Who should read this eBrief:

• Company directors
• Accountants
• Financial Advisors

Proposed changes to Commonwealth legislation could have a significant impact on the potential for transferring assets out of one company into a new company to avoid paying liabilities.

If enacted, the changes will give liquidators, ASIC, and the ATO new powers to prosecute culpable directors and associated persons.

This week’s TGIF considers a recent insolvent trading claim involving novel questions in relation to privilege against self-incrimination and the apportionment of liability between successive directors.

Background

The Commissioner of Taxation (Commissioner) recently issued draft taxation determination TD 2019/D2 (TD 2019/D2) dealing with the important question of a receiver’s obligation to retain money for post-appointment tax liabilities. A link to TD2019/D2.

New laws under consideration could expose company directors to jail terms of up to ten years for engaging in ‘Phoenix activity’ – the practice of closing down an enterprise, shifting its assets then re-starting it to avoid creditors.

In the recent case of 1st Fleet Pty Ltd (in liquidation), the Court clarified the information disclosure obligations of external administrators in the Insolvency Practice Schedule (Corporations) (IPSC) and Insolvency Practice Rules (Corporations) 2016 (Rules).

There is only a short time period for compliance, and there can be cost consequences for non compliance.

The Commonwealth has released an exposure draft of the Corporations Amendment (Strengthening Protections for Employee Entitlements) Bill 2018 (Bill) for consultation which will make key amendments to the Corporations Act 2001 (Cth) (Corporations Act). The Bill strengthens the current provisions aimed to deter companies from diverting assets to avoid the payment of employee entitlements on insolvency. The proposed changes will impact:

The dialogue is changing yet is the law enabling the practical change Directors need?

Achieving significant cultural shift in any business environment is no easy task, so it’s by no means ground-breaking to declare that after 1 year in operation, it still cannot be said that the new “Safe Harbour” legislation has resulted in a cultural change among directors.

This week’s TGIF considers Swiss Re International v Simpson [2018] NSWSC 233, where the court found that three former executives of Forge Group had not engaged in misleading or deceptive conduct when trying to address a cash flow crisis.

What Happened?

In February 2014, Forge Group Limited collapsed. Up to that point, it was a publicly listed engineering, procurement and construction company operating across mining and other sectors

Key Summary

The Full Court of the Federal Court of Australia has held that the Commissioner of Taxation’s (Commissioner) formal information gathering powers override the obligation imposed on a party to litigation not to use information or documents disclosed by another party for any other purpose outside the proceedings in which they were disclosed (commonly known as the ‘Harman obligation’1).

On 31 August 2012, the Full Federal Court handed down its much awaited decision in Commissioner of Taxation v Kassem and Secatore [2012] FCAFC 124 which provides clarification regarding third party preference payments received by the ATO and the practice of the ATO appropriating payments made by taxpayers from one account (ie the integrated client account) to another (ie the superannuation guarantee account - SGER).

Summary

The main points to take away from this case are as follows: