An insolvent company, Mortlake Hire Pty Ltd (Mortlake), owed a debt to the Australian Tax Office (ATO). A related company, Antqip Pty Ltd, paid $70,000 to the ATO in respect of Mortlake’s debt. The liquidator of Mortlake took legal action against the ATO to recover the $70,000 as an “unfair preference” under section 588FA of the Corporations Act. The ATO claimed the payment was not an “unfair preference” because it had come from Antqip and had resulted in one creditor (ATO) being substituted by another (Antqip). The Full Federal Court (on 31/8/2012) rejected the ATO’s argument and found in favour of the liquidator.
For an excellent analysis of the case – which also addressed the ATO’s practice of unilaterally reallocating payments made by taxpayers of tax liabilities from one account (such as the integrated client account) to another (such as the superannuation guarantee account) – see this blogpost by Carrie Rome-Sievers, a commercial law barrister and insolvency specialist of Melbourne.