Changes to enforcement powers: NSW Supreme Court decision affects the ATO’s ability to recover tax debts

The NSW Supreme Court has delivered a significant decision affecting the Australian Tax Office’s (ATO) ability to recover tax debts by limiting the impact of statutory notices that garnishee a percentage of payments to a company in administration (Notice)[1].

Background

Hudson Global Resources (Aust) Pty Ltd (Administrators Appointed) (Hudson) is a national recruitment agency and labour hire company who entered voluntary administration in April 2026.

Hudson relied on an invoice financing facility with Scottish Pacific Business Finance Pty Ltd (ScotPac), where ScotPac would advance funds against Hudson’s receivables to support their ongoing operations.

On 30 March 2026, the ATO issued a Notice to ScotPac, requiring them to remit 20% of all drawdowns to the ATO.

On 22 April 2026, the administrators were appointed as joint and several voluntary administrators of Hudson (Administrators). Following this appointment, Administrators requested withdrawal of the Notice on the basis that Hudson was in administration, however that request was declined.

If the Administrators could not avail themselves of the full drawdowns, they considered that it would limit their ability to continue trading. As a consequence, they issued an urgent application to restrain operation of the Notice.

Section 440B – Restriction on third-party rights

Section 440B prevents a secured party from enforcing a security interest during administration without the administrator’s written consent or leave of the Court.

The enlivenment of section 440B required the Administrators to satisfy two tests.

Firstly, the Administrators needed to establish that the ATO notice gave rise to a charge. The Court found that the Notice operated to divert 20% of amounts otherwise payable by ScotPac to Hudson, then to the Commissioner and constituted a statutory charge which rendered the Commissioner a secured party.

Secondly, the Administrators needed to show that the ATO was enforcing the charge without consent. The Court emphasised that the creation of a security interest is distinct from its enforcement. Here, the ATO did not take active steps to compel payment and received funds remitted by ScotPac in compliance with the Notice. Even if ScotPac in practice was compelled to comply, passive payments to the ATO did not constitute enforcement.

Therefore, section 440B did not, on its terms, apply because the ATO was considered by the Court to not be enforcing the Notice.

Section 447A – General Power of the Court

The Administrators turned to section 447A, a broad mechanism available to the Court to modify the administration of a company.

The Court accepted that the Notice should be stayed for the limited purposes of advancing the voluntary administration. The Court emphasised the policy intention behind voluntary administrations to maximise the chances of a company “continuing in existence”, or where that is not possible, to increase the likelihood of “a better return for the company’s creditors and members than would result from an immediate winding up of the company”.[2]

The Court therefore concluded that the Notice effectively redirected funds to the ATO and deprived the Administrators of cash flow that would otherwise be used to preserve the business and maximise return to creditors.

Whilst the judgement assists the Administrators with cashflow during the period of the administration and after the section 447A orders are obtained, it did not otherwise affect the validity of the Notice.

Key Takeaways

• The decision is significant as one of the first uses of section 447A to stay Notices during voluntary administration, signalling a broader willingness to modify creditor rights to support the objectives of voluntary administration
• The Court effectively extends the statutory moratorium by preventing diversion of cash‑flows during a voluntary administration, providing the Administrators with a short but critical window to continue trading and pursue a commercial restructuring outcome
• Given its impact on the ATO’s enforcement powers, the decision may be subject to future appeal
• Insolvency practitioners and creditors should therefore be aware that Notices may be stayed where they disrupt cash flow necessary for a company’s survival and restructuring during voluntary administrations.

Given partial success, any application sought by administrators to restrict the operation of such Notices need to be made urgently.

If you require further guidance, our Restructuring & Insolvency team can assist.

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Authored by:

Pravin Aathreya, Partner
Rob Hinton, Partner
Phillip Danh, Lawyer

[1] Section 260-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth)

[2] Section 435A of the Act.