Deputy Commissioner of Taxation v Porta

The Deputy Commissioner of Taxation (DTC) sought to recover a debt from Mr Porta, who was the sole director and shareholder of a company, Portasol Pty Ltd. The debt arose from unpaid company tax liabilities. The DTC sought to enforce this debt against Mr Porta personally under section 588G of the *Corporations Act 2001* (Cth) (the Act), alleging that Mr Porta had breached his duty as a director to prevent the company from incurring debts when it was insolvent or became insolvent by incurring the debt. The matter was heard in the Federal Court of Australia.

The primary legal issue before the Court was whether Mr Porta had contravened section 588G of the Act. This required the Court to determine whether Portasol Pty Ltd was insolvent at the time it incurred the debt to the DTC, or whether it became insolvent by incurring that debt. The Court also had to consider whether Mr Porta had reasonable grounds to suspect that the company was insolvent, or would become insolvent, at the time the debt was incurred.

In his reasoning, Judge Barnes applied the principles established in *ASIC v Plymin* and *ASIC v Speirs*, which outline the test for insolvency under section 588G. The Court examined the financial position of Portasol Pty Ltd, considering its cash flow and balance sheet insolvency. Judge Barnes found that the company was indeed insolvent at the relevant time and that Mr Porta, as the sole director, had failed to take reasonable steps to prevent the company from incurring the debt. His Honour concluded that Mr Porta had reasonable grounds to suspect insolvency, given the company's financial circumstances and the nature of the debt.

Consequently, the Court ordered that Mr Porta was personally liable for the debt owed by Portasol Pty Ltd to the Deputy Commissioner of Taxation.