Due to a very recent case, the ATO now (I believe) has a big problem in defending unfair preference claims from Liquidators.
The recent Full Federal Court case of ‘Solar Shop‘ found that despite Solar Shop being under a formal payment arrangement with the ATO and despite not being in breach of its terms, the running balance account debt was still DUE AND PAYABLE to the ATO.
The Court said this because under s 255-15(2) of the Tax Administration Act, such an arrangement does not vary the time at which the amount is due and payable.
The test of insolvency is found in s 95A of the Corporations Act, and in summary states that solvency is determined by ones ability to pay debts as and when they fall DUE AND PAYABLE.
Taking a literal/strict interpretation, the mere entering into the arrangement means s95A is breached.
The ATO should be wary!
Problem areas (to name a few):
* ATO’s subjective state mind defence to unfair preference claims (or good faith) will be tougher for the ATO to prove
* Company’s relying on expert solvency reports to stop wind-up proceedings
* defence solvency reports to voidable claims
* banking covenant notifications
* QBCC minimum financial reporting obligations