In this week's TGIF, we examine the recent case of Mandalinic v Stone (Liquidator) [2023] FCAFC 146 which provides useful guidance as to the ability of a director to challenge an insolvent company's PAYG liability.

Key takeaways

  • A director cannot rely on an affidavit in proceedings relating to their personal liability under a director's penalty notice to reduce or revoke an estimate given by the Commissioner to the company pursuant to section 268-40 of the Taxation Administration Act 1993 (Cth).

  • Where a company is in liquidation, a director may swear an affidavit or make a statutory declaration under section 268-40 to challenge an estimate given by the Commissioner.

  • However, when a company is in liquidation, it is ultimately a decision for the supervising entity (e.g. the liquidator) to decide whether the statutory declaration or affidavit should be given to the Commissioner to reduce or revoke the estimate pursuant to section 268-40.


On 2 April 2019, the Commissioner of Taxation issued an Estimate for PAYG to the company, RIC Admin Pty Ltd (Company). The Company took no steps to contest the Estimate.

On 9 May 2019, the Commissioner issued to the appellant, the sole director of the Company, a director's penalty notice for the unpaid amount of the Estimate.

On 6 June 2019, the Commissioner served a creditor's statutory demand on the Company. The Company was wound up in insolvency and a liquidator was appointed.

The Commissioner subsequently pursued separate claims against the director in the Supreme Court, including claims for insolvent trading and unreasonable director-related transactions. The director filed an affidavit in those other proceedings (the Revocation Affidavit) seeking to challenge the debt underlying the Estimate and to thereby revoke the debt under section 268-40 of the Taxation Administration Act 1993 (Cth) (TAA).

Issues for determination

The Full Federal Court was required to consider the following two questions:

  • whether an affidavit filed by a director of a company in a proceeding brought by the Commissioner against the director for recovery of a debt arising from a director penalty notice constituted an affidavit for the purposes of section 268-40 of the TAA; and

  • whether the position was any different if the company was in liquidation.

The primary judge relevantly held that the answer to both questions was "no".

Decision of the Full Federal Court

On question 1

The Full Court concluded that a director could not rely on an affidavit filed in a director penalty notice proceeding to reduce the estimate issued to a company.

In reaching this conclusion, the Full Court considered section 268-40 of the TAA, which provides that "you" can give a statutory declaration to the Commissioner or file and serve an affidavit on the Commissioner if "you" are a party to proceedings before a court that "relate to" the recovery of the unpaid estimate.

The director argued that the word "you" could be construed to refer to a director of a company, and that the phrase "relate to" could be interpreted to encompass director penalty proceedings, so as to enable the Revocation Affidavit to be relied upon.

Stewart and Button JJ disagreed, holding that "you" referred to the recipient of the Estimate (i.e. the company) as opposed to someone whose liability was in some way based on or related to the liability under the Estimate (i.e. the director). Further, the appellant's liability under the penalty proceedings formed a separate and distinct liability from that held by the Company under the Estimate. The proceedings were therefore not directly "related to" the Estimate.

On question 2

The Full Court similarly concluded that an affidavit filed by a director of a company in liquidation, in penalty proceedings against that director, could not constitute an affidavit for the purposes of section 268-40 of the TAA.

In considering this question, their Honours expressed diverging views. The majority (Stewart and Button JJ) concluded that a director of a company in liquidation could make an affidavit for the purposes of section 268-40, but that it was ultimately a decision for a liquidator to decide whether it should be given to the Commissioner.

McElwaine J disagreed, holding that, where there is a supervising entity (e.g. a liquidator), only that supervising entity should be the maker of a statutory declaration or the deponent of an affidavit.


This case provides useful guidance regarding the requirements for making a statutory declaration or affidavit for the purpose of reducing or revoking an estimate made by the Commissioner of Taxation.

Companies served with an estimate by the Commissioner should take prompt steps to reduce or revoke the estimate should that be considered appropriate. Directors will not be able to rely on an affidavit filed in a separate director's penalty proceeding to contest the estimate.

In circumstances where a company is in liquidation, a director will be unable to subsequently argue for the reduction or revocation of an estimate because doing so will become the responsibility of the supervising entity. That being said, the Court's reasoning in this case indicates that a director will be able to provide a statutory declaration or affidavit if the liquidator does wish to pursue a challenge on the company's behalf.

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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