Brereton J, in In the matter of Plutus Payroll Australia Pty Limited [2017] NSWSC 1854, considered whether the existence of a restraining order under the Proceeds of Crime Act 2002 (POCA) was a sufficient “other reason” to set aside a statutory demand under the Corporations Act 2001.
In that case, the Commissioner of the Australian Federal Police (Commissioner) had obtained a restraining order over the bank account of a company on the basis of an allegation of tax fraud. Subsequently, the ATO served a statutory demand on the company under the Corporations Act 2001 seeking payment of a debt exceeding the amount restrained. The effect of the statutory demand was that, if unanswered within 21 days of service, the company was presumed to be insolvent, enabling the ATO to make an application for its liquidation.
The company sought to set the statutory demand aside. One of the arguments raised by the company was that the ATO (as one arm of the Commonwealth) should not be permitted to press the statutory demand whilst the Commissioner (another arm of the Commonwealth) had restrained the company’s assets so as to impede its ability to make the payment.
Brereton rejected the argument (at [15]) and stated:
In my view, those circumstances do not amount to some sufficient “other reason” to set aside the demand. First, the Proceeds of Crime Act order does not restrain all of the assets of Synep, but only its bank account, in which there is about $54,000. Secondly, that $54,000 would be manifestly insufficient to satisfy the demand even if released, and even if the demand were to be reduced by the amount of the offsetting claim. Thirdly, it is open to Synep to make application under the Proceeds of Crime Act, s 24, for assets to be released in order to permit it to pay its debt. Fourthly, the possibility that there might be an as yet unidentified basis for reviewing the Commissioner’s rejection of the deferral/waiver request does not establish any ground to set aside the demand, or otherwise to defer the enforcement of a debt which, by statute, is made enforceable regardless inter alia of the pendency of review proceedings.
The reasoning of Brereton J was fact driven. The fact that the restrained fund was insufficient to meet the ATO liability was central to the rejection of the application.
It is uncommon for the ATO to press for payment of tax debts during pending proceedings under the POCA. However, interest on tax debts generally continues to accrue. Practitioners need to consider whether to make an application for variation of a restraining order to seek the court’s permission to pay tax debts from restrained assets. The advantage in doing so is that interest ceases to accrue. It is also in the Commissioner’s interest that tax debts are paid in such circumstances since it reduces the exposure under the undertaking as to damages.
