Overview
In Jetaway Logistics Pty Ltd & Ors v Deputy Commissioner
of Taxation [2009] VSCA 319, the Victorian Court of Appeal
considered an appeal of a decision that permitted the Commissioner
of Taxation (Commissioner) to raise an off-setting
claim under s553C of the Corporations Act 2001
(Act) as a defence to a claim by a liquidator for
recovery of preference payments.
The appeal raised the issue of whether the Commissioner had
'notice of the fact that the company was insolvent' at the time of
receiving the relevant credits.
The appeal was successful. The Commissioner was ordered to pay
the total of the credits.
Facts
Jetaway carried on a trucking business which incurred
liabilities to the Commissioner for GST, PAYG, withholding tax and
fringe benefits tax. At the same time, Jetaway was entitled to
receive payments under the Diesel and Alternative Fuels Grant
Scheme of the Commonwealth (Scheme), which was
administered by the Commissioner.
Relevantly, Jetaway had made but failed to meet three
unconditional promises of payment and admitted it did not have any
funds to pay the tax debt, let alone to meet the debts which would
fall due as the company continued to trade. The Commissioner also
knew substantial amounts of PAYG deductions from salaries were not
being remitted.
Jetaway authorised the Commissioner to withhold the payments due
to it under the Scheme and to apply them in the reduction of its
liabilities to the Commissioner for PAYG instalments and GST.
Subsequently, Jetaway was wound up at a meeting of
creditors.
The liquidator brought proceedings claiming that each of the six
credits received by the Commissioner were unfair preferences. The
Commissioner claimed he was entitled to set off the Scheme payments
against the company's tax liabilities pursuant to s553C of the
Act.
The Supreme Court of Victoria at first instance held that the
Commissioner was entitled to use the diesel fuel grants to set off
its tax liabilities under s 553C of the Act. The court concluded
that the Commissioner had not obtained any unfair preference as the
Commissioner would have been entitled in a winding up to use the
diesel fuel rebates to set off the tax under s 553C of the Act.
Although the court considered that the facts known to the
Commissioner may have given him reasonable grounds for suspecting
Jetaway was insolvent at the time of the transactions, the court
was not satisfied the Commissioner had notice of the fact Jetaway
was insolvent as required under s553C of the Act. (See
Jetaway Logistics Pty Ltd (receivers and managers appointed)
(in liquidation) & Ors v COMMISSIONER [2008] VSC 397,
Supreme Court of Victoria, Robson J, 7 October 2008.)
The Court of Appeal had to determine whether the Commissioner
had notice of Jetaway's insolvency.
The decision
The court held that 'notice' in section 553C(2) should be read
as 'actual notice'. A person will have 'notice of the fact' a
company is insolvent if the person has actual notice of facts which
disclose the company lacks the ability to pay its debts when they
fall due. It was considered unnecessary to show the person actually
formed the view that the company lacked this ability.
It was not enough to have grounds for suspecting insolvency, nor
to conclude insolvency as a possible inference from the known
facts.
The court was satisfied that, at the time of the payment of the
first credit, a reasonable person in the position of the
Commissioner and knowing the facts that he knew, would have
concluded Jetaway was insolvent. The court said the trial judge was
in error in reaching a conclusion to the contrary.
The liquidator also appealed on the ground that 'Division 2 -
Voidable Transactions' in Part 5.7 B of the Act constituted a code
delineating the court's powers with respect to unfair preferences.
Accordingly, s553C had no application in relation to preference
claims.
Regrettably, the liquidator did not press this particular appeal
ground at the hearing. Hence until there is some further
authoritative pronouncement, s553C may emerge more frequently in
defence to preference claims where there are mutual dealings
between an insolvent company and a creditor.
For more information, please contact:
Graeme Scott, Partner
Ph (direct): +61 3 9608 2172
Email: g.scott@cornwalls.com.au