Jetaway Logistics Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Supreme Court (3880 of 2008)
Judgment date: 23 December 2009
Date published: 4 May 2010
Decision outcome: Adverse

Summary of decision:
Outlines the ATO's response to this case which concerned whether the Commissioner had notice of the fact that a company was insolvent pursuant to section 553C(2) of the Corporations Act 2001 .

Overview of facts:
A company in liquidation, and its liquidators, brought proceedings in the Supreme Court of Victoria under section 588FF of the Corporations Act 2001 (" the Act "), seeking to recover six credits, in the total sum of $875,542.06, given by the company to the Commissioner during the relation-back period referred to in subsection 588FE(2) of the Act, on the ground that, as unfair preferences, they were voidable transactions. | The credits related to diesel fuel grants to which the company was entitled under the Energy Grants (Credits) Scheme Act 2003 (" the diesel fuel grants "). The Commissioner received written authority from the company to offset the diesel fuel grants against outstanding taxation debts of the company. | At first instance, Robson J accepted that the Commissioner did not receive any unfair preferences over other creditors because, in applying the test under paragraph 588FA(1)(b) of the Act, if the Commissioner proved in the winding up, he would be entitled to set-off the credits against the company's taxation liabilities under section 553C of the Act. The Commissioner's position, and the position of the general body of creditors, would be unaltered. | His Honour also decided that section 553C was available to the Commissioner because the liquidators could not satisfy the onus of proof under subsection 553C(2) that, although it was common ground that the company was, in fact, insolvent when the set-offs occurred, the Commissioner had notice of the fact of insolvency at that time. | The company and its liquidators ultimately sought to appeal only the finding of Robson J that they had not established that the Commissioner had notice of the fact of insolvency under subsection 553C(2). | Issues decided by the court or tribunal | The Court, Maxwell P, Byrne and Williams AJA allowed the appeal. Their Honours held that: • 'Notice' of the fact of insolvency in subsection 553C(2) means actual, and does not include constructive notice of insolvency (paragraph 18); • Subsection 553C(2) is concerned with notice of the fact of insolvency, not with notice of any of the matters set out in subsection 459C(2) of the Act that establish only a presumption of insolvency, and only for the purposes of section 459C(1) (paragraph 19); • The test in subsection 553C(2) requires more than the 'reasonable grounds for suspecting' insolvency referred to in section 588FG of the Act. The test requires proof, not that the creditor knew the company to be insolvent, but that the creditor had actual notice of facts that would have indicated to a reasonable person in the position of the particular creditor that the company was insolvent (paragraphs 20, 21 and 26); • The only inference reasonably open to the Commissioner from the facts known to him at the relevant times, based on the state of the company's indebtedness for tax, the information in its taxation returns, and the dealings between ATO officers and officers of the company, was that the company was insolvent (paragraphs 22, 26 and 41). • As set-off under section 553C was not available in respect of each credit given, they were unfair preferences and recoverable by the liquidator under section 588FF. | • 'Notice' of the fact of insolvency in subsection 553C(2) means actual, and does not include constructive notice of insolvency (paragraph 18); • Subsection 553C(2) is concerned with notice of the fact of insolvency, not with notice of any of the matters set out in subsection 459C(2) of the Act that establish only a presumption of insolvency, and only for the purposes of section 459C(1) (paragraph 19); • The test in subsection 553C(2) requires more than the 'reasonable grounds for suspecting' insolvency referred to in section 588FG of the Act. The test requires proof, not that the creditor knew the company to be insolvent, but that the creditor had actual notice of facts that would have indicated to a reasonable person in the position of the particular creditor that the company was insolvent (paragraphs 20, 21 and 26); • The only inference reasonably open to the Commissioner from the facts known to him at the relevant times, based on the state of the company's indebtedness for tax, the information in its taxation returns, and the dealings between ATO officers and officers of the company, was that the company was insolvent (paragraphs 22, 26 and 41). • As set-off under section 553C was not available in respect of each credit given, they were unfair preferences and recoverable by the liquidator under section 588FF.

Issues decided:
The Court, Maxwell P, Byrne and Williams AJA allowed the appeal. Their Honours held that: • 'Notice' of the fact of insolvency in subsection 553C(2) means actual, and does not include constructive notice of insolvency (paragraph 18); • Subsection 553C(2) is concerned with notice of the fact of insolvency, not with notice of any of the matters set out in subsection 459C(2) of the Act that establish only a presumption of insolvency, and only for the purposes of section 459C(1) (paragraph 19); • The test in subsection 553C(2) requires more than the 'reasonable grounds for suspecting' insolvency referred to in section 588FG of the Act. The test requires proof, not that the creditor knew the company to be insolvent, but that the creditor had actual notice of facts that would have indicated to a reasonable person in the position of the particular creditor that the company was insolvent (paragraphs 20, 21 and 26); • The only inference reasonably open to the Commissioner from the facts known to him at the relevant times, based on the state of the company's indebtedness for tax, the information in its taxation returns, and the dealings between ATO officers and officers of the company, was that the company was insolvent (paragraphs 22, 26 and 41). • As set-off under section 553C was not available in respect of each credit given, they were unfair preferences and recoverable by the liquidator under section 588FF. • 'Notice' of the fact of insolvency in subsection 553C(2) means actual, and does not include constructive notice of insolvency (paragraph 18); • Subsection 553C(2) is concerned with notice of the fact of insolvency, not with notice of any of the matters set out in subsection 459C(2) of the Act that establish only a presumption of insolvency, and only for the purposes of section 459C(1) (paragraph 19); • The test in subsection 553C(2) requires more than the 'reasonable grounds for suspecting' insolvency referred to in section 588FG of the Act. The test requires proof, not that the creditor knew the company to be insolvent, but that the creditor had actual notice of facts that would have indicated to a reasonable person in the position of the particular creditor that the company was insolvent (paragraphs 20, 21 and 26); • The only inference reasonably open to the Commissioner from the facts known to him at the relevant times, based on the state of the company's indebtedness for tax, the information in its taxation returns, and the dealings between ATO officers and officers of the company, was that the company was insolvent (paragraphs 22, 26 and 41). • As set-off under section 553C was not available in respect of each credit given, they were unfair preferences and recoverable by the liquidator under section 588FF.

ATO view of decision:
The Commissioner did not apply to the High Court for special leave to appeal the decision. The ATO accepts that the Court correctly stated the test for what is notice of the fact of insolvency of a company in subsection 553C(2) of the Act, and that the application of that test by the Court turned on the particular facts of the case.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Corporations Act 2001 459C 553C 588FA 588FE 588FF 588FG
Subject references: Unfair preference Set-off Notice of insolvency