Liquidator gains conditional relief from ATO

Never say never seems to be the safest position for insolvency practitioners dealing with the Australian Tax Office (ATO).

The Commonwealth Shylock’s rulings on tax liabilities can make rubber look rigid and equally elastic are its rulings in respect of monies to be credited back to a company in liquidation.

That presents challenges for liquidators with surpluses to distribute and remuneration to pay.

All this can ensure a surplus of sleeplessness for a liquidator, particularly if he or she has a tax credit from the ATO and intends to apply it in fulfilment of a previously declared undertaking that creditors will get 100 cents in the dollar.

As it happens, just such a scenario has been the lot of Queensland practitioner Leon Lee, who this week applied in the NSW Supreme Court for judicial guidance in respect of his treatment of almost $500,000 received from the ATO in his capacity as liquidator of Oxford Construction Pty Ltd.

Lee had told creditors back in 2021 that he anticipated being able to pay them 100 cents in the dollar but only after the complexities applying to the company’s tax affairs were resolved.

While the ATO remitted the credit, Lee’s legal advice was that he needed some level of protection from being held personally liable for the funds if the ATO changed its tune, something that remained a possibility given the ATO’s own investigation into Oxford’s pre-insolvency affairs continues.

That advice manifested in an application to the NSW Supreme Court for judicial guidance that he would be justified in distributing the credit as part of a final dividend to creditors.

Responding to iNO’s inquiries, Lee explained that the facts and circumstances which led to the tax credit related to a period before his appointment by the courts in 2018.

“Given the quantum of the tax credit and after obtaining advice from my solicitors and barristers, I believed it was appropriate to apply to Court for guidance/advice as the funds will be distributed before the end of the liquidation and in the event something was to arise afterwards,” he said.

That was good advice as the court heard that Lee could be held potentially liable if the ATO subsequently found that the company wasn’t entitled to the tax credit, a distinct possibility, given that the ATO’s own investigation in respect of transactions between the company and third parties is ongoing and new information not currently available could see the ATO perform an about face and seek to recover the credit.

In conceding the fundamental unfairness of the situation and the real risk to Lee if new information emerges Justice Ashley Black was prepared to make the orders sought but cautioned Lee’s barrister Pouyan Ashfar on more than once occasion that the court’s declaration did not guarantee full protection.

The ATO’s arm is long, and inclined to taketh.