Ironbark
22 October 2026
The ATO as knowing recipient – recovering misappropriated funds from the taxman – “Quick Take”
Suggested category: Insolvency
Ironbark Litigation Funding’s “Quick Takes” are for time poor people – we do the work distilling the subject matter so you don’t have to.
What happened
On 13 August 2026 the NSW Court of Appeal dismissed the Commonwealth’s appeal in Commonwealth of Australia v Kupang Resources Pty Ltd [2026] NSWCA 161 (AustLII). Bell CJ gave the leading judgment, and Ward P and Griffiths AJA agreed.
The facts go back two decades. Mr Grimaldi was a de facto director of Chameleon Mining NL (now Kupang Resources). He used company money in a transaction that earned him shares as a “spotter’s fee”. He later sold the shares for a profit of about $36 million. It was accepted that he got those shares in breach of his fiduciary duty to the company.
The Australian Taxation Office (ATO) was already investigating Mr Grimaldi. It assessed him for tax and penalties and collected substantial sums from the proceeds. That happened while the company’s own proceedings against him were on foot, and the ATO knew about them. The company got judgment against Mr Grimaldi, but his bankruptcy left that judgment of little practical value. So it went after the money the ATO had received.
At first instance in Kupang Resources v The Commonwealth of Australia (No 4) [2025] NSWSC 1477, McGrath J held the Commonwealth liable as a knowing recipient of trust property under the first limb of Barnes v Addy. His Honour described the ATO’s approach as “tax now, ask questions later”.
What the Court of Appeal decided
- Trust property arises at the breach. A constructive trust over a fiduciary’s unauthorised profits arises when the breach occurs. It doesn’t wait for a court order, and it can attach to property the company never owned.
- A personal judgment doesn’t change the property. The earlier order that Mr Grimaldi account for his profits did not take away the company’s proprietary claim. The company could still pursue a third party who knowingly received the money.
- No special status for the ATO. Being bound by statute to collect tax did not stop the ATO from having the necessary knowledge. It also didn’t excuse the ATO from making the inquiries an honest and reasonable person would make. The Commonwealth had conceded it knew the money was traceable to the breach.
- “Want of probity” is not a separate element of knowing receipt.
Why it matters
People often ask me whether money paid to the ATO is gone for good. In the voidable transaction context, the ATO is often the largest single preference defendant. But when a director has taken company money and used it to pay their own tax, a preference claim usually isn’t the right tool. Kupang confirms that equity can follow that money into the ATO’s hands, if the ATO knew enough about where it came from.
The same reasoning applies to any recipient who takes payment knowing it is funded by a breach of fiduciary duty. That includes regulators, settlement counterparties and related entities.
What it means for liquidators, lawyers and creditors
- Follow the money past the director. In phoenix and misappropriation matters, trace where the director’s funds went. Payments of the director’s personal tax, or settlements funded from company money, may be recoverable.
- Knowledge is the battleground. Gather evidence early of what the recipient knew. That includes correspondence, the recipient’s awareness of pending proceedings, and any investigation files (noting the limits on obtaining ATO-protected information).
- It’s not a voidable transaction claim. A knowing receipt claim is an equitable claim. It sits outside the Part 5.7B regime and its statutory time limits, but other limitation and discretionary defences still need to be considered.
- Expect a long, well-resourced defence. The Commonwealth contested Kupang through interlocutory appeals, a trial and a full appeal. Claims like this need a realistic budget, a clear recovery analysis and, often, external funding.
Summary
Kupang confirms that the ATO is not immune from a knowing receipt claim. Once a fiduciary obtains profits in breach of duty, those profits are trust property from the moment of breach, and a later personal judgment doesn’t change that. For liquidators, bankruptcy trustees and creditors, money paid to the taxman out of misappropriated funds is not necessarily beyond reach. It is worth checking for whenever a director’s money trail ends at the ATO.
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