QRO ordered to repay $2.8M in voidable transactions

The Federal Court of Australia has ordered the Queensland Commissioner of State Revenue to repay $2.8 million in payroll tax payments received from two insolvent labour hire companies, rejecting the Commissioner’s attempt to rely on the statutory “good faith” defence to preference recovery claims brought by the liquidator of the ARG Workforce group, Darryl Kirk of Cor Cordis.

ARG Workforce and ARG Payroll operated a labour hire services business within the broader ARG group before entering liquidation in February 2022. The companies had been insolvent since at least June 2019 and accumulated substantial payroll tax liabilities following investigations by the Queensland Revenue Office (QRO).

The QRO assessed payroll tax liabilities exceeding $1.4 million for Workforce and more than $280,000 for Payroll. Ultimately, between August 2021 and January 2022, payments totalling $2,474,375.01 were made by ARG Workforce and payments totalling $345,791.57 were made by ARG Payroll.

The liquidator sought orders under s 588FF of the Corporations Act requiring the Commissioner to repay the amounts received, arguing the payments were unfair preferences because they were made while the companies were insolvent and gave the tax authority a greater recovery than other creditors.

It was common ground that the payments met the statutory criteria for insolvent transactions and voidable preferences under ss 588FA, 588FC and 588FE. The central dispute concerned whether the Commissioner could rely on the defence in s 588FG(2), which protects creditors who receive payments in good faith and without reasonable grounds to suspect insolvency.

The Court found that the Commissioner failed to establish the first limb of the defence: that the QRO became a party to the transactions in good faith. The Court emphasised that the onus lies on the creditor to prove its state of mind at the time of the impugned transactions. In this case, the QRO called several employees as witnesses, but most had no independent recollection of their dealings with the companies and relied solely on documentary records.

Critically, the Court noted that a key officer involved in the investigation and recovery process was not called to give evidence despite his substantial involvement in issuing bank notices and reviewing the companies’ financial position. The absence of evidence from relevant decision-makers meant the Commissioner could not establish what knowledge or suspicions existed within the QRO at the time the payments were received.

The documentary record also indicated that QRO officers were aware of several risk factors. These included intelligence shared through a national “phoenixing” taskforce, the companies’ history of payroll tax non-compliance, repeated recovery notices and warning letters, and bank records showing heavy reliance on financing inflows. Internal notes also referred to the possibility of garnishee action and concerns about “risk to revenue.”

Against that backdrop, the Court held the Commissioner had not proven that relevant officers lacked suspicion of insolvency or acted without apprehension that the payments might advantage the tax authority over other creditors.

The Court briefly addressed the second limb of the statutory defence, which requires proof that the creditor had no reasonable grounds to suspect insolvency and that a reasonable person in the creditor’s circumstances would also lack such suspicion. Given the information available to the QRO about the companies’ mounting liabilities and recovery actions, the Court was not persuaded that the Commissioner lacked reasonable grounds to suspect insolvency at the time of the payments.

Read the decision here.

Professionals involved:

• Michael Hodge KC of Level Twenty Seven Chambers and Omnia Chambers with Simon Trewavas of Lilley Chambers, counsel, and Enyo Lawyers, solicitors, for liquidator Darryl Kirk of Cor Cordis, ARG Workforce and ARG Payroll

• Sean Russell of Level Twenty Seven Chambers, counsel, and Crown Law, solicitors, for the Commissioner of State Revenue