There are surprisingly few judicial decisions concerning the intersection between insolvency law (both personal bankruptcy and corporate insolvency including winding up/liquidation) and taxation law on the one hand and proceeds of crime/criminal property confiscation on the other.

One of the few judgments on the topic is In the matter of Plutus Payroll Australia Pty Limited [2017] NSWSC 1854, a decision arising (albeit indirectly) out the actions of the AFP under the Proceeds of Crime Act 2002 (Cth) against entities associated with former ATO Deputy Commissioner of Taxation Michael Cranston. I explain the decision below.

Background – general interaction between Insolvency law and Proceeds of Crime law

The Bankruptcy Act 1966 (Cth) effectively gives priority to both State and Federal Proceeds of Crime/Criminal Property Confiscation proceedings. Primarily it does that by s 58A which provides that property that is restrained or frozen before the date of bankruptcy shall not vest in the trustee of the estate of the bankrupt (thus overriding the general rules about the vesting of property found in s 58).

Somewhat surprisingly, there is no analogous provision in the Corporations Act 2001 (Cth). It contains no reference to the current federal law: the Proceeds of Crime Act 2002 (Cth) and no direct reference to State confiscations laws. It contains a brief reference in s 553B(2) simply states “An amount payable under a pecuniary penalty order, or an interstate pecuniary penalty order, within the meaning of the Proceeds of Crime Act 1987 [Cth], is admissible to proof against an insolvent company.” That appears broad enough to pick up some, but not all, State laws. But it says nothing about the issues that s 58A of the Bankruptcy Act directs attention to.

Interaction between Taxation Law and Proceeds of Crime law

Division 342 of the Taxation Administration Act 1953 (Cth) empowers the ATO to defer or waive a taxation liability if that liability has been or may be recovered by the Commonwealth under the Proceeds of Crime Act 2002. The rationale is supposed to be to prevent double dipping (ie a tax debt being recovered under both taxation laws and under the Proceeds of Crime Act).

There is no meaningful case law on Division 342. It was cited in Deputy Cmr of Taxation v Mac1.

The ATO have issued a practice statement law administration (PS LA 2011/10) which is the only elaboration of Division 342.

I have had some personal experience in dealing with Division 342 matters and frankly the only consistent thread I have observed is inconsistency.

Plutus Payroll Australia Pty Limited

The ATO applied to the Supreme Court of NSW for orders under the Corporation Act 2001 that various companies, including Synep Pty Limited (“Synep”), be wound up on the grounds that it was just and equitable and/or of actual insolvency.2

Synep was said to owe the ATO over half a million dollars.3 Various assets, including $54,000 in a Synep bank account, were restrained under Proceeds of Crime Act 2002 orders.4 In those circumstances Synep argued that it:

was effectively restrained at the suit of the Commonwealth from using its assets to pay the debt to the person that was claiming payment of the debt, namely the Commonwealth, which rendered it unreasonable to demand payment while the Proceeds of Crime order remained in force.

Further, Synep had made an application to the Commissioner of Taxation to defer or waive the taxation debt (pursuant to Division 342 of the Taxation Administration Act 1953 (Cth)), at least pending the outcome of the Proceeds of Crime Act proceedings. The s 342-10 request had been rejected shortly before the winding up matter came on for hearing.

At [15] Brereton J held:

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 reference to s 24 of the Proceeds of Crime Act 2002 is intriguing. It seems to me that the insertion of Division 342 into the Taxation Administration Act might be said to evidence a legislative intention that tax debts should be deferred under that division so that the proceeds of crime proceedings can run their course, rather than effectively curtail the proceeds of crime proceedings by ordering release of restrained assets under s 24 to pay tax liabilities.

Insolvency provisions of the Corporations Act 2001

In Commissioner of the AFP v Pharmacy Depot Hurstville Pty Ltd (Provisional Liquidators Appointed) [2018] NSWSC 1284 at [40], Davies J expressed some preliminary views that cast serious doubt on an assertion raised by a liquidator about inconsistency between the Corporations Act and the Proceeds of Crime Act. The provisional liquidators were seeking to rest control of restrained assets at an early stage of the proceeds of crime litigation.

His Honour concluded at [48]:

The appropriate course is for the question of leave [to the Commissioner] to proceed [against the company that is being wound up] under s 471B [Corporations Act 2001] to be dealt with first. Thereafter, at the conclusion of the examinations, the matter should proceed to a final hearing subject only to whether any application for exclusion is made by the liquidators under the POCA at or before the final hearing.

His Honour’s statement appears to assume that the Commissioner will obtain leave to proceed. I suspect that is probably correct.

Criminal Property Confiscation Act 2000 (WA)

There are very few decisions considering the operation of the Western Australian Criminal Property Confiscation Act 2000 (CPCA) in this context.

One decision, arising from a matter that I was involved in, is Jebara v WA [2016] WADC 122. Parry DCJ was called upon to consider the fact that in objection proceedings under the CPCA the property owner (who is resisting confiscation) will be the plaintiff not the defendant. His Honour held that the trustee in bankruptcy of one of the plaintiffs had the power to consent to orders dismissing that plaintiff’s objection.

  1. [2015] FCCA 2522 []
  2. At [1] []
  3. Plutus Payroll Australia Pty Limited [2017] NSWSC 1854 at [4] []
  4. Plutus at [14] []