The ATO's Model Litigant Responsibilities - Bringing Summary Judgment Applications out of time

April 29, 2020 Roger Blow

A recent decision by the District Court of Western Australia has criticised the ATO’s practice of routinely bringing summary judgment applications out of time. Will it be enough to force a change in the ATO’s practices?

Deputy Registrar Hewitt observed in Deputy Commissioner of Taxation v Babij that ‘the Deputy Commissioner… invariably brings applications for summary judgment outside the time permitted by the rules, and his delay in doing so is usually significant.’

Deputy Registrar Hewitt went on to say that the Deputy Commissioner ‘has not been diligent in pursuing this matter and certainly has not complied with the relevant rules concerning the filing of summary judgment applications’.

The Deputy Registrar also observed regarding the relevant claim against Mr Babij for ‘it is arguable that there was no effective step which [the defendant] could take’ to ensure his compliance with tax obligations. Indeed, the court considered that the defendant may not have even been reasonably expected to recognise any breach of his obligations. Therefore, the request for summary judgment was rejected on the factual grounds, in addition to being out of time.

Under the court rules, summary judgments are reserved for the clearest of cases. The court voiced its disapproval of the Deputy Commissioner bringing such an application in all of the circumstances and stated that ‘the way that this action has been conducted does not engender sympathy for the plaintiff’.

This decision brings to mind our other articles on the ATO’s obligations as a model litigant. In that article we discussed the high standards to which Government agencies are required to adhere within the litigation process.

Cove Legal offers specialist expertise in the area of tax disputes and insolvency.  We represent clients on all aspects of ATO debt recovery action (such as director penalty notices, garnishee notices, freezing orders, default assessments, audit requests and ATO criminal prosecutions). If you are facing actual or threatened ATO debt action or need advice on an insolvency situation generally, speak to us today.

Roger Blow, Practice Director, Ph: +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.

Disclosure of Business Tax Debts – A New String in the ATO’s Bow

March 10, 2020 Roger Blow

The Australian Tax Office (ATO) now has a new power to add to its already impressive arsenal, being the power to disclose the tax debt information of businesses to registered Credit Reporting Bureaus.

This power was granted to the ATO on 21 February 2020 as part of the Government’s broader strategy to reduce overdue tax, encourage engagement with the ATO, and improve overall transparency. The ATO claims that the measure will ‘support more informed decision making within the business community by making large overdue tax debts more visible’. They further claim that it will address the unfair advantage which businesses obtain by failing to meaningfully engage with the ATO.

The ATO’s criteria for disclosure is:

The business has an ABN, but is not an ‘excluded entity’ (i.e. a registered charity, government entity, deductible gift recipient, or complying superannuation entity);
The business has one or more tax debts, of which at least $100,000 is overdue by more than 90 days;
The business has not effectively engaged with the ATO in managing its tax debts; and
The business does not have an active complaint with the Inspector-General of Taxation concerning the proposed reporting of the business’s tax debt information.

A business that satisfies that criteria then has 28 days from the date of the ATO notification to engage with the ATO and manage its tax debt.

This new power can have a profound commercial effect, particularly on small businesses.

Standard credit defaults generally remain as a black mark on credit reports for a period of five years and have a detrimental effect on the ability to secure or maintain financial support from banks and other credit suppliers. Whilst ATO reported tax debts will only remain visible on a credit report for as long as they meet the above criteria, the default could have disastrous effects for businesses who lose credit eligibility based on the ATO’s report.

Considering the potential ramifications of this new reporting power on a business, it remains to be seen how it will be used by the ATO with respect to debts that are in dispute. However, it does highlight the need for businesses to engage early and often with the ATO when faced with an unpaid tax debt.

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, Practice Director Ph: +61 8 6381 0326, or e: roger@covelegal.com.au

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.

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