In a previous case: BCI Finances Pty Limited (in liq) v Binetter (No 4) [2016] FCA 1351, the liquidators of several companies were successful in obtaining orders of the Federal Court, that certain directors of the companies breached their fiduciary duty as directors, by engaging the companies in a scheme to evade tax, which in turn, resulted in the liquidators incurring losses, in winding up the company. Those losses were taxation liabilities, that the Commissioner assessed, of about $120m. The Court held that the defaulting directors were liable to compensate the Liquidators for this loss. The Commissioner of Taxation was the only creditor of these liquidated companies and he funded the Liquidators’ action, to help recover the tax avoided by the Companies. [See related Tax Month article]
This subsequent, related matter was brought by 2 of these companies and another Binetter entity. They were successful in obtaining an order of the Federal Court, compelling the Commissioner to produce various documents that related to the action of the liquidators in the pursuing the original matter, and the choice of entities they pursued.
The Commissioner resisted the application on the basis of the laws that bind him to keep tax information secret. Specifically, s355-75 of Sch 1 of the TAA provides, relevantly, that an:
“entity who is or was a taxation officer is not to be required to disclose to a court or tribunal protected information that was acquired by the entity as a taxation officer except where it is necessary to do so for the purpose of carrying into effect the provisions of a taxation law“. [Emphasis added]
The Commissioner argued that the matter did not concern “taxation“ but rather involved an action against the directors of the companies for breach of their fiduciary duty.
However, the Federal Court found for the plaintiffs on the basis that the ultimate aim of the original action was to recover unpaid tax from them and that therefore the Commissioner could not rely on the secrecy provisions in s355-75 to defend the application.
The Court also noted that it would be unfair to allow the Commissioner to disclose protected information to the liquidators, pursuant to s355-50, an exception from the Commissioner’s secrecy obligations for disclosure by his officers in performing their duties. The Commissioner had taken the view that arming the Liquidators with this information, was for the purpose of them carrying out their duties. The Court held that it was unfair to give the documents to one party whilst withholding the same information from the other party. The Court held that there was no merit in the Commissioner’s argument that the original matter did not relate to ‘taxation’.
The Commissioner also claimed legal professional privilege over some of the documents, and the Court said that this claim had not yet been determined.
(Binqld Finances Pty Ltd (In Liq) v Tamarama Fresh Juices Australia Pty Limited; In the Matter of Binqld Finances Pty Ltd (In Liq) [2017] FCA 358, Federal Court, Foster J, 31 March 2017.)
[FJM; LTN 56, 24/3/17]