Introduction

Unfair preference claims against Queensland Revenue Office (QRO) have historically been relatively difficult to recover or pursue.  This is largely due to reliance on the Queensland District Court decision Stimpson v Commissioner of State Revenue [2018] QDC 140 (Stimpson), in which QRO successfully argued that its processes were largely automated and that it had no actual knowledge of insolvency.

On 4 March 2026, the Federal Court handed down its decision in Kirk (in his capacity as liquidator of ARG Workforce Pty Ltd (in liq)) v Commissioner of State Revenue [2026] FCA 192 (Kirk Decision). The decision marks a significant turning point.  It represents a comprehensive success for a liquidator in recovering payroll tax payments from the QRO and provides important guidance on the evidentiary burden faced by statutory creditors seeking to rely on the good faith defence.

This article outlines the key outcomes of Kirk, explains why the Commissioner’s defence failed, and contrasts the decision with Stimpson, a frequently cited Queensland authority in which the liquidator was unsuccessful. Together, these cases illustrate a shift in preference risk for revenue authorities and highlight key considerations for liquidators.

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Background to the Kirk Decision

The Kirk decision concerned two related labour hire companies, ARG Workforce Pty Ltd (In Liquidation) (Workforce) and ARG Payroll Pty Ltd (Payroll) (together, the Companies), which formed part of a wider corporate group.

The Companies accumulated substantial payroll tax liabilities, prompting QRO to issue default assessments, warning notices, final demands and eventually entered into payment arrangements with the Companies. During the relation-back period, the Companies made payments totalling approximately $2.8 million to the QRO under those arrangements.

After failing to negotiate payment arrangements with the ATO, the Companies were placed into liquidation on 2 February 2022.

Prior to commencing proceedings, the Liquidator issued correspondence to the QRO requesting copies of all correspondence issued between the Companies and the QRO under the Freedom of Information provisions. The QRO responded with numerous redacted documents. Further requests were made for copies of the unredacted documents which were declined.

To obtain the documentation, the Liquidator filed an application for a summons to publicly examine the Commissioner of the QRO with a view to at the very least be provided with the unredacted correspondence.

In this case, the Commissioner responded, advising that he was exempt from document production and filed an application seeking to have the summons set aside. The Liquidator ultimately agreed to have the summons set aside as the matter raised complex legal issues that intersected Commonwealth and State laws and the Australian Constitution.

This left the Liquidator with the only option of obtaining the full suite of documents through the discovery process. Proceedings were commenced seeking recovery of the payroll tax payments as unfair preferences under sections 588FA, 588FE and 588FF of the Corporations Act.

In this case solvency of the Companies was not disputed, and the payment resulted in the QRO receiving more than it would have received in the liquidation.

The only issue to consider was whether the QRO could rely on the good-faith defence.

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Why the Commissioner’s Defence Failed

The evidentiary burden was not discharged

The Court emphasised that the burden of proving each element of the good faith defence rests squarely on the creditor. This includes demonstrating the absence of the suspicion of insolvency, which is inherently difficult but required.

The Commissioner relied on evidence from several officers, who had no independent recollection of dealing with the Companies and instead relied on reconstructed records and standard processes. The Court found this insufficient.

Where multiple officers are involved in decision making over time, it is necessary to lead evidence addressing the state of mind of each relevant decision-maker.

A key witness of the Commissioner was unable to attend because of illness; no attempt was made by the Commissioner to have the hearing adjourned and allow for the witness to be cross examined. The failure to call a key officer who had significant involvement with the dealings between the QRO and the Companies was damaging.

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Automated systems were not a shield

A central argument of the Commissioner’s case was that its recovery processes were largely automated. Reminder notices, escalation pathways and enforcement actions were generated by a revenue management system without requiring individual officers to form views about the Companies’ solvency.

While the Court accepted that automated systems play a legitimate administrative role in public administration, it rejected the proposition that such systems can displace the statutory test. Where information exists within an organisation that would give rise to a reasonable suspicion of insolvency, that knowledge may be attributed to the creditor regardless of whether it was actively considered by individual officers.

In this case, the Commissioner’s system contained substantial data indicating persistent non compliance, growing arrears, and repeated defaults. In addition, the Commissioner had access to information regarding the Companies’ affairs from the ATO through an intergovernmental Phoenix Taskforce.

Further, when the Commissioner ultimately produced the un-redacted documents, it became apparent that the missing material contained multiple instances in which notices had been issued to banks to obtain the Companies’ bank statements.

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Multiple insolvency red flags were present

The Court identified the following factors pointing to insolvency risk, which taken together, weighed against the availability of the good faith defence.

• long-standing and increasing payroll tax arrears;

• repeated failure to lodge returns on time – this is a key requirement of complying with a payment arrangement;

• internal references to “risk to revenue” and early consideration of garnishee action;

• issuing notices to obtain bank statements;

• awareness of group-level risk through the Phoenix Taskforce and

• the scale of liabilities relative to the companies’ apparent capacity to pay.

The Commissioner relied on a declaration signed by the director when applying for the payment arrangements, which included a statement that the Company was solvent and entering into the payment arrangement would not render the Company insolvent.

When the officer who assessed the application was asked about this document, she advised that she did not pay any attention to that statement.

Additionally, the QRO argued that there was no suspicion of insolvency because there were funds available in the Companies’ bank accounts.

The Court found that reliance on director declarations of solvency and the existence of funds in bank accounts were insufficient to negate a reasonable suspicion of insolvency.

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Good faith requires active inquiry

Importantly, the Court rejected the idea that good faith can be inferred merely from the absence of actual knowledge of insolvency. Good faith requires consideration of what the creditor did know, what it ought reasonably to have considered, and whether it consciously or unconsciously ignored warning signs.

In Kirk, the Commissioner’s failure to engage with that evidence meant the defence could not succeed.

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Outcome

The Court declared the payments to be voidable transactions and ordered the Commissioner to repay:

• approximately $2.47 million in respect of ARG Workforce Pty Ltd;

• approximately $345,000 in respect of ARG Payroll Pty Ltd; and

• interest and costs.

This decision represents one of the most significant preference recoveries against a state revenue authority in Australia.

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Practical Implications for Liquidators

The Kirk decision provides significant support for materially strengthens the position of liquidators when assessing preference claims against revenue authorities. It confirms that:

• institutional creditors are held to a strict evidentiary standard;

• reliance of standard practice or automated systems is insufficient; and

• a detailed documentary and contextual analysis can defeat the good faith defence.

The case also highlights the importance of thorough pre-litigation investigation, including the use of subpoenas to identify who knew what and when.

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Conclusion

Kirk v Commissioner of State Revenue marks a significant development in Australian preference law. It confirms that revenue authorities are not insulated from preference exposure by their statutory role or internal systems.

Where evidence demonstrates that insolvency risk was apparent, the good faith defence will fail unless it is met with detailed, contemporaneous, and credible evidence.

For liquidators, the decision provides renewed confidence that properly investigated claims against revenue authorities can succeed. For creditors, it serves as a reminder that good faith is not a formality but a rigorous and fact-driven inquiry.

Read together with Stimpson, the case reinforces a familiar yet often overlooked principle: preference outcomes are driven by facts, not by the creditor’s identity.

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