Deputy Commissioner of Taxation v Cutts

The Deputy Commissioner of Taxation (DTC) sought to recover from Mr. Cutts, the respondent, an amount of $10,000 which had been paid by the DTC to Mr. Cutts' former wife, Ms. Cutts, pursuant to a garnishee order. The dispute arose from an assessment of additional tax against Mr. Cutts for the 2003 income year, which resulted in a substantial tax debt. Mr. Cutts had failed to pay this debt, leading the DTC to seek recovery from Ms. Cutts, who had received a payment from Mr. Cutts under a court order for property settlement. The matter came before Judge Antoni Lucev in the Federal Court of Australia.

The central legal issue before the Court was whether the payment made by Mr. Cutts to Ms. Cutts, pursuant to the Family Court's property settlement order, constituted a disposition of property by Mr. Cutts that was voidable by the DTC under section 267 of the *Bankruptcy Act 1966* (Cth). Specifically, the Court had to determine if the payment was made with the intention of preventing, hindering, or delaying the property of Mr. Cutts from becoming divisible among his creditors, or if it was made for the purpose of giving a creditor a preference over other creditors.

Judge Lucev reasoned that for a disposition to be voidable under section 267, the dominant purpose of the debtor must be to prevent, hinder, or delay the property from becoming divisible among creditors, or to give a preference. His Honour found that the payment to Ms. Cutts was made pursuant to a binding order of the Family Court, which had determined the property interests of the parties. The Family Court's order was made in the context of a property settlement, and there was no evidence to suggest that Mr. Cutts' dominant purpose in complying with that order was to defeat or delay his creditors. The payment was a consequence of a legal obligation imposed by the Family Court, not a voluntary act designed to frustrate the DTC's recovery efforts.

Consequently, the Court found that the payment was not a voidable preference or an alienation with the requisite intention under section 267 of the *Bankruptcy Act 1966*. The garnishee order against Ms. Cutts was therefore set aside, and the DTC's application for recovery was dismissed.