruptcy or liquidation of their employers. Eligible entitlements under GEERS consist of up to three months unpaid or underpaid wages for the period prior to the appointment of the insolvency practitioner (including amounts deducted from wages, such as for superannuation, but not passed on to the superannuation fund), all unpaid annual leave, all unpaid long service leave, up to a maximum of five weeks unpaid payment in lieu of notice and up to a maximum of 16 weeks unpaid redundancy entitlement. Payments made under GEERS are subject to an annually indexed income cap, which was $108,300 for 2009–10.”

In its 2009/10 Annual Report the department lists the “notable achievements” of GEERS as:

“A total of $154,058,670 was advanced under GEERS to 15,565 eligible claimants. Of claimants who received assistance under GEERS, 87.3 per cent were paid 100 per cent of their verified employee entitlements by GEERS. More than 45,632 enquiries were received by the GEERS Hotline. Over $18 million advanced under GEERS was recovered during 2009–10.”

Note: After a payment is made from GEERS, the Government seeks to recover the payment through the liquidation or bankruptcy process (as a priority debt). As stated, the amount recovered in this way was $18 million, which apparently means that the net outlay of taxpayers’ money was $136 million.

GEERS was introduced in 2001. The following chart – prepared for this article using figures extracted from past DEEWR annual reports, and an article in the Australian Journal of Management (June 2009, pages 51-72, authors Jeannette Anderson and Kevin Davis) – shows amounts paid out over past years:

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The comments and materials contained on this blog are for general information purposes only and are subject to the disclaimer.

ION insolvency income tax refund is held up

Priority Debts, Tax debts, Tax liabilities, Taxation Issues Comments Off

Oct 192010

It appears that the Deed Administrators of the ION group of companies have not yet received an anticipated income tax refund of $13 million.

Why the hold up? Is the refund no longer anticipated? If so, why not?

The possibility of an income tax refund was first mentioned by the Deed Administrators, Colin Nicol and Peter Anderson of McGrathNicol, in their report dated 23 October 2006:

“The Administrators have completed and lodged the income tax return for the year ended 30 June 2004 and are working on finalising the subsequent returns. These are expected to result in a refund of income tax, however the final amount is not clear until it is established whether the ATO will have any claims which it is permitted to set off against the refund. “

The next word on an income tax refund came in the Deed Administrators’ report dated 15 March 2007:

“With the completion of the income tax returns for the year ended 30 June 2005 (covering all pre-appointment activities), the Administrators expect a refund of income tax instalments paid by ION in respect of the 2004 and 2005 tax years, in addition to a possible refund of tax paid following an adjustment to the 2003 tax year return. The final amount is not clear, pending further discussions with the ATO.”

Then in the Deed Administrators’ report dated 30 September 2009, they said: “(we) are anticipating a cash inflow of approximately $13 million in the coming months from the receipt of an income tax refund”.

Then in their December 2009 report they said: “(we) were anticipating a cash inflow during the last quarter from the ATO in relation to an income tax refund. The payment of this amount has been delayed by the ATO and the Deed Administrators now anticipate payment in early 2010.”

The quarterly reports that followed contained the same information. On 30 July 2010 the Deed Administrators said: “the payment of this amount continues to be postponed by the ATO, however the Deed Administrators anticipate payment in 2010.”

Subsequent reports were made on 24 September and 14 October 2010, but these make no reference to the income tax issue, probably because the reports address shareholders rather than creditors.

What is going on?

[To read these and other reports go to http://www.ionlimited.com/ and click on the link to “Creditor information”.]

Taxing capital gains made during liquidation

Priority Debts, Tax debts, Tax liabilities, Taxation Issues Comments Off

Oct 152010

Asset sales during a winding up, receivership or administration may give rise to a capital gain as defined in Australia’s tax laws (mainly the Income Tax Assessment Act 1997).

The possibility that a post-appointment tax debt may arise as a result, and that such a debt may have a right to payment ahead of other creditors (even secured and preferential creditors), is a cause for concern to insolvency practitioners.

I wrote a little on this subject in my article titled “Post-appointment income tax debts of liquidator” (published on this blog on 10/10/2010).

At that time I was not sure whether revenue losses accumulated at the date of the liquidator’s appointment could be offset against a “net capital gain” made post-appointment.

I said:

“Ordinarily, an insolvent company would have revenue tax losses at the date of the liquidator’s appointment. In most cases these would be available as a tax deduction against any net revenue income made during the liquidation period. But the same may not be true for net capital gains in this period.”

Since then I have obtained some expert advice, which is as follows:

1. A “net capital gain” forms part of a company’s “assessable income”. (See ITAA 1997, Chapter 3, Part 3-1, Division/Section 102-5.)

2. An excess tax loss of an earlier year may be deducted from the assessable income of a current year. (See ITAA 1997, Chapter 2, Part 2-5, Division/Section 36-17.)

So it appears what I should have said is: revenue tax losses at the date of the liquidator’s appointment would be available as a tax deduction against any net revenue income made during the liquidation period and any net capital gains made during the liquidation period.

Although under these rules the chances of post-appointment tax debts arising would probably be reduced – as would the size of such a debt should it arise – it remains important that insolvency practitioners be aware of tax laws and the need to prepare income tax returns.

As to the remaining questions of (a) where a post-appointment tax debt would rank in priority on the Corporations Act 2001, and (b) whether the insolvency practitioner may be held personally liable for it under Section 254 of the Income Tax Assessment Act 1936, we will have to await further developments.

The Insolvency Practitioners Association of Australia (IPA) has been discussing these issues with the Australian Taxation Office (ATO). However, the correspondence between the two is not publicly available.

It appears that the ATO is seeking advice from Senior Counsel.

The IPA may also be considering running a test case in court.

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How should the public interest test be applied?

” The main aspects of these amendments involve:

extending the director penalty regime beyond its current application to Pay As You Go (PAYG) withholding to make directors personally liable for their company’s unpaid superannuation guarantee amounts;

allowing the Commissioner of Taxation (the Commissioner) to immediately commence recovery of all director penalties when the company’s unpaid liability remains unpaid and unreported three months after the due day, regardless of the character of the company’s underlying liability; and

providing the Commissioner with the discretion to prevent directors and, in some instances their associates, from obtaining PAYG withholding credits where the company has failed to pay amounts withheld to the Commissioner.”

Personal Liability under Taxation Law

Personal Liability under Other Laws

Conclusion

The comments and materials contained on this blog are for general information purposes only and are subject to the disclaimer.

The comments and materials contained on this blog are for general information purposes only and are subject to the disclaimer.