Payments to ATO – ░░░ INSOLVENCY INTERFACE

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.”

Liquidator wins: Court finds that third party payment is an unfair preference

court decisions, Insolvency Law, Insolvency practices, Payments to ATO, Tax debts, Taxation Issues, Voidable transactions Comments Off

Sep 062012

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.

The case is Commissioner of Taxation v Kassem v Secatore [2012] FCAFC 124

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.

ATO authorised to settle large unfair preference claims

Directors indemnities, Insolvency practices, Payments to ATO, Taxation Issues, Voidable transactions Comments Off

Aug 122011

In certain circumstances, and without taking legal action, liquidators may now get back unfair preference payments of up to $500,000 made to the ATO.

The ATO says:

“We have now obtained approval to settle claims with a monetary value of up to $500,000, provided we can establish the proposed settlement is in accordance with legal principle and practice as advised by our legal services branch.”

Details of the terms and conditions are on the ATO’s website page – written for liquidators – headed “Preference payments for companies” (last modified on 8 August 2011).

The current web page is an amended version of a page issued in July 2010. That page was about payments not greater than $25,000, whereas the current page focuses on the settlement of claims over $25,000. The settlement of claims over $25,000 needs the approval of the ATO’s legal services branch, whereas claims under $25,000 can, apparently, be agreed without that level of approval.

The ATO describes unfair preferences as follows:

“Unfair preferences usually involve transactions that discriminate in favour of one creditor at the expense of other creditors. The aim of the law outlined below is to ensure creditors are treated equally by preventing any unsecured creditors from receiving an advantage over others. The proceeds of any property you, as a liquidator, recover and realise will form part of the funds available for distribution amongst all unsecured creditors after the winding-up expenses have been paid.”

The liquidator, in a letter to the ATO with relevant evidence attached, needs to establish that he or she has a valid claim for voidable transaction under section 588FE of the Corporations Act 2001. The ATO web page describes in detail the evidence and information that liquidators must provide.

The ATO will need to be satisfied that there is no statutory defence available to it. But the liquidator “(does not) have to demonstrate that a statutory defence is not available”.

Crucially, for claims either under or over $25,000, the claim will not be settled without court proceedings if the ATO decides it should seek an indemnity against the directors of the company (section 588FGA). This is because where directors are to be involved in this way, the courts have found that they have a right to be heard on the primary dispute between the liquidator and the ATO.

In assembling information for a claim, the liquidator can obtain from the ATO itself copies of relevant documents concerning the company’s tax affairs. There is no charge for this service, and no need for an application under the Freedom of Information legislation.

The ATO says it cannot settle unfair preference claims made later than is allowed under section 588FF. [NOTE: An application under section 588FF(1) may only be made (a) during the period beginning on the relation-back day and ending (i) 3 years after the relation-back day; or (ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company; whichever is the later; or (b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during period (a). ]