Can a liquidator claw-back pre-appointment garnishee payments to the ATO as unfair preferences?
The ATO has forever said no, but is that right?
Would love to hear your thoughts in the comments.
The two key ingredients to the ATO’s defence are:
(1) there is no transaction between the company and the ATO, because the garnishee monies are coming from a third party; and
(2) the garnishee notice is security for the purposes of s588FA(2).
If (1) is wrong, then by extension (2) would be wrong, because the security could either be voidable as an unfair preference itself or worthless.
Therefore, point (1) is most important.
Some points to debate about (1):
– the ATO relies upon Macquarie Health (1999) FCA 1819 to say that “the taxpayer … did not engage in any conduct that had the effect of changing its rights, liabilities or property. The only relevant conduct was engaged in by the Commissioner.”
– this authority relates to old s218 garnishee notices, and pre-dates the Corporations Act.
– it’s worth noting that in Kupang Resources (2015) WASCA 89 the Court held that the old legal principles from s218 notices (similar to that in Macquarie Health) continues to apply today.
– but is this right? 260-15 Taxation Administration Act expressly says the Company is taken to have authorised the payment. Authorisation (in all its forms) is for the purposes of Denward Lane, Kassem and Re Emanuel cases enough to establish a transaction.
– even if deemed authorisation is not enough, should 588FA be limited to actual authorisation? Denward Lane says no
– acquiescence or ratification is enough (see paras 45 and 47).
– what about the indemnity given to the third party (260-15)? The Commonwealth’s own Indemnity Guidelines state that there must be an “explicitly identified risk” before an indemnity may be granted and that the indemnity creates a contingent liability.
– that contingency arises between the ATO and third party, and, at the same time, between the company and third party (via causality).
Is that not a nexus for the purposes of Kassem or Re Emanuel cases?
The ATO may be right and garnishee notices are not recoverable as unfair preferences, but I don’t think it is as clear cut as they’d like us to believe.
If you’ve run one of these claims against the ATO let us know your story in the comments.