Liquidator recovers sums paid to the ATO
Insolvency Update – Summer 2013
In David Allan Ingram in his capacity as Liquidator of AJG Capital Pty Limited (in liq) v Donna Jean Gee  (unreported), the sole director of AJG Capital had, prior to its liquidation, paid a sum from its accounts to the Tax Office to reduce the tax liabilities of a related company for which she was also the sole director.
The liquidator of AJG Capital submitted that, as the payment to the Tax Office had the effect of reducing that director’s personal liability to the Commissioner of Taxation (in her capacity as a director of the entity on behalf of whom the payment was made), it could constitute a ‘direct benefit’ for the purposes of s. 588FDA of the Corporations Act 2001(Cth).
That section provides, inter alia, that a transaction of a company is an unreasonable director-related transaction (and can thus be recovered from the director) if the company makes a payment to another person on behalf of, or for the benefit of, a director of the company, and that a reasonable person in the company’s circumstances would not have entered into the transaction.
The benefit must be a direct benefit to the director and not a derivative benefit (for instance, benefiting the shareholders of another entity).
Section 588FE(6A) of the Corporations Act provides that a transaction of a company is voidable (and recoverable against a director) if it is an unreasonable, director-related transaction and it was entered into during the four years ending on the relation-back day. (The relation-back day in this case was the day the originating process was filed for the winding-up of AJG Capital).
Fortunately for the liquidator, an unreasonable director-related transaction does not need to be entered into at a time when the company is insolvent – unlike other voidable transactions able to be claimed by liquidators. In this case, the company was not insolvent at the time the relevant payment to the Tax Office was made.
The Court held that payment to the Tax Office, even if on behalf of another company, provided a direct benefit to the common director of both entities because the effect of the payment was to reduce the amount of the tax penalty which would otherwise have been payable by the director under section 269 of Schedule 1 of the Taxation Administration Act 1953 (Cth).