Yesterday the High Court handed down its decision in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2015] HCA 48.  The High Court held (by a majority of 3:2) that, in the absence of an assessment, a liquidator is not required to retain funds from asset sale proceeds in order to meet a tax liability which could become payable as a result of a capital gain made on the sale.  In doing so, the majority of the High Court affirmed the decision of the Full Federal Court and provided long awaited guidance to liquidators, receivers and administrators.

Where a company brings a claim against its directors for losses caused by their wrongdoing, the Supreme Court has confirmed the established position that directors cannot escape the claim by arguing that their actions are attributed to the company itself on the basis that the directors were acting as the agents of the company. 

The High Court has granted special leave to appeal the decision in Commissioner of Taxation v Australian Building Systems Pty Ltd(in liq) [2014] FCAFC 133 which held that a liquidator is not required to retain funds from the proceeds of sale of an asset to pay tax before an assessment is issued.

Practical Implications

The FSI Report has recommended that Government should consult with relevant stakeholders to consider the introduction of 'safe harbour' provisions for directors engaged in restructuring efforts, and the suspension of ipso facto clauses during a restructuring.

Minter Ellison supports reform in both of these areas.

Australia's insolvent trading laws are among the strictest of any country. A director may become personally liable for new debts that are incurred by the company, if the director has reason to 'suspect' insolvency.