Director penalty notices – interaction with bankruptcy
In Soong’s case ( FCCA 2106), the Commissioner rejected an offer by the respondent director in bankruptcy proceedings to pay in full, via a bank cheque, the petitioned tax debt.
In the creditor’s petition, the Commissioner claimed that the respondent debtor owed the applicant creditor Commissioner of Taxation the sum of $106,966.00. That sum was broadly made up as to the balance owing under a final judgment obtained in the New South Wales Supreme Court in 2009.
However, after filing the creditor’s petition, the Commissioner had issued various director penalty notices to Mr. Soong under s 269-25 of Schedule 1 of the Taxation Administration Act 1953. Under the DPNs, the total sum of $443,076.00 was owed by Mr. Soong as at 5 November 2013.
On 18 November 2013 counsel for Mr. Soon sought to tender a bank cheque in the sum of $106,960.00, the funds being made up by way of a gift from the debtor’s brother to the debtor.
The Commissioner indicated to the Court that he would be inclined to reject the tender of the bank cheque in the circumstances where the bank cheque represented payment of the petitioned tax debt but where the tender of the bank cheque was conditional upon consenting to a dismissal of the creditor’s petition.
The Commissioner would only accept the bank cheque as a partial payment of the monies owed under the DPNs and not otherwise.
The Court made reference to Francis – v – Eggleston Mitchell Lawyers Pty Ltd  FCAFC 18 at  by which the general proposition was confirmed that bankruptcy law will distinguish between the unwillingness to pay one’s debt as opposed to and distinct from inability to pay those debts as and when they fall due.
As it was the respondent debtor’s brother that had paid the bank cheque, the tender of the bank cheque did not evidence the respondent debtor’s insolvency and under sections 8AAZL, 8AAZLB and 8AAZLE of the Taxation Administration Act 1953, the Commissioner can exercise its discretion to allocate tax funds collected to whichever of the various tax debts as may be owed by a taxpayer.
The Commissioner’s submission to the Court was that he preferred application of the bank cheque to pay the tax penalty in the DPNs first. The Court accepted that the Commissioner was entitled to do that and that the creditor’s petition would thereby remain unpaid. Therefore despite the tender offer, the sequestration order was made.