░░░ INSOLVENCY INTERFACE – Page 4 – An open forum for news and views on Australian insolvency laws, best practice and policy.

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 The Bill is a newer version of the 2014 draft Bill (Insolvency Law Reform Bill 2014), which was released in November 2014.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 »

Australian Building Systems case: plenty of common sense in the dissenting judgment by Justice Michelle Gordon

Capital Gains Tax, Corporate Insolvency, court decisions, Insolvency Law, Priority Debts, Tax debts, Taxation Issues Comments Off

Dec 172015

(Judgment of December 2015)

By a majority of three to two the High Court dismissed the Australian Taxation Office’s appeal in the Australian Building Systems case: Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation); Commissioner of Taxation v Muller and Dunn as Liquidators of Australian Building Systems Pty Ltd (In Liquidation) [2015] HCA 48 (10 December 2015) .

This test case – run by the Australian Restructuring Insolvency & Turnaround Association (ARITA) and the Australian Taxation Office (ATO) – began in 2013 and has previously been before the Federal Court and the Federal Court of Appeal. It was supposed to settle a far-reaching, long-standing argument that ARITA and the ATO had been having since 2009.

Argument about when obligation arises

The primary argument in this case – framed here as an issue for liquidators in general – has been whether the “retention obligation” placed on liquidators by section 254(1)(d) of the Income Tax Assessment Act 1936 arises prior to the issue of a tax assessment or only after the issue of an assessment.
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Tax Office loses High Court appeal in test case regarding liquidators’ tax obligations

Capital Gains Tax, Corporate Insolvency, Priority Debts, Returns, Tax liabilities, Taxation Issues Comments Off

Dec 102015

A High Court decision was been delivered today (10/12/2015) in the long-running test case of the Commissioner of Taxation v Australian Building Systems Pty Ltd. The following is the summary of the judgment published by the High Court. (The full judgment will be found HERE.)

H I G H C O U R T O F A U S T R ALI A

COMMISSIONER OF TAXATION v AUSTRALIAN BUILDING SYSTEMS PTY LTD (IN LIQUIDATION); COMMISSIONER OF TAXATION v MULLER AND DUNN AS LIQUIDATORS OF AUSTRALIAN BUILDING SYSTEMS PTY LTD (IN LIQUIDATION) [2015] HCA 48

Today the High Court, by majority, dismissed appeals from the Full Court of the Federal Court of Australia. The High Court held that the retention obligation (as defined below) imposed on agents and trustees by s 254(1)(d) of the Income Tax Assessment Act 1936 (Cth) (“the 1936 Act”) only arises after the making of an assessment or deemed assessment in respect of the income, profits or gains. Continue reading »

Contempt for corporations law a growing culture in construction industry

ASIC, Australian Senate 2013-14, Corporate Insolvency, Insolvency Statistics, Phoenix company activity, White collar crime Comments Off

Dec 042015

The Senate Economics References Committee has criticised the contempt that some directors show for company laws, the “mild” consequences of non-compliance and the low likelihood that unlawful conduct will be detected.

In its report “Insolvency in the Australian construction industry: I just want to be paid” – published 3 December 2015 – the Senate Committee states:

The committee considers that the estimates of the incidence of illegal phoenix activity detailed in this report suggest that construction industry is being beset by a growing culture among some company directors of disregard for the corporations law. This view is reinforced by the anecdotal evidence received by the committee which indicates that phoenixing is considered by some in the industry as merely the way business is done in order to make a profit.

The committee is particularly concerned at evidence that a culture has developed in sections of the industry in which some company directors consider compliance with the corporations law to be optional, because the consequences of non-compliance are so mild and the likelihood that unlawful conduct will be detected is so low.

This culture is reflected in the number of external administrator reports indicating possible breaches of civil and criminal misconduct by company directors in the construction industry. Over three thousand possible cases of civil misconduct and nearly 250 possible criminal offences under the Corporations Act 2001 were reported in a single year in the construction industry. This is a matter for serious concern. It suggests an industry in which company directors’ contempt for the rule of law is becoming all too common.

[from Executive summary, Phoenixing (page xix) and paragraph 5.100 (page 87)]
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Director offences: ASIC’s 2014-15 insolvency statistics

Insolvency Law Comments Off

Nov 302015

Amongst the huge number of statistics published by the Australian Securities and Investments Commission (ASIC) in its latest report on corporate insolvency is the finding that in 2014/15 liquidators, receivers and voluntary administrators (external administrators) reported 16,279 apparent or possible breaches by directors and others of the laws in relation to companies. (Notes 1 & 2)

The statistics are in ASIC Report 456, Insolvency Statistics: External Administrators’ Reports (July 2014 to June 2015), released on 17 November 2015.
director-suit-tie

Background

During each year external administrators lodge reports with ASIC as required under the Corporations Act 2001. The main purpose of the reports (in ASIC Form EX01) is to provide a means by which external administrators can fulfil their statutory obligation to report corporate offences that appear to have been committed by directors of the company, and misappropriations, negligence, breaches of duty, breaches of trust, etc., that appear to have been committed by persons who have taken part in the formation, promotion, administration, management or winding up of the company. (Note 3)

