Pitchers Partners’ Andrew Yeo and Gess Rambaldi have extricated an unlikely victory over the Deputy Comissioner of Taxation (DCoT) in respect of payments made by a company subject to a deed of company arrangement (DoCA).
As is revealed in Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632 Yeo and Rambaldi were the deed administrators of Ready Kit Cabinets Pty Ltd between 11 December 2013 and 5 July 2017.
During the operation of the DoCA the company incurred fresh tax liabilities of $403,000.76 whilst making payments to the tax office totalling $304,772.15.
Creditors subsequently voted to terminate the DoCA and appoint the deed administrators as liquidators on 5 July 2017.
Yeo and Rambaldi then sought to have the $304,772.15 paid to the tax office characterised as voidable so they could recover the monies as unfair preferences.
The DCoT resisted, arguing that the because the Pitchers pair had been deed administrators the payments were made with their authority.
Not so according to the Federal Court’s Justice John Middleton.
“The Payments are recoverable from the DCT as unfair preferences under s 588FA of the Corporations Act,” Justice Middleton concluded.
“The fact is that the Company had an obligation to make the Payments by operation of taxation laws and the Director did in fact make the Payments on the Company’s behalf.
“This may have been done during the currency of, and as contemplated and required by, the DOCA, but not under the authority of the Deed Administrators.”
Cheeky. It will be interesting to see if the DCoT appeals. Support INO’s continued chronicling of the insolvency sector.
The apparent anomalous result in this case arises due the Commissioner not able able take advantage of the running account provisions of Section 588FA (3). The effect of this decision is that directors may be exposed liability to indemnify the Commissioner for payment made to the Commissioner by the Company during the DOCA period if the DOCA fails and a preference claim is made.