The ATO's model litigant obligations

With the ATO’s debt recovery powers again coming under fire in the press for being excessive, what rights does a small business have when the way the ATO handles its claims and litigation is considered to be contrary to its obligations as a ‘model litigant’?

The model litigant rules, or model litigant obligations, are guidelines for how a government body ought to behave before, during, and after litigation.[1]  The ATO, like any other Commonwealth agency, is subject to model litigant obligations and has an obligation to:

act with complete propriety, fairly and in accordance with the highest professional standards in handling claims and litigation. This also requires that the ATO not start legal proceedings unless it is satisfied that litigation is the most suitable method to resolve a dispute. [2]

In Shord v Commissioner of Taxation [2017] FCAFC 167 Justice Logan discussed at length the role of the Commissioner and how he is to conduct proceedings to which he is a party.  His Honour made the following comments with respect to model litigant obligations:

The ‘standard of fair play to be observed by the Crown in dealing with subjects’ in litigious business, termed the duty to act as a model litigant, antedates and, if anything, is more onerous than the duty which all parties and their lawyers have in proceedings before this Court to assist in the achieving of the ‘overarching purpose’ of facilitating the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: s 37M and s 37N, Federal Court of Australia Act 1976 (Cth). [3]

His Honour went on to say:

Departures from model litigant behaviour can, in particular circumstances, constitute professional misconduct, a contempt of court or an attempt, contrary to s 43 of the Crimes Act 1914 (Cth), to pervert the course of justice. [4]

However, it has also been confirmed by the Courts that an alleged failure on the part of a Commonwealth Agency to act in accordance with its obligations does not exist in Australian law as a distinct cause of action. As a result, such failures (aside from a potential complaint to the Attorney General) can only be actioned via a request that the Agency pay the legal costs within existing proceedings, that it can be argued arise from the breach(es) of those obligations.  

Cove Legal offers specialist expertise in the area of tax disputes and insolvency.  We represent clients in Court winding up applications and bankruptcy petitions and provide strategic advice on ATO payment plans and all other aspects of ATO debt recovery action (such as director penalty notices, garnishee notices, freezing orders, default assessments, audit requests and ATO criminal prosecutions). 

Roger Blow, Principal, Ph: +61 8 6381 0327 or roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

[1] https://www.ruleoflaw.org.au/priorities/model-litigant-rules/

[2] https://www.ato.gov.au/General/Dispute-or-object-to-an-ATO-decision/In-detail/Avoiding-and-resolving-disputes/Litigation/Litigation---our-policies/

[3] Shord v Commissioner of Taxation [2017] FCAFC 167 at [169].

[4] Ibid at [174].

Changes to Debt Agreements provide greater protection for financially vulnerable

Following on from last year’s legislative reforms to the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018, a number of changes have recently been introduced to debt agreements.

Debt agreements were introduced as an alternative to bankruptcy and can be a flexible way to come to an arrangement to settle debts without the additional requirements and formalities associated with bankruptcy. The legislative changes are set to provide greater protection for financially vulnerable people who are entering into legally binding debt agreements that they perhaps cannot afford.

The main changes include:

  • Limiting the length of a debt agreement;

  • Eligibility requirements to enter into a debt agreement;

  • Increased investigative powers of the Inspector-General to address misconduct with respect to debt agreements and debt agreement administrators;

  • Use of a registered debt administrator or registered trustee to administer a debt agreement (cannot self-administer);

  • Increased protections against debt agreements that cause financial hardship.

The changes came into effect from 27 June 2019. People currently in debt agreements will not be affected by the changes.

Cove Legal provide specialist advice to clients facing possible insolvency outcomes or facing actual or threatened ATO debt action. If you are attempting to address director personal liability issues, director penalty notices, garnishee orders, winding up applications, statutory demands or need advice on an insolvency situation generally, speak to us today.

Roger Blow, Principal, P: +61 8 6381 0326 or E: roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

Changes to Director Penalty Notices

Since April 2019 there has been an important change to the Director Penalty Notice (DPN) regime in relation to a Director’s personal liability for an unpaid Superannuation Guarantee (SG) debt. 

A Director will now be personally liable if a company’s SG liabilities are not remitted within 28 days of the end of each quarter.  Previously a Director had 3 months to report their superannuation and settle the debt without the risk that the ATO would issue a lockdown DPN. 

A Director who fails to lodge SG returns within the 28 day time period will cause the ATO to issue a lockdown DPN, which makes the Director automatically liable for those specific debts and prevents them from escaping liability via a liquidation/administration. 

Directors should note that these changes do not alter the 3 month period allowed for the settlement of a company’s PAYG debt.

Cove Legal are experts in assisting clients with contentious tax matters and insolvency proceedings.  We provide advice on ATO payment plans, director penalty notices, winders and all other aspects of ATO debt recovery action.  Practice Director Roger Blow has acted extensively on behalf of the ATO in Perth and has specific expertise in tax related disputes. 

Roger Blow P: +61 8 6381 0326 or e: roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

Legal Health Check

Cove Legal’s Health Sector Update

For our clients in the health care sector these articles may be of interest to you:

  • With the increased use of health and medical apps, as well as tougher data breach and privacy legislation, businesses in the health sector are finding themselves increasingly vulnerable to attack. Hackers are now actively targeting the health sector in order to gain a patient’s sensitive medical information.  Managing the security of the data you hold is key.  You can read more here.  https://blog.malwarebytes.com/101/2019/04/managing-security-medical-management-apps/

  • The ACCC has warned businesses that non-disparagement clauses in contracts may be considered unfair terms.  Clauses that control or prevent a customer from making a public comment about the business is likely to be unfair under Australian Consumer Law.  Please contact us if you have any queries about your contract terms.

  • With the use of influencer agreements prevalent in the health care sector, choosing the right brand ambassador is key. The following article provides a good overview of the risks and realities of the brand ambassador. https://www.tltsolicitors.com:443/insights-and-events/insight/influencer-marketing---the-risks-and-realities-of-brand-ambassadors/

Cove Legal is experienced in helping our health care sector clients navigate through the highly regulated waters of that sector. We have helped countless healthcare service providers address these challenges to leave them free to focus on their business.  Call us to find out how we can help.

Roger Blow P: +61 8 6381 0326 or e: roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.