Are death and tax a certainty?

The recent decision of Logan J in the Federal Court of Australia in Deputy Commissioner of Taxation v PM Developments Pty Ltd [2008] FCA 1886 opened a most interesting loophole in insolvency and tax law.

The effect of Logan J's decision is that liquidators (and by analogy receivers appointed by lenders) are not personally liable for goods and services tax (GST) on sales of company assets that occur during the period of their appointment.

Logan J held that the liquidator was not personally liable as:

  • the assets of the company did not vest in the liquidator (it is possible for a liquidator to obtain a vesting order, however, no such order was obtained here); and

  • the business of the company (being the sale of apartments) was no more the business of the liquidator, than it was the business of the directors.  Further, that the liquidator's business was the liquidation of the Company.

Ultimately, Logan J ordered that the GST arising from sales should be paid in accordance with the priorities set out in section 556(1)(a) of the Corporations Act.

Practically speaking, Logan J's decision means that for Banks and other secured creditors that appoint receivers and managers, the GST arising during the course of the receiver's disposal of the assets could be applied in satisfaction of the debt owed to the receiver's appointor.  The obligation to pay GST would be recorded as an unsecured debt owed by the company (then subject to the receivership) to the Australian Tax Office (ATO).

Put more simply, receivers no longer had to remit GST arising on the sale of assets to the ATO.

Against this backdrop, on 6 February 2009, the Assistant Treasurer and Minister for Competition Policy & Consumer Affairs, the Honourable Chris Bowen MP released a statement to the media which addressed Logan J's decision, stating:


'The Court's finding is contrary to the underlying policy intention and the way the law has been administered since the introduction of GST.  In the interests of providing certainty for all representatives of incapacitated entities, the Government is announcing today its intention to amend the GST law to restore the status quo,'.

'The amendments will apply from the commencement of the GST law [1 July 2000] and restore the policy intent stated in the Explanatory Memorandum to the law introducing GST.'


It is unknown whether the actual legislation will have the same effect as that contemplated by the Minister in the release (there is no draft Bill yet). It is clear from the above that it is the Minister's intention to ensure that receivers (and other insolvency practitioners) will be liable for GST on taxable transactions during the period of their appointment.

Whilst the law is in a state of flux, lenders enforcing their security would be wise to, at a minimum, instruct receivers to set aside the GST.

For further information please contact Alison Robertson on 9288 6872 / alison.robertson@lavanlegal.com.au or Joseph Abberton on 9288 6765 / joseph.abberton@lavanlegal.com.au .