The decision of the Full Court of the Federal Court of Australia
in the matter of The Commissioner of Taxation v Bruton Holdings
Pty Ltd (in liq)  FCAFC 184 has the potential to turn
the existing body of law in respect to post liquidation priorities
on its head. By allowing the Commissioner of Taxation (the
Commissioner) a priority for tax debts arising out of notices
issued after the commencement of a creditor's voluntary
liquidation, the Court has brought into question the statutory
priorities mechanism which has been in place since 1993.
Bruton Holdings Pty Ltd (Bruton) was placed into creditors
voluntary liquidation with a tax debt in excess of A$7 million.
After being placed in liquidation, the Commissioner served
notices for payment pursuant to s260-5 of Schedule 1 to the
Taxation Administration Act 1953 (Cth) (the Notices) for
the recovery of money owing by third party creditors to Bruton.
Under the Taxation Administration Act, upon the Notices
being served, a charge arises rendering the Commissioner a secured
creditor (the Commissioner's Charge).
Bruton applied to the Federal Court of Australia seeking (among
other things) declarations that the Notices issued by the
Commissioner were 'void and unenforceable'.
Historically such notices have been found to be
'attachments' and deemed invalid if served after the
commencement of a creditor's voluntary liquidation by virtue of
s500(1) of the Corporations Act (2001) (Cth) (the Act)
which provides that:
sequestration, distress or execution put in force against the
property of the company after the passing of the resolution for
voluntary winding up is void."
At first instance, Justice Allsop found in favour of Bruton,
declaring that the Notices were void. His Honour noted, among other
things, that to find otherwise would be contrary to the current
system of priorities which are part of "orderly winding
up" and result in the reinstatement of the Commissioner's
priority for tax debts (which was removed back in the early
The Commissioner successfully appealed the decision and the
Court found that the Notices were not 'attachments' for the
purposes of s500 of the Act, and therefore, valid.
In finding that the Notices were valid, the Court refrained from
expressing a concluded view as to the effect of the decision on
post liquidation priorities. However, the Court did note that it
may be at least arguable thatthe priorities set out in the Act
override any later charge created by such a notice from the
However, absent further judicial review or clarification, the
decision poses a number of questions in respect to the pool of
funds available for post liquidation distribution where the
Commissioner decides to issue s260-5 notices. The decision also
raises a number of practical questions for creditors and insolvency
given that the Commissioner can issue notices post liquidation,
can there be any certainty as to what assets are available for
how can an insolvency practitioner provide an informed estimate
as to the potential dividend to be paid out of the
will the Commissioner's Charge take priority over the fees
and remuneration of the insolvency practitioner?
how will a creditor know whether creditors voluntary
liquidation is an appropriate route to obtain a reasonable return
from a distressed company (as opposed to a deed of company
arrangement if one is proposed)?
does the Commissioner's Charge take priority over other
It remains to be seen whether the Commissioner's Charge will
be afforded the equivalent priority under voluntary administration.
Whilst we consider it likely that the issue of such a notice will
be considered an 'enforcement process' against property as
envisaged by s440F of the Act, the same was previously said about
attachments under s500 of the Act before the Bruton decision.
It is plainly evident that the Bruton decision has the potential
to shake the system of post liquidation priorities to its core. It
is expected that the Bruton decision will be the subject of an
appeal. In the meantime, unsecured creditors, banks and insolvency
practitioners alike will need to reconsider their position and seek
advice in the event the Commissioner intervenes with a post
liquidation s260-5 notice.
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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