One of the first tasks upon appointment as liquidator is to assess the asset pool and identify recoverable claims. Whilst no two insolvencies are alike and assets are never guaranteed, if the Company was trading, claims against statutory bodies (such as the Australian Taxation Office or a State revenue authority) represent a reliable pathway to achieving a return for creditors. A recent decision from the Federal Court of Australia has further strengthened that pathway.
To this effect, the Federal Court of Australia has issued a unique denial to a statutory body seeking a defence under section 588FG (2) of the Corporations Act 2001 (Cth) (Act). The relevant case is Kirk v Commissioner of State Revenue [2026] FCA 192; given the demands on your time, we have done the heavy lifting and broken it down below.
Key Points
- The total unfair preference quantum claimed by the Liquidator against the Queensland Revenue Office (QRO) was $2,820,166.58.
- The Court ruled in favour of the Liquidator, awarding $2,820,166.58 plus interest.
- Substantive evidence to the state of mind of relevant persons will be necessary rather than providing a limited recollection of the events for a successful defence. In other words, the Court will not look favourably on poorly explained absences of key personnel or information.
- The QRO was required to prove that it had no reason to suspect, and/or had no knowledge, that the companies were insolvent at the time the QRO received each payment. Whilst proving the absence of something is inherently difficult, the Court held that the QRO fell short of discharging that burden.
Background
Prior to the appointment of the Liquidator on 2 February 2022, the companies of ARG Workforce Pty Ltd (Workforce) and ARG Payroll Pty Ltd (Payroll) operated labour hire businesses, which formed part of a wider group of companies known as ARG Group. Both companies had been subject to investigation by the QRO with regard to their statutory liabilities and were subsequently issued notices of default assessment. This was followed by various warning notices and final payment reminders over the following two years.
Workforce and Payroll made various payments to the QRO that amounted to $2,474,375.01 and $345,791.57, respectively. These payments occurred during the six month relation-back period, being the period leading up to the appointment of the Liquidator. The Liquidator formed the view that these transactions may be clawed back as unfair preferences, pursuant to ss 558FA and 588FE of the Act. The QRO sought to rely upon a good faith defence under s 588FG(2) of the Act.
Issues
The key issues before the Court were firstly whether the circumstances in which QRO become involved in the transactions was in good faith. Secondly, whether QRO in its dealings and investigations had reasonable grounds for suspicion that Workforce and/or Payroll were insolvent and whether a reasonable person given the circumstances would have no justification for not having such a suspicion.
Findings
The Court examined what the QRO’s officers actually knew and believed at the time each payment was received. Under s 588FG(2)(a), the QRO bore the burden of positively establishing that it acted with honesty and propriety at the time of each transaction. It could not simply assert good faith; it had to prove it and failed to do so.
The affidavit evidence filed by six QRO employees added little beyond what the documentary record already showed. The witnesses stated they had no recollection of their dealings with Workforce or Payroll. Given that the character and sufficiency of evidence is a key consideration in assessing whether the onus has been discharged, this fell short of what was required. Another challenge before the Court was to assess whether those witnesses provided were the only QRO employees whose state of mind and knowledge was of relevance.
Given the determination that the criteria under s 588FG(2)(a) were not established, little time was spent on s 588FG(2)(b). However, the Court noted that the onus on the defendant (i.e. QRO) in establishing this criteria is strenuous, due to the requirement to prove negative propositions. This would require understanding of the knowledge of all relevant QRO employees at the time of transaction. For similar reasons encompassed in the assessment of the s 588FG(2)(a) criteria, the Court was unconvinced that first limb of the s 588FG(2)(b) criteria had been satisfied and therefore consideration of the second was redundant.
Ultimately, the Court ordered the plaintiffs claim be paid in full plus interest. This is a significant win for the insolvency profession and the general body of creditors. The decision sets a clear precedent for future unfair preference recoveries against statutory bodies. The timeframe for an appeal is still active however its success is unlikely.
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Article by Matthew Hudson (Director), Nicholas Davies (Senior Accountant) and Henry Luders (Graduate) – Brisbane