The contest between the Corporations Act and the various tax acts

Two recent court decisions have highlighted the potential for inconsistency between the provisions of the Corporations Act 2001 and the various taxation acts (including the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953). It is important that practitioners are alive to this issue, particularly when considering suing the Commissioner or dealing with the Commissioner during the course of an administration.

Debits by the Commissioner – unfair preference payments?

In the decision of In the matter of 4 Doonan Street Collinsville Pty Ltd (in liq) [2015] NSWSC 437, the court considered whether debits from a tax credit in favour of the company (where the debits purported to be made by the Commissioner under s 8AAZL of the Taxation Administration Act 1953) constituted unfair preference payments under s 588FA of the Corporations Act 2001. The court found that some of the impugned payments were unfair preferences (although it appears this decision was based on the Commissioners (inaccurate) admission that the income tax account was an RBA account).

The take away message is that not all debits made by the Commissioner are necessarily unfair preference payments.

Notices to produce for books for the company – do you need a court order to comply?

Following this decision, in Commissioner of Taxation v Warner [2015] FCA 659, the court was asked to determine whether a liquidator is obligated to comply with a notice to produce documents under s 264 of the Income Tax Assessment Act 1936 and s 353-10 of Sch 1 to the Taxation Administration Act 1953. The liquidators’ position was that they were not required to comply without a court order due to s 486 of the Corporations Act 2001. This section deals with the ability of a creditor of contributory to apply to the court for an order for inspection of the books of the company.

While the liquidators did not appear, the Commissioner engaged independent counsel to appear as amicus curiae (i.e. friend of the court) to argue against the Commissioner’s application.

The court found that the liquidators are obliged to comply with the notices to produce issued by the Commissioner and that this obligation is not subject to, or affected by s 486. This was on the basis that the Commissioner’s interest in access to the books does not arise only in a winding up and is much broader than that of an ordinary creditor.

The take away message is that the liquidators need to carefully consider requests from the Commissioner for information and documents.  As always, seek legal advice if you are unsure of your rights and obligations.

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