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Information for trustees appointed under the Corporations Act 2001

The following information sets out administrative obligations for trustees appointed under the Corporations Act 2001. Trustees appointed under the Corporations Act 2001 include liquidators, receivers, receivers and managers, voluntary administrators and administrators of a deed of company arrangement.

No separate ABNs for trustees

Trustees appointed under the Corporations Act 2001 are not required to register for a separate Australian business number (ABN). A separate client account number will be attached to the ABN of the company to which the trustee has been appointed.

Clearances – liquidators and receivers

Under section 260 in Schedule 1 to the Taxation Administration Act 1953, trustees have certain obligations. The trustee must not, without the Commissioner’s permission, part with any of the company’s assets to pay unsecured creditors. This permission is referred to within the Tax Office as a ‘clearance notice’. A trustee requires a clearance from the Commissioner regardless of whether the Tax Office is a creditor.

A ‘trustee’ for the purpose of a ‘clearance notice’ may be either:

  • a liquidator of any company being wound up
  • a receiver or a receiver manager for a debenture holder, who has taken possession of any assets of a company, or
  • an agent for a non-resident principal, who has been required by the principal to wind up a business or realise the assets of the principal.

The clearance notice will be issued pursuant to subsections 260-45(3) (liquidators), 260-75(3) (receivers) or 260-105(3) (agents for non-residents) in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). Please note there are no clearance provisions for other types of insolvency ‘trustees’ including appointments under the Bankruptcy Act 1966 (including Part IX and Part X), voluntary administrators and Deed of Company Arrangement administrators.

Sections 260-45, 260-75 and 260-105 of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953) sets out both the Tax Office’s and a trustee’s obligations in regard to clearances and is applicable to appointments made after 1 July 2000. A trustee must give written notification of their appointment to the Commissioner within fourteen (14) days of their appointment. Failure to comply with Sections 260-45, 260-75 and 260-105 of Schedule 1 of the Taxation Administration Act 1953 may result in penalties or the liquidator being personally liable to discharge the liabilities to the extent of the value of the assets that they are required to set aside.

The Commissioner must, as soon as practicable, notify the trustee of the amount of all the taxpayer’s outstanding tax-related liabilities. While a trustee can part with assets to pay secured creditors and priority unsecured debts (for example, costs and remuneration and employee entitlements), they are unable, without the Commissioner’s permission, to part with assets that are available to pay ordinary unsecured debts before receiving the Commissioner’s notice.

Prior to issuing a clearance notice, the Tax Office will identify all outstanding lodgments for all registrations for the company. We will notify the trustee if the company has outstanding income tax returns, fringe benefit tax returns or outstanding activity statements and negotiate lodgment. If the trustee is unable to assist in securing lodgment, a risk management approach may be adopted by the Tax Office to determine if lodgment is required.

In the case of a receivership where a receiver has only partial control of the assets of a company, a clearance can issue to the receiver without the need to have all income tax returns up to date. If the company is not in liquidation, outstanding returns will be demanded.

Clearance notice issued

Once the clearance notice is issued, the trustee is able to make a distribution to unsecured creditors. If a clearance notice is issued and it is subsequently found to be incorrect, the Tax Office will inform the trustee of this. If the trustee has not distributed a dividend to unsecured creditors the incorrect notice will be revoked, by written notification, and a new notice issued under Section 254 of the Income Tax Assessment Act 1936 – liquidators, receivers and administrators appointed under Part 5.3A of the Corporations Act 2001

Under section 254 of the Income Tax Assessment Act 1936, liquidators, receivers and administrators appointed under Part 5.3A of the Corporations Act 2001 are required to prepare and lodge income tax returns for the period in an income tax year from the date of their appointment. Liquidators, receivers and administrators appointed under Part 5.3A of the Corporations Act 2001, as trustees for tax purposes, are responsible for accounting for income or profits or gains derived in their capacity as liquidator or receiver or administrator appointed under Part 5.3A of the Corporations Act 2001.

The company itself should prepare and lodge an income tax return for the period in an income tax year prior to the date of appointment of a liquidator or a receiver administrator appointed under Part 5.3A of the Corporations Act 2001. The company is also required to prepare and lodge any unlodged returns for years prior to the appointment of a liquidator or receiver administrator appointed under Part 5.3A of the Corporations Act 2001.

PAYG withholding obligations

If you are a liquidator, receiver, receiver and manager, voluntary administrator (appointed under the Corporations Act 2001), or an administrator of a deed of company arrangement, you need to be aware of your administrative obligations under the pay as you go (PAYG) withholding system. They also apply if you make payments under the Employee Entitlement Support Scheme or General Employees Entitlements Redundancy Scheme (GEERS).

This information reflects the decision in Deputy Commissioner of Taxation v Applied Design Development Pty Ltd (in Liq.) (Case Ref: ‘2002 ATC 4193; (2002) 49 ATR 196’), which ruled that a priority payment made to an employee who had proved a debt for wages, retained its character as salary or wages for the purposes of the PAYG withholding system.

Section 443BA of the Corporations Act 2001 states that the administrator of a company is liable to pay to the Commissioner of Taxation each amount payable under a remittance provision.

You must withhold an amount from payments you make to former employees of the insolvent entity. The amounts you need to withhold, and the payment arrangements, will vary depending on the nature and scale of the payments.

You must apply to register for PAYG withholding by the day on which you are first required to withhold an amount from a payment. This may be withholding from a payment to a:

  • current or former employee of the company, or
  • supplier who has failed to quote an Australian business number (ABN).

Where the former employer was a company or similar organisation, a separate client account number will be attached to its ABN to allow you to register for PAYG withholding.

You may have already been allocated a separate client account number to allow you to register as a representative of an incapacitated entity for goods and services tax (GST) purposes. If so, you should use this client account number for PAYG purposes.

You are not required to register for PAYG withholding until you are going to make your first withholding payment.

For more information see Pay as you go (PAYG) withholding for external administrators.

Deed of company arrangement proposals

The Tax Office expects that any proposal under Part 5.3A of the Corporations Act 2001 will satisfy the conditions outlined in Chapter 20 of the ATO Receivables Policy. Some of the issues that the Tax Office will consider in deciding whether to vote in favour of a proposal under Part 5.3A of the Corporations Act 2001 include:

  • the investigative powers available to a liquidator, particular when they are compared with the more limited powers available to an administrator
  • the compliance history of the company
  • the priority to be given to the superannuation guarantee charge
  • any liabilities of the company not established, and
  • the ability of the company to meet future tax liabilities.

Remuneration

The Tax Office expects that trustees will take steps to ensure that the remuneration and costs incurred in an administration are fair and reasonable and commensurate with the level of work undertaken. The trustee must be able to demonstrate that a task was necessary to be undertaken for the proper conduct of the administration and that the time charged was reasonable for the task concerned.

The Tax Office expects that trustees will be able to provide information which allows all creditors to understand the basis upon which remuneration has been calculated. Creditors must be supplied with sufficient information to make an informed decision when requested to approve remuneration.

If the Tax Office is not satisfied with the information provided, it may abstain from voting or vote against the motion for remuneration.

There may be occasions when the creditors are asked to vote on the future remuneration of the trustee. The Tax Office may consider voting for future remuneration if:

  • the administration is close to being finalised
  • the remuneration amount is capped
  • the practitioner has provided sufficient information to justify the amount, and
  • calling another creditors' meeting would impose unnecessary additional expenses upon creditors.

Last Modified: Monday, 10 December 2007



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