Goods and Services Tax (GST) Groups consist of two or more
business entities that are treated as a single entity for GST
purposes. One of the main benefits is from the "representative
member" system, where one of the GST Group members is
nominated as the representative. The representative member is
responsible for paying the group's GST debts, which reduces
administrative costs of compliance with GST. However, s.444-90 of
Schedule 1 to the Tax Administration Act 1953
(TAA) makes all members of a GST Group jointly and
severally liable for the GST payable by the representative member
of the group.
It is important that companies within GST Groups have knowledge
of the representative GST member. As the liability of the companies
are several as well as joint, where there are several debts payable
by each of them, each separate GST debt can be treated as if it was
a claim against each entity. Unfortunately, a company's records
may not readily indicate the existence of a representative (e.g.
they may reside with an external tax agent).
Insolvency practitioners ought to inquire specifically when
appointed as administrators or liquidators of a corporate group if
a GST representative has been appointed. This also ought to be
asked of the ATO.
In Application of Solomons & Tayeh  NSWSC
923, Addisons acted for the plaintiffs, who were formerly voluntary
administrators of companies which were part of a group of companies
known as the Johnson Property Group. The plaintiffs subsequently
became trustees of a creditors trust.
The applicants sought judicial advice under s.63 Trustee
Act 1925 regarding the interpretation of a creditors trust
deed. Section 63 allows a trustee to obtain advice from the Court,
which gives protection to the trustee. One purpose of s.63 is to
allow a trustee to obtain judicial advice about commencing or
defending legal proceedings. Judicial advice was only available to
the plaintiffs in their capacity as trustees, and not as former
Thirteen companies were members of a GST Group. Their creditors
resolved the companies enter into a deed of company arrangement
(DOCA) whereby they would be subsequently subject
to one creditors trust deed, and the DOCA would then be
effectuated. At the time of the administrators' appointment,
each of the companies was jointly and severally liable for GST, as
there existed a representative member.
This was unknown to the administrators at the time of the
creditors meeting. The ATO had not lodged multiple proofs of debt
at that time for unpaid GST, nor alerted the administrators to the
The plaintiffs sought advice as to whether they were able to
treat multiple proofs lodged by the ATO as being a single liability
of the Trust, and pay the multiple claims for the group GST lodged
by the ATO as being one debt payable to the ATO. The ATO lodged its
multiple claims only after the trust deed was executed.
The plaintiffs submitted:
According to the DOCA, if the companies were to be treated as a
single entity then claims for the same liability against each of
them should be regarded as a single claim; and
If the ATO proved only once this would ensure a better and
fairer return to creditors under the Trust Deed.
White J held:
In the distribution of the trust fund, each claim by creditors
against a company was to be treated equally along with claims of
Having regard to the DOCA, where all Claims against companies
are to be "pooled", the proper construction is that each
separate Claim is to be treated as a claim against the
notional single entity;
There was nothing in the trust deed or DOCA to suggest that
Claims were extinguished or merged into other Claims;
A fundamental principle of admission of proofs in
administration of insolvent companies is that there cannot be
recovery that exceeds the amount of liability. In the
circumstances, the full amount of the ATO debt was able to be
recovered even through lodgement of multiple proofs.
Therefore his Honour found the plaintiffs were not justified in
treating multiple proofs lodged by the ATO as being a single
liability, and the ATO was entitled to lodge multiple proofs of
debt for the same underlying GST debt.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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