When Tax Schemes Become Directors’ Duties Risks: Lessons from BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351

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Published: 17 November 2025 | Reviewed: 17 November 2025
(3-minute read)

Case Summary - what happened

In BCI Finances v Binetter (No 4) [2016] FCA 1351, Gleeson J examined a decades-long structure involving offshore deposits held in Switzerland and Israel, “back-to-back” loans issued by Israeli banks, and interest deductions claimed in Australian tax returns.

The Court found that several companies in the Binetter group participated in a scheme designed to evade or avoid tax, and that key individuals breached statutory and equitable directors’ duties by:

• entering transactions that provided no genuine commercial benefit to the companies,

• causing the companies to lodge false or misleading tax returns, and

• exposing the companies to revised assessments, penalties and interest after the ATO audit.

A central sentence summarising the Court’s reasoning appears in Gleeson J’s conclusion:

“The respondents participated in a scheme for the purpose of evading or avoiding liability to pay income tax… the conduct led the applicants to incur the liabilities which arose when the revised assessments were issued.” (at [8]–[9])

The liquidators sought more than $120 million in compensation, arguing that the losses flowed from those breaches.

Doctrinally, the Court reaffirmed that directors must:

• act in good faith and for a proper purpose,

• avoid placing the company in harm’s way for the benefit of others, and

• ensure tax positions are accurate, defensible, and properly authorised.

The case also illustrates how “de facto” or “shadow” directors (not formally appointed) can still owe full duties when they effectively direct corporate affairs.

Why It Still Matters

Although the transactions were decades old, the structural risk is contemporary:

companies collapse when internal decision-making becomes opaque, undocumented, or driven by individuals pursuing personal or family benefit.

Modern equivalents include:

• cross-border loan arrangements without commercial logic,

• related-party dealings that lack independent oversight, and

• tax-driven document trails prepared without full board understanding.

Where governance is thin, the risk compounds: boards sign documents they never reviewed, tax filings are made without sufficient inquiry, and silence is mistaken for consent. When the ATO later issues amended assessments, duty breaches crystallise into personal exposure.

How to Avoid the Same Trap

Core Legal Risk:

Uninformed or conflicted decision-making leading to opaque transactions, inaccurate filings, and catastrophic liability.

The judgment shows how easily directors can fall into a pattern where major decisions proceed without independent oversight or clear separation of roles. The companies here became vehicles for transactions they barely understood - and that was fatal when the ATO unwound them.

Most Relevant Clean Law Safeguard:

Clear Role Separation, “Two lawyers often cost less than one - because you fund one path, not both.”

Internal justification:

This case is fundamentally about conflicted strategy: settlement/tax management decisions were made by the same insiders who were exposed to the consequences. No independent adviser was structurally empowered to question the transactions or escalate concerns.

Clean Law’s two-lawyer separation directly addresses this risk:

• one lawyer handles litigation;

• Clean Law manages settlement, governance context and cost-aligned oversight;

• clients fund one path, not both, avoiding duplicated work and surfacing issues early.

In traditional models, the same firm often handles everything — tax exposure, settlement attempts, and litigation preparation. As the Binetter case reveals, that can lead to entrenched positions, lack of scrutiny, and costly surprises.

With role separation, clients gain:

• independent questioning of risky strategies before they escalate,

• clear boundaries that prevent anyone from “marking their own homework,” and

• cost-safe incentives - “If you save, we win; if your case drags, we lose.”

These safeguards help ensure directors and business owners never end up in the fog that surrounded the Israeli bank transactions.

Reflection

Cases like BCI Finances remind us that the most serious legal problems rarely emerge overnight. They grow in the spaces where no one is independently checking the decisions being made. Structural independence and role separation give clients a safer architecture, so problems surface early, not after a multimillion-dollar assessment.

When this case raises questions about decision-making clarity or independence, clients often want to understand how two-lawyer separation actually works in practice. Our explainer sets it out plainly.

Where tax exposure or director-duty risk is involved, many clients prefer a confidential space to understand their options before taking action.

Speak confidentially with a Clean Law solicitor

By Nicky Wang
Principal Solicitor
Legal Liaison Ltd (trading as Clean Law)
Prepared in accordance with public-interest governance,
annual Law Society trust-account audits, and ACNC-reported standards.

Disclaimer: This page is intended to provide general information only and is not legal advice. The contents may not reflect the most current legal developments and do not take into account your individual circumstances. You should not act or refrain from acting on the basis of this information without obtaining legal advice tailored to your situation.