C88 Project - Case Update

A liquidator is not entitled to keep funds mistakenly paid to the company by the ATO in the course of the liquidation, the NSW Supreme Court has ruled.

C88 Project, a property development company, entered voluntary administration in April 2022. In May 2022, at the second meeting of creditors, it was resolved that the company be wound up in insolvency and Steven Kugel was appointed liquidator (Liquidator) of the company. In June 2022, secured creditor Global Galaxy Holdings appointed a controller as its agent (Controller) over eight properties owned by the company. Six of the properties were ultimately sold by the Controller and two were sold by the Liquidator. GST withholding payments totalling approximately $465,000 were paid by the purchasers to the Deputy Commissioner of Taxation on the sale of the properties.

In January 2023, the ATO mistakenly paid approximately $365,000 in GST property tax credits to the company’s running balance account maintained by the Commissioner. On realizing the mistake, the ATO notified the company and demanded repayment of the amount.

The Liquidator then sought directions from the Court as to whether he would be justified in retaining the amount, but the Court could find no basis to allow him to do so. The Court concluded that the Liquidator plainly came to realise the amount was paid by mistake, there was no consideration given for the payment, the funds could still be identified at the time that knowledge was acquired and, even if the payment could be analogised to a loan, that loan itself was a mistake giving rise to an institutional trust which attached to the funds in the Liquidator’s hands.

Read the decision HERE.

Professionals involved:

• Counsel for the Deputy Commissioner of Taxation: Luke Livingston SC and Keni Josifoski of New Chambers

• Solicitor for the Deputy Commissioner of Taxation: Craddock Murray Neumann

• Counsel for the Liquidator: Daniel Neggo of University Chambers

• Solicitors for the Liquidator: Macpherson Kelley