ATO garnishee notices: can they be "enforced" when a company is in Voluntary Administration?
IMO Hudson Global Resources (Aust) Pty Limited [2026] NSWSC 535 ("Hudson Global")
The short answer is: "No". However, that outcome will require an order of the court under s 447A, Corporations Act ("CA").
It is also our view that the same outcome would result if the company was subject to a DOCA and the garnishee notice was served after the commencement of the company's voluntary administration.
On the basis of overwhelming support for the proposal, the Harmer Report recommended that the priority then enjoyed by the ATO in insolvency administrations be abolished. That recommendation was accepted by the then Government.
However, the ATO, by various means, has been able to restore its position.
One such mechanism has been the service of garnishee notices under s 260-5, Schedule 1, Taxation Administration Act on debtors to the company.
In Hudson Global, it was held that:
- the service of such a notice created a statutory charge in favour of the ATO in respect of the debt owed to the company;
- the service of the garnishee notice, without more, does not involve the enforcement of that charge with the result that it does not involve a "positive act" so as for there to be an enforcement of the charge inconsistently with the prohibition in s 440B, CA; and
- notwithstanding that, the court is able to make orders under s 447A, CA so as, in effect, to preclude the ATO from taking the benefit of that security.
As to (1) and (2), the court in Hudson Global said (at [36]):
"The service of the ATO Notice gave rise to a statutory charge. In respect of debts that accrued from [the debtor] to [the company] after the issue of the notice, at the moment [the debtor] becomes liable to pay to [the company] a charge affixes to that debt by force of law, and [the debtor] becomes obliged to pay [the debt] to the Commissioner. This is the creation of the security interest in respect of property. None of this involves a step to enforce that security interest."
As to (3), the court in Hudson Global was prepared to make orders under s 447A, CA precluding the ATO from taking the benefit of the garnishee notice having regard to the following consideration (at [53]):
"While s 440B is not engaged in this case, it can be said that the ongoing operation of the ATO Notice offends the policy of the section as well as Part 5.3A more generally. The effect of the ATO Notice is to syphon to the benefit of the Commissioner (who is otherwise an unsecured creditor with no particular priority under s 556), property that would otherwise be available to the administrators in their efforts to maximise the chances of [the company] continuing in existence or providing a better return to creditors and members than would result from an immediate winding up."
In our view, it would also be arguable that, if the company executed a DOCA and the ATO had not served a garnishee notice prior to the commencement of the voluntary administration of the company, similar relief would be available to the administrator of the DOCA under s 447A, CA. The basis of that view is that the interest of the ATO which was required to be protected for the purposes of s 444F, CA would be the interest of an ordinary unsecured creditor, being the status of the ATO as at the day when the voluntary administration began.
Authors: Michael Sloan, Partner and Richard Fisher AM, Consultant.
