In the recent case of Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq)  FCAFC 184, the Full Court of the Federal Court of Australia effectively granted the Commissioner of Taxation (Commissioner) a priority position to other creditors of a company in liquidation. The Court held that the Commissioner was authorised to issue a section 260-5 notice under the Tax Administration Act 1953 (Cth) to the company’s debtors requiring them to pay debts owing to the company directly to the Commissioner even after the company has gone into liquidation.
This decision drew much criticism and left liquidators (and administrators) in a difficult position in relation to both reporting and their potential to recover their fees and disbursements, especially in relation to small to medium companies whose major assets comprise of book debts.
Unsurprisingly, Bruton Holdings Pty Ltd (Bruton Holdings) appealed the Full Court's decision. On 26 August 2009 the High Court set aside the Full Court's decision, allowing liquidators (and administrators) to sleep a little easier knowing that the High Court had restored the position of secured and unsecured creditors by disallowing the Commissioner to 'jump the queue'.
In setting aside the Full Court's decision, French CJ, Gummow, Hayne, Heydon and Bell JJ turned to the critical issue of whether, after the passing of the resolution for the winding up of Bruton Holdings, the property of Bruton Holdings, which, subject to 'preferential payments', (1) must be applied in the manner prescribed by sections 501 and 555 of the Corporations Act 2001 (Cth) (Corporations Act), could be diminished by the subsequent notice issued under section 260-5 of the Tax Administration Act 1953 (Cth) (260-5 Notice).
Section 501 of the Corporations Act provides for the distribution of the property of a company on its winding up, subject to preferential payments. Section 555 gives further content to the requirement of section 501 that, on winding up, the company’s property is to be applied 'in satisfaction of its liabilities equally'.
The High Court held that the Commissioner's general powers under section 260-5 were not available if there had been a resolution passed for the winding up of a company, or if an order for winding up has been made. Their Honours referred to section 501 of the Corporations Act which states that 'any attachment...put in force against the property of the company after the passing of the resolution for voluntary winding up is void' and held that the section 260-5 Notice fell under the definition of 'attachment' as the Notice imposed upon Bruton Holdings an obligation to pay the amount specified therein to the Commissioner, rendered it unlawful for Bruton Holdings to pay the creditor, invalidated any attempted assignment by the creditor after the receipt of the notice and gave the Commissioner the sole right to discharge the debtor and to sue the debtor upon non-payment.
Furthermore, their Honours noted that the Commissioner's general power to issue a 260-5 Notice was not available if a liquidator has been appointed to a company. The tension which would otherwise exist if a provision of one statute avoided which under another does not arise.
For further information please contact Alison Robertson on 9288 6872 or Stacey Porter on 9288 6719.