The ATO has released a Decision Impact Statement on the NSW Court of Appeal’s decision in FCT v Moodie [2014] NSWCA 59. In that case, the Court of Appeal dismissed the Commissioner’s appeal and held that he should pay a liquidator’s costs in relation to a matter where a claim was made by the liquidator of the company against the Commissioner pursuant to s 588FF under the Corporations Act 2001 for the repayment of id=”mce_marker”.3m in tax paid to the Commissioner as an “unfair preference”. The ATO said the decision may affect other unfair preference matters where an indemnity is sought from the directors of the company. It added there was a potential for adverse costs implications for the Commissioner in such matters, particularly where the liquidators utilise an offer of compromise or “Calderbank offer”.
[LTN 151, 7/8/14]
[FJM Note: The Liquidator sued the Commissioner for return of an alleged voidable preference under s588FF of the Corporations Act 2001, and the Commissioner sought indemnity from the director under s588FGA of the same Act. The Liquidator made a formal Offer of Compromise under the relevant Rules 20 September 2011 (meaning that the Commissioner was at risk of indemnity costs from that point on). Both the Commissioner and the director maintained a defence that the company was not insolvent during the relation back period, but the Commissioner withdrew his defence on 14 December 2011 and the director didn’t withdraw his defence until 30 March 2012 (over 3 months later). The judge at first instance ordered that the Commissioner pay all the costs in the matter (as the losing party) including indemnity costs from 20 September 2011. The Commissioner appealed submitting that the liquidator should seek his costs after 14 December 2011 from the director (who had kept the matter alive beyond that date. The NSW Court of Appeal however said the judge at first instance had not erred, as the liquidator’s only remedy is against the Commissioner (who lost) and the Commissioner’s action against the director is entirely separate. If the direct had funds however, he would be likely to be liable to indemnify the Commissioner for these extra costs he had caused the Commissioner to incur.
Catchwords from [2014] NSWCA 59
CORPORATIONS – winding up – insolvent transactions – recovery of preferences – claim by liquidator against Commissioner of Taxation pursuant to s 588FF, Corporations Act 2001 (Cth) – Commissioner joins company’s director to seek indemnity pursuant to s 588FGA – Commissioner withdrew defence to liquidator’s claim – director raises issue of insolvency but subsequently withdraws defence – primary judge enters judgment in liquidator’s favour against Commissioner and in Commissioner’s favour against director – whether primary judge erred in ordering Commissioner to pay liquidator’s costs after Commissioner’s defence withdrawn
[FJM Note: s588FF of the Corporations Act 2001 allows the Court to order repayment of a voidable preference (such as the Commissioner may have received) and s588FGA of the same Act applies when the Court has ordered the Commissioner of Taxation to repay a voidable preference representing certain types of tax (instalments of PAYG withheld from wages and not remitted, and SGC amounts), and requires any director of the company at the time when the voidable payment was made, to indemnify the Commissioner for his loss or damage resulting from the order that he repay the voidable preference.]