In Perthmetro Pty Ltd, in the matter of Perthmetro Pty Ltd (in liq) [2015] FCA 671 the liquidator of the company in question applied to the Federal Court for a determination under s511(1)(a) of the Corporations Act 2001 (Cth) of the question of whether one or more of the company’s former employees should be rejected from proving in the liquidation for employee entitlements because those employees contracts of employment were tainted by illegality or were offensive to public policy.

In his judgment, Gilmore J found that there was an arrangement in place whereby the company agreed with two employees and their respective wives to directly pay part of their salary to the employees wives, one of whom who worked part time for the company and one who did not.

Part of this arrangement was to split income and to take advantage of the lower income tax rates. It was an arrangement to evade payment of tax; a scheme to defraud the Australian Taxation Office (Holdcroft v Market Garden Produce Pty Ltd [2001] 2 QDR 381). Borrowing the language from Holdcroft, his Honour found that “all the positive requirements for disentitlement are present in this case.”

Having regard to the Income Tax Assessment Act 1936 (Cth) Pt IVA, his Honour ordered that the liquidator should not admit employee entitlements for each of the employees under the scheme.