Commissioner of Taxation & Darling & Anor

The Commissioner of Taxation (Commissioner) sought to recover from the respondents, Darling and Anor, amounts of income tax assessed against a company, Darling Downs Investments Pty Ltd (in liq) (DDIPL). The dispute concerned whether the Commissioner was entitled to recover these unpaid taxes from the respondents as former directors of DDIPL, pursuant to section 588G of the Corporations Act 2001 (Cth). The matter came before Macmillan J of the Supreme Court of Queensland.

The central legal issue before the Court was whether the respondents had breached their statutory duty under section 588G(2) of the Corporations Act 2001 (Cth) by allowing DDIPL to incur debts (namely, the unpaid income tax) when there were reasonable grounds to suspect that DDIPL was insolvent, or would become insolvent by incurring those debts, and that the respondents had failed to take reasonable steps to prevent DDIPL from incurring those debts.

Macmillan J considered the evidence presented regarding the financial position of DDIPL at the relevant times. His Honour applied the principles established in cases concerning directors' duties and insolvency, particularly focusing on the interpretation of "reasonable grounds to suspect" and the concept of "insolvency." The Court examined the financial records and the knowledge possessed by the respondents concerning DDIPL's financial state. His Honour concluded that the respondents had failed to discharge their duties under section 588G(2), finding that they had reasonable grounds to suspect insolvency and did not take reasonable steps to prevent the incurring of the debt.

The Court ordered that the respondents were personally liable for the unpaid income tax assessed against DDIPL, together with interest and costs.