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). ]


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