• Repayment of indemnity

    Where any amounts are paid to an insolvency practitioner pursuant to an executed the Deed of Indemnity (indemnity expenses) and any recoveries are made, the Deputy Commissioner of Taxation (DCT) will expect as a minimum that the indemnity expenses will be repaid as a priority expense under paragraph 556(1)(a) of the Corporations Act 2001 (for company liquidation matters) or paragraph 109(1)(a) of the Bankruptcy Act 1966 (for bankruptcy matters).

    Where property has been recovered, realised, protected or preserved as a result of the indemnity provided by the DCT, the DCT will usually require an application be made to court pursuant to section 564 of the Corporations Act 2001 (for company liquidation matters) or subsection 109(10) of the Bankruptcy Act 1966 (for bankruptcy matters).

    Whether or not the application is made will depend on the circumstances of each case and whether the outcome of the application is likely to benefit the DCT. The outcome of any application will be at the discretion of the court. The application will either be made by the insolvency practitioner and funded from the assets of the liquidation or bankrupt estate, or alternatively the DCT may choose to make an application at their own expense.

    Where an application is made pursuant to section 564 of the Corporations Act 2001 or subsection 109(10) of the Bankruptcy Act 1966, in addition to seeking a priority dividend on their proof of debt, the DCT may also seek priority repayment of the indemnity expenses.

    The orders sought in relation to priority repayment of the indemnity expenses may seek repayment before all other priorities prescribed in section 556 of the Corporations Act 2001 - including paragraph 556(1)(a) expenses, or subsection 109(1) of the Bankruptcy Act 1966 - including paragraph 109(1)(a) expenses.

    Terms covering the above issues will be incorporated into all Deeds of Indemnity.

    Last modified: 31 Mar 2016QC 43963