Liquidator forced to disgorge ATO overpayment

Worth a try is one way to describe a Sydney liquidator’s efforts to determine whether he was entitled keep money mistakenly paid by the ATO.

Another way perhaps is to acknowledge that once the misdirected money arrived in an account the liquidator controlled, it was his duty to confirm whether he was obliged to repay it or keep it for the benefit of creditors, as well as for payment of his fees and disbursements.

“I will at least direct the Liquidator that he would be justified in paying that amount to the DCT, and it may well be appropriate to make a further direction that he would not be justified in not doing so.” Justice Ashley Black.

The uncertainty was resolved in favour of the Deputy Commissioner of Taxation (DCoT) this week upon delivery of judgment In the matter of C88 Project Pty Ltd (in liq) (controller appointed) [2024] NSWSC 999 which saw C88 Project Pty Ltd liquidator Steve Kugel directed to repay the incorrectly deposited funds. This one will have Tax Act nerds hurrying to their cubicles.

C88 Project was a special purpose vehicle incorporated by developers Sam Fayad and Joe Khattar of Dyldam infamy.

Its aim was to purchase, develop and sell land situated at Carlingford in New South Wales.

Kugel replaced Rogers Reidy’s Andrew Barnden and Joanne Keating as administrators of C88 Project in April 2022 and on May 31, 2022 he was appointed liquidator after creditors voted to have the company wound up.

One week later secured creditor Global Galaxy Holdings III Ltd (GGH) appointed Newpoint Advisory’s Costa Nicodemou as controller.

Kugel had two units in the development to sell. Nicodemou had eight and in the latter half of 2022 Kugel unloaded his two and Nicodemou flogged six.

The ATO meanwhile had just one job. Make sure the GST withholding payments relating to the unit sales went to the correct Client Activity Centre (CAC) running balance accounts.

For reasons that weren’t ventilated in the judgment of NSW Supreme Court judge Ashley Black funds intended for the account linked to the Controller were instead debited to the liquidator and while Kugel was quick to instruct his lawyers to seek an explanation questions around the legal basis upon which he would refund the sum went unresolved, leading to Kugel commencing his application for directions in December, 2023.

Kugel told iNO this morning he wouldn’t be seeking to reopen or otherwise appeal Justice Black’s decision.

“The whole thing was about some tension existing between a constructive trust and a statutory debt incurred post liquidation due to a mistaken payment by the ATO,” Kugel said.

“It was all a technical legal thing where I needed a Judicial Advice before dealing with the money that I had placed into the solicitor’s trust account pending the outcome of that Judicial Advice.”

In determining that Kugel should repay the monies the judge found “that it is against conscience for the Company to retain the balance of funds paid to it by mistake, so as to advantage the Liquidator in respect of his remuneration and disbursements or unsecured creditors at the DCT’s expense.

“While the Liquidator’s conscience would be cleansed once he had repaid the Relevant Amount, it is not apparent to me why anything short of his doing so had that consequence. I do not accept this submission.

“I will at least direct the Liquidator that he would be justified in paying that amount to the DCT, and it may well be appropriate to make a further direction that he would not be justified in not doing so,” the judge concluded.