On 10 December 2015, a majority of the High Court of Australia ruled inCommissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation)1 that liquidators are not obliged to, and are not personally liable for, failing to retain sufficient funds for the purpose of discharging a tax liability until the Commissioner issues a notice of assessment.

What does this mean for practitioners?

On 1 December 2015, we wrote about the decision of His Honour Judge Chivell of the District Court of South Australia in Matthews v The Tap Inn Pty Ltd [2015] SADC 108.

With the introduction of the unfair preference regime in the Corporations Act 2001, a short provision was included which stated:

“… a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security.”(section 588FA(2))

The provision has been rarely considered. There has been little case law providing any judicial interpretation of the subsection.

That is, until the Personal Property Securities Act 2009 (PPSA) commenced.

The Court of Appeal of the Supreme Court of Victoria in Boz One Pty Ltd v McLellan¹ has recently confirmed that it will adopt a commercial approach to assessing the conduct of receivers. A private sale of charged assets will not necessarily breach s 420A of the Corporations Act 2001. A copy of the decision is available here.

Key Messages

On 8 October 2014 the Full Court of the Federal Court delivered judgment in favour of the liquidators in the much anticipated Australian Building Systems appeal¹ (Appeal).

Barring the Commission of Taxation seeking special leave to appeal to the High Court, liquidators (and other trustees, including receivers and managers) can now take comfort that they are not personally liable for failing to hold sufficient funds for any anticipated CGT liability, in the absence of a notice of assessment.

In the last week, two cases have been handed down regarding funds held on trust in liquidations and liquidators’ fees.

Saker, in the matter of Great Southern Limited [2014] FCA 771 (Great Southern) considered whether funds from floating charge assets held separately for satisfaction of priority employee entitlements were held on trust, and the impact on the liquidators’ fees and secured creditors’ recoveries in the absence of such a trust.

Last Friday, the Full Court of the Federal Court of Australia handed down its decision in ASIC’s case seeking the removal and replacement of the liquidators of the Walton Constructions group, on the grounds of a perceived lack of independence.

Our Insolvency Update of 3 March 2014 refers to the Federal Court’s decision in Australian Building Systems Pty Ltd (in liq) v Commissioner of Taxation . The court held that liquidators and receivers and managers cannot be held personally liable for any CGT liability subsequently assessed as due (where funds are remitted in the ordinary course and to secured creditors before the Commissioner of Taxation issues the assessment). 

On 21 February 2014 the Federal Court handed down its decision in Australian Building Systems Pty Ltd (in liq) v Commissioner of Taxation [2014] FCA 116  with the result that liquidators and receivers and managers cannot be held personally liable for any CGT liability subsequently assessed as due (where funds are remitted in the ordinary course and to secured creditors before the Commissioner of Taxation issues the assessment).