COVID-19: A Financial Health Perspective

March 17, 2020 Roger Blow

These are clearly concerning times from a global health perspective and entire nations are facing, in many cases for the first time in over half a decade, a genuine risk to the lives of their immediate family and close friends.

We are all receiving detailed advice and information many times a day about slowing or avoiding the spread of the virus. Indeed we risk missing the most important guidance by having to wade through so many updates and briefings on what we should and shouldn’t be doing!

But in addition to the obvious need to protect the health of our own families and the community as a whole, there is also a need to have at least some regard for other realities which, whilst not the current priority or focus, are still going to be relevant when we emerge from this crisis: jobs, income, tax liabilities, cash flow, finance, insurance, insolvency.

All of the information and signs suggest that this will be a long battle and not something that is a mere memory come Easter. The initial medical predictions put the peak of WA’s coronavirus attack most likely falling between June and August.

So as hard as it may be when every update is focused on social distancing and using antibac gel, we do also need at this time to start thinking about how we make or change plans to address the financial needs of our businesses and community. Already some industries would have been severely impacted financially by the virus measures, such as those in the events and sport sectors. Next in line will be restaurants and bars and then businesses selling luxury items or social experiences, given that belts will be tightened probably even more so than in the GFC. And we are only weeks into this story, with likely months still to go.

At Cove Legal we have specialized for many years in assisting clients with legal disputes or problems focused around either insolvency issues or outstanding tax liabilities. The advice in that space, virus or no virus, is to have the conversations early – especially where the ATO is concerned. So many damaging financial outcomes can be either avoided or lessened with early advice, action and intervention when things start to look financially uncomfortable.

We provide guidance on potential personal liability for Directors, dealing with the ATO when an individual or company is being pursued for unpaid tax debts, negotiating payment plans for tax debts, addressing garnishee notices, director penalty notices, winding up or bankruptcy proceedings and pursuing unpaid amounts under commercial agreements.

The next 3-6 months are going to be challenging for businesses both big and small and this will likely be a global economic problem. We can’t give you more advice on the health issues but if you would like to discuss a legal health check for your business then we are keen to remain as available as possible to clients.

To assist in that objective, we are now set up to conduct client meetings by either Skype or iPhone Facetime – and the old-fashioned telephone and email of course work very well.

We are also happy to offer fixed price initial consultations at $350 plus GST for up to an hour (which represents over 40% reduction to the usual fees), so that new clients can feel comfortable that they are not handing over a blank cheque. Our objective is to give you the best advice for you to then make informed decisions. Call or email us today if you think 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.

Requesting documents during liquidation

October 23, 2019 Roger Blow

In a recent client matter we had to determine the circumstances in which a creditor can request the financial documents of a company in liquidation.

Not all creditors who request documents will be given them by the liquidator, especially requests that are deemed to be unreasonable. There are a number of grounds on which a request can be deemed unreasonable such as the document is protected by legal professional privilege, or disclosure could bring about an action for breach of confidence.

Directors of a company in liquidation can rely however on sections 198F and 290 of the Corporations Act 2001 to access company records provided there is a relevant legal proceeding against them.

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

Tough penalties for Directors involved in phoenix transactions

August 13, 2019 Roger Blow

The Federal Government has introduced into Parliament tough new criminal and civil penalties for Company Directors who engage in illegal phoenix activity.

Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.

The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 will give the ATO, ASIC and liquidators a range of new powers to target directors, individuals and advisors who conduct illegal phoenix transactions, such as where a Director sells the assets of the company at less than market value (known as a creditor-defeating disposition).

The other key reforms include:

New powers to ASIC to recover property that is the subject of a creditor-defeating disposition and return it to the company for distribution to the creditors;
Preventing directors from resigning and leaving the company with no directors and from backdating their resignation to avoid personal liability;
Extending the existing director liability provisions by making directors personally liable for their company’s GST liabilities;
Increased power of the ATO to withhold tax refunds where tax lodgments are still outstanding.

Company directors and their advisers should be aware of the proposed changes.

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

The ATO's model litigant obligations

July 18, 2019 Roger Blow

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

[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].