Table of breaches reported

Of the 16,279 reported breaches in 2014/15, ASIC has decided to categorise and specify 12,275. This is the number of breaches in respect of which external administrators have stated that they have supporting documentary evidence. (Note 4)

I have compiled the following special table of details of these 12,275 alleged breaches. (Note 5) As can be seen, the three most common offences are insolvent trading (29.6%), failure to keep financial records (16.6%) and failure to exercise care and diligence (15.5%).
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More talk about phoenixing of insolvent companies

Corporate Insolvency, Employee Entitlements, External administration, External administrators, Personal Bankruptcy, Phoenix company activity, Practitioners Association (ARITA), White collar crime Comments Off

Nov 122015

Transcripts have now been published for all of the public hearings of the Senate inquiry into insolvencies in construction industry. Phoenixing of companies is the main topic discussed. Several insolvency practitioners have given evidence, and at the hearing in Sydney on 28th September the insolvency profession was criticised by the leading participant, Senator Doug Cameron. At the public hearing in Melbourne on 29th September the Walton Constructions case was discussed in detail by the insolvency practitioners initially appointed as external administrators.

A list of the public hearings and those who appeared as witnesses is provided below. Continue reading »

ASIC winds up more abandoned companies to help employees

ASIC, Corporate Insolvency, External administration, Insolvency Statistics Comments Off

Oct 262015

Some directors of insolvent companies abandon their companies rather than adopt the proper course, which is to put the company through formal liquidation under the Corporations Act.

The Australian Securities and Investments Commission (ASIC) recently (21 October 2015) published a list of the latest abandoned companies that it has placed in liquidation under the special powers provided in section 489EA of the Corporations Act 2001. This brings to 60 the total of such company liquidations.

Were it not for special powers given to ASIC, abandonment of a company would cause employees who had not been paid their wages, leave and other entitlements to miss out on the compensation administered through the Australian Government’s Fair Entitlements Guarantee scheme (FEG), because such financial assistance is only available to employees of businesses that have gone into liquidation (or bankruptcy in the case of non-corporate employers). So putting an abandoned company into liquidation gives unpaid employees access to the FEG compensation. Unpaid employees of an abandoned companies can submit a request to ASIC to wind up the company.

The latest group of 10 abandoned companies owed at least 15 employees a total in excess of $429,000 in employee entitlements. They are:

LATEST LIST OF ABANDONED COMPANIES
Source: ASIC Media Release 15-305MR, 21-10-2015

Company Name	State
Adelaide Commercial Furniture Pty Ltd	SA
JBKM Ventures Pty Ltd	QLD
New Energy Technologies Pty Ltd	NSW
Rifam Pty Ltd	VIC
Let it Rain Pty Ltd	NSW
Focus on Training Pty Ltd	VIC
YQ Trading Pty Ltd	NSW
Parklane Building Corporation Pty Ltd	NSW
Sureline Training Services Pty Ltd	WA
Australian Veterinary Hospitals (South Australia) Pty Ltd	NSW

Apart from the names of the liquidators appointed, this is the only information supplied by ASIC. (The “corporate veil”, or something like it, seems to require that the identity of the company directors be kept confidential.)

As to the costs per company, ASIC said in January 2013:

“The cost of taking winding-up action is generally estimated to be about $15,000. This figure comprises ASIC’s costs and the liquidator’s remuneration.” (Reg Guide 242)

One can only hope that the liquidators are recovering company assets to pay the liquidation costs, or that the directors are penalised in some way for making taxpayers foot the bill.

The 60 abandoned companies wound up by ASIC since 2013 owed a total of 213 employees more than $2.9 million in entitlements.

END OF POST

Government contemplates imposing a regulation levy on external administrators

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

Aug 312015

UPDATE TO THIS POST: In November 2016 the Treasury issued a revised proposal for consultation. See my blog titled “Levy on registered liquidators and other industries to help fund ASIC”.

A Government levy on registered liquidators is included in a draft proposal to adopt an “industry funding” model, or user-pays system, for the Australian Investments and Securities Commission (the ASIC). The levy is intended to recover costs incurred by the ASIC in regulating registered liquidators.

The Consultation Paper, issued on 28 August 2015, estimates that a flat levy on registered liquidators:

“… would equate to around $12,700 per year and some liquidators would potentially pay a high proportional fee relative to their costs of regulation.”

The paper discusses, as another option, the merits of the levy being based on “assets realised”. It states that one point in favour would be that:

“Levying liquidators on the basis of ‘assets realised’ would promote greater harmonisation between bankruptcy and corporate insolvency laws. It would be similar to the asset realisations charge administered by the Australian Financial Security Authority.”

In bankruptcies the liability to pay the asset realisations charge is that of the practitioner, but the amount of charge paid is borne by the estate or administration. This aspect is not discussed in the Consultation Paper. But presumably if the ASIC levy follows the bankruptcy scheme, the levy will be paid from funds held or realised by the company under external administration. 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 »

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Ministerial Summary of the Insolvency Law Reform Bill 2015

Argument about when obligation arises

Background

Table of breaches reported

LATEST LIST OF ABANDONED COMPANIES Source: ASIC Media Release 15-305MR, 21-10-2015

Company Name

State

LATEST LIST OF ABANDONED COMPANIES
Source: ASIC Media Release 15-305MR, 21-10-2015