On 21 February 2014, the Federal Court handed down its decision inAustralian Building Systems Pty Limited v Commissioner of Taxation [2014] FCA 116 (Australian Building Systems). The Court found that a liquidator was not legally required to retain an amount out of the proceeds on disposal of assets as part of the winding up of a company to pay tax which is or will become due in respect of a capital gain.

The Victorian Court of Appeal recently held that a payment, disposition or grant of security by a company to a person on behalf of, or for the benefit of a director of the company, extends to a mortgage of land given by the company to a creditor of the director in consideration of a covenant by the creditor not to sue the director. 

As a result, insolvency practitioners now have stronger judicial guidance as to what constitutes a 'benefit' for the purposes of setting aside or varying voidable transactions, which should assist in recovering proceeds for unsecured creditors.

It is common for liquidators (and all of us working in the insolvency industry) to work with a few firms or individuals and for referrals to predominantly be distributed amongst those. In the recent decision in Re Walton Construction Pty Ltd (In Liq); ASIC V Franklin [2014] FCA 68, the Federal Court considered when that relationship might amount to a conflict. 

Section 254 of the Income Tax Assessment Act 1936 sets out the circumstances when a 'trustee' (which is defined to include a liquidator and a receiver) must account to the Commissioner, out of the proceeds of sale, for any capital gains tax (CGT) liability that would result as a consequence of the sale. Justice Logan of the Federal Court of Australia¹ last Friday found that a liquidator does not have any obligation to pay under section 254 unless and until an assessment has been issued. A similar analysis would also apply to a receiver.

Introduction

Does the ATO have priority over secured creditors in a liquidation? Is a receiver required to account to the ATO for any tax payable out of funds received on the sale of an asset before accounting to the secured creditor? Are receivers and liquidators personally liable for the tax payable from funds received by them? Can receivers and liquidators avoid such personal liability by distributing funds received to creditors before a tax assessment arises? These issues were at the centre of a Federal Court judgment handed down on 21 February 2014.

First Equilibrium Pty Limited v Bluestone Property Services Pty Limited (in liq) [2013] FC AFC 108

An appeal from the decision of Bluestone Property Services Pty Ltd (in liq) v First Equilibrium Pty Ltd [2013] FCA 876.

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). 

The two year transitional period under the Personal Property Securities Act 2009 (PPSA) ends on 31 January 2014.  After this date, any remaining transitional security interests (TSIs) that have not been registered on the Personal Property Securities Register (PPSR) will no longer have their pre-PPSA priority, which could result in a secured party losing priority to other secured creditors or losing its interest in the secured property altogether if the grantor becomes bankrupt (if an individual) or is placed into administration or liquidation (if a company).

Two days before Christmas, the Supreme Court of New South Wales delivered a bonus for the general unsecured creditors of the collapsed discount giant Retail Adventures, and confirmed the requirements for deeds of company arrangement.

Deeds of Company Arrangement

The High Court has recently confirmed in Willmott Growers Group Inc v Willmott Forests Limited (Receivers and Managers Appointed) (In Liquidation) that a liquidator of a landlord company has power to disclaim a lease, thereby terminating the landlord’s liabilities and the tenant’s rights under the lease.

Following such a disclaimer, the tenant would then be left to prove its loss as an unsecured creditor in the winding up of the landlord company.