NSW Supreme Court blocks tax notice during voluntary administration

The NSW Supreme Court held that the continued operation of the ATO notice would undermine the objects of Part 5.3A Corporations Act 2001 (Cth) (‘the Act’) by diverting working capital which was needed to continue trading and pursue either a deed of company arrangement (DOCA) or a going concern sale in of the company.

The court described the case for relief under s447A of the Act as “powerful” in a decision which has significant implications for administrators facing demands without needing to prove any enforcement action under section 440B of the Act.

How the case came about

Hudson Global Resources (Hudson) was a national recruitment and labour hire business. It was was funded through an invoice financing facility with Scottish Pacific Business Finance (‘ScotPac’), under which ScotPac advanced up to 85% of receivables shortly after invoices were issued. It went into voluntary administration on 22 April 2026.

Before the administrators’ appointment, the tax commissioner issued a notice to ScotPac under s260-5 of the Tax Administration Act 1953 (Cth) (TAA), requiring it to remit 20% of all drawdowns to the commissioner up to approximately A$19.64 million.

At that time, and having appointed administrators having been appointed, Hudson had limited available cash and required significant ongoing funding to meet wages, tax liabilities and other operating costs, with no immediately available alternative funding sources.

Following the administrators’ appointment, ScotPac was unwilling to continue funding on the existing terms. To maintain trading, the administrators entered an amended funding arrangement with ScotPac. That arrangement involved a reduced facility limit, a substantial upfront arrangement fee, increased ongoing management fees and a higher funding margin.

The administrators’ strategy was to continue trading the business with a view to entering a deed of company arrangement or progressing a going‑concern sale of Hudson’s business.

However, the operation of the ATO notice substantially reduced funds available under the facility with Scotpac. Each drawdown triggered a diversion of 20% of the funding to the tax commissioner, materially diminishing Hudson’s working capital. On the evidence, this would have left the company, already in voluntary administration, unable to continue trading within a matter of days, forcing an early wind‑down and destroying value for the company’s creditors.

The voluntary administrators applied to the court to suspend the operation of the ATO notice – seeking in particular:

• orders under s440B of the Act restraining the commissioner from enforcing the ATO notice and a declaration that ScotPac was not required to comply with it; or
• alternatively, orders under s447A of the Act modifying the operation of Part 5.3A in relation to Hudson so that the notice would not continue to divert funds otherwise available under the ScotPac facility during the voluntary administration.

How the court ruled

The court held that the commissioner held a security interest created by a statutory charge but that interest was not being enforced, meaning section 440B of the Act did not apply. It also determined that relief under s447A of the Act was justified because the continued operation of the ATO notice undermined the objectives of Part 5.3A.

Section 440B of the Corporations Act provides that, during the administration of a company, a secured party must not enforce its security interest against property of the company. The evident policy behind the provision is to ensure that the administration is not undermined by secured creditors taking steps to obtain or realise company property.

The court held that the commissioner’s notice under s260-5 TAA gave rise to a statutory charge within the meaning of s9 of the Act and therefore constituted a security interest. The commissioner was treated as a secured party in relation to Hudson’s property, being its contractual right to payment from ScotPac under the funding agreement. In that sense, s440B of the Act would, in principle, prevent the commissioner from enforcing that security interest during the voluntary administration. However, the critical issue was whether the commissioner was, in fact, enforcing that security interest.

The court drew a clear distinction between the existence of the charge and its enforcement. It accepted that, as a matter of practical and commercial reality, the commissioner would receive the benefit of the charge because ScotPac could be expected to comply with the ATO notice, particularly considering the potential criminal sanctions for any non-compliance.

That said, the court observed that passive receipt of payments pursuant to the ATO notice – even in those circumstances – did not amount to enforcement, and nor did the commissioner ’s refusal to withdraw the ATO notice. The commissioner had not taken, and was not threatening to take, any step to compel payment. Accordingly, while s440B of the Act would restrain enforcement if it arose, it was not engaged on the facts of this case.

In the alternative, the administrators sought relief under s 447A of the Act, which confers broad powers on the court to make such orders as it thinks appropriate as to how Part 5.3A is to operate in relation to a particular company

The administrators sought, in substance, orders which would halt the operation of the ATO notice during the voluntary administration, so that funds otherwise required to be remitted to the commissioner would instead remain available to fund Hudson’s ongoing trading.

The exercise of the s447A power is anchored in the objectives of Part 5.3A of the Act: to maximise the chances of the company, or as much as possible of its business, continuing in existence or otherwise to achieve a better return for creditors than would result from an immediate winding up.

On the evidence, the court was satisfied that the continued operation of the ATO notice would frustrate those objectives. The required remittances would materially reduce available working capital such that the company would likely run out of funds within days and be forced into an early wind-down, with significant value destruction.

A key aspect of court’s reasoning was the practical effect of the notice. Although not amounting to enforcement for the purposes of s440B of the Act, the notice nevertheless operated to divert funds for the benefit of the commissioner, effectively conferring on it an advantage analogous to that of a secured creditor. In doing so, it deprived the administrators of the liquidity required to continue trading and pursue a DOCA or going concern sale.

The court also observed that a s260-5 TAA notice is “strikingly similar” to a garnishee order. If the commissioner had instead obtained a court garnishee order, its operation would have been stayed by the statutory moratorium. That analogy reinforced the conclusion that intervention under s447A was appropriate.

In those circumstances, the court held that the case for relief under s447A was strong and that suspending the operation of the notice was consistent with the policy intentions and operation of Part 5.3A of the Corporations Act.

What the ruling means for you

The ruling considers the interaction between the Commissioner’s tax collection powers and the objectives of voluntary administration under the Act. It gives clarity and increased certainty to both creditors and administrators which will shape pre-appointment planning going forward.

A notice issued under s260‑5 of the TAA gives rise to a statutory charge and will be treated as a security interest for the purposes of the Act. That characterisation will be relevant in any voluntary administration where an ATO notice is on foot.

However, the existence of a statutory charge is not, of itself, sufficient to engage s440B of the Corporations Act. The provision is concerned with enforcement. Passive compliance with an ATO notice, even where it produces the same commercial outcome as enforcement, is not enough.

Where the continued operation of an ATO notice deprives administrators of working capital and threatens the administration, relief is more likely to be obtained under s447A of the Act. The court will intervene where the ATO notice materially interferes with the delivery of the policy objectives of Part 5.3A of the Act.

This means court intervention will be justified where it promotes Part 5.3A objectives and where the continued operation of the ATO notice will compromise trading, force an early wind‑down and otherwise reduce returns to creditors.