When interest and penalties lead to Liquidation…a cautionary tale for Directors
Posted on October 16, 2025
Last year, we wrote about the increase in action by the Australian Taxation Office (ATO) in response to its growing debt ledger.
The recent decision of Deputy Commissioner of Taxation v PAD & Sons Pty Ltd [2025] FCA 1131 reinforces the continuing trend of the ATO taking action against tax debtors.
Background
In this decision, PAD & Sons Pty Ltd (PAD) applied to set aside a winding up order obtained by the Deputy Commissioner of Taxation (DCT), on the basis that:
- the debt relied upon by the DCT was solely comprised of administrative penalties and interest – the principal tax liabilities had been paid in full;
- PAD contended that the action taken by the DCT was unfair, due to the DCT suggesting that PAD prioritise payment of certain tax liabilities over others, and failing to inform PAD that penalties and interest would be imposed; and
- PAD asserted that it had a $9.6m claim against its head franchisor, Dominos, that it was yet to pursue.
In considering PAD’s application to set aside the winding up order, the main contention for the Court was whether or not PAD was solvent.
Outcome
Ultimately, the Court was not satisfied that PAD was solvent, and dismissed the application, finding that:
- the penalties and interest were lawfully raised by the DCT;
- PAD did not exercise their review rights, nor did they raise these arguments in an application to set aside the Statutory Demand (which would have been the appropriate time to do so);
- PAD had not yet issued its purported claim against Domino’s, nor had it put Domino’s on notice of that claim; and
- PAD did not otherwise have any assets to establish solvency.
The outcome of this decision is yet another reminder of the ATO’s hard-line approach when recovering tax debts, and the need for Directors to obtain timely advice as soon it becomes evident that they will not be able to meet payment obligations.
If you are a Director who is concerned about the financial wellbeing of your business and you have received a notice from the ATO, please do not hesitate to contact Alice Carter or Georgia Gray at 08 8223 7600.
