Section 262(1) of the IA 1986 provides that a debtor, creditor or nominee may apply to the court where: (a) a voluntary arrangement approved by a creditors’ meeting summoned under section 257 unfairly prejudices the interests of a creditor of the debtor, or (b) there has been some material irregularity at or in relation to such a meeting. 

Late last year, 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.

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.

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.