Legal opinion warns external administrators about personal liability for company taxes

 Priority Debts, Returns, Tax debts, Tax liabilities, Taxation Issues  Comments Off on Legal opinion warns external administrators about personal liability for company taxes
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).


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.”


Note: The profile and contact details of Helen Symon SC are available at  Mark McKillop’s profile and contact details are at    



(*) 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.”


(**) 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’s+registration?opendocument#. )


(***) 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.          

Tax Returns: ATO rules relaxed for Liquidators

 Returns, Taxation Issues  Comments Off on Tax Returns: ATO rules relaxed for Liquidators
Sep 082010
[This post was updated on 24/3/2014.]

No one likes doing their income tax returns. So company liquidators and receivers must be relieved that the Australian Taxation Office (ATO) has relaxed its requirements for lodgment of returns, even if it is only for periods prior to the date of appointment.

The ATO’s viewpoint (from July 2010) is set out in a web document headed “Information for trustees appointed under the Corporations Act 2001”, specifically under the sub headings “Clearances – liquidators and receivers” (last modified 15/4/2013)and “Clearance notice issued” (last modified 15/4/2013).




Pre-appointment returns

The ATO says that from July 2010 ” … a risk management approach may be adopted by the ATO to determine if lodgment (of outstanding income tax returns, fringe benefit tax returns or outstanding activity statements) is required”.

A risk is defined by the Australia/New Zealand Standard for Risk Management (AS/NZS 4360:2004)  as “…the possibility of something happening that impacts on your objectives.  It is the chance to either make a gain or a loss.  It is measured in terms of likelihood and consequence.”

The ATO states that in making its risk assessment it will have regard to, but will not be limited to, certain factors.  Those factors are listed in the text box below.

Of these factors the ATO’s says that they:

” … are intended to ensure that liquidators will only be required to lodge where the circumstances reasonably support that requirement. It is expected that, in many cases, the requirement to lodge income tax returns should not arise.”

The main risk management factors to be used by the ATO in deciding whether pre-appointment returns must be lodged. 

  • The prospect for, and likely size of a dividend being paid to unsecured creditors ;
  • the likelihood that the return would, if lodged, reveal an increase in the tax liabilities owed to the ATO;
  • the availability of books and records which would make it possible to prepare the return;
  • the likelihood that the liquidator’s cost of preparing those returns would be covered by the assets of the liquidated company without resulting in an inordinate adverse impact on other creditors; and
  • the wider community benefits of having the returns lodged. 

For receivers, as distinct from liquidators, the ATO has taken the view that: ” … where a receiver has only partial control of the assets of a company, a clearance can be issued to the receiver without the need to have all income tax returns up to date. If the company is not in liquidation, outstanding returns will be demanded.”  Presumably this means that if the receiver has control of all the assets, the ATO will demand outstanding returns but will take a risk management approach if the receiver protests or refuses.

Legal principle

Under income tax legislation the ATO can require a liquidator to prepare and lodge any overdue documents for a company in liquidation, including documents for periods prior to the liquidator’s date of appointment.  This statement of principle is restated for the record in document  62547.

Post-appointment returns are required

The document also makes it clear  that post-appointment returns are required to be prepared and lodged by liquidators, receivers and administrators:

“Under section 254 of the Income Tax Assessment Act 1936, liquidators, receivers and administrators appointed under Part 5.3A of the Corporations Act 2001 are required to prepare and lodge income tax returns for the period in an income tax year from the date of their appointment. Liquidators, receivers and administrators appointed under Part 5.3A of the Corporations Act 2001, as trustees for tax purposes, are responsible for accounting for income or profits or gains derived in their capacity as liquidator or receiver or administrator appointed under Part 5.3A of the Corporations Act 2001. “


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