The recent judgement of Kassem and Secatore v Commissioner of Taxation shows that not even the Commissioner of Taxation is immune to payments being clawed back where the ATO is paid in preference to other creditors. This judgement is a timely reminder for directors to carefully consider the risk of contracting with an insolvent party when entering into transactions.
The judgment concerns the payment of amounts outstanding by a company formerly known as Mortlake Hire Pty Limited (Mortlake) and whether such payments were unfair preferences within the meaning of Corporations Act 2001 (Cth) section 588FA(1) (section 588FA(1)). The plaintiff was the liquidator of Mortlake.
Pursuant to section 588FA(1), an unfair preference is given by a company to a creditor if both are parties to a transaction resulting in the creditor receiving more in respect of an unsecured debt than if they were required to prove for the debt in a winding up of the company. Citing Airservices Australia v Ferrier (1996) 185 CLR 483 Nicholas J held that an unfair preference is given only if the sole purpose of the payment is to discharge an existing debt. If the purpose of the payment is to obtain further assets of equal or greater value than the payment made, the creditor receives no advantage.
The payments in issue were made by Mr Russell, the sole director and shareholder of Mortlake and a manager of Antqip Pty Ltd (Antqip). Mortlake incurred liabilities to both Allianz and the Commissioner of Taxation (Commissioner). On 26 March 2007 Mr Russell, on behalf of Mortlake, made payments totalling $70,000.00 to the Commissioner which were ultimately applied in reduction of superannuation guarantee charges.
Further, on 21 August 2007, Mr Russell delivered two bank cheques to Allianz in full satisfaction of outstanding workers’ compensation insurance premiums. Both payments were made using funds obtained, in the form of loans, by Mr Russell for and on behalf of Mortlake from Antqip.
The court found the Commissioner to have received an unfair preference as the payments received were payments made toward a pre-existing debt, namely outstanding superannuation contributions owing to former employees of Mortlake.
Similarly the court held the payments to Allianz amounted to an unfair preference as they did no more than extinguish a pre-existing debt. Therefore the liquidators recovered the monies paid to both the Commissioner and Allianz.