A recent NSWSC decision, In the matter of Sails Corp Pty Ltd [2021], confirmed the problematic task of rebutting a presumption of insolvency. In this matter, the defendant’s presumed insolvency arose from an unsatisfied Creditor’s Statutory Demand. Therefore, the defendant bore the onus of rebutting this presumption and establishing solvency.

Establishing Solvency:

Establishing solvency requires more than a bald assertion.

When a company is in danger of becoming insolvent or has entered voluntary administration, a Deed of Company Arrangement (DOCA) may be put into place. A DOCA is a binding agreement between a company and its creditors setting out how the affairs and assets of the company will be dealt with.

However, if the DOCA is subsequently terminated or the company enters liquidation, can a payment made during the course of a DOCA be recovered as an unfair preference?

In the recent litigation involving Henclo Investments Pty Ltd (Henclo), the NSW Supreme Court confirmed that non-payment of a debt cannot be relied upon as evidence of insolvency if a winding-up application is filed on grounds other than failure to comply with a creditor’s statutory demand.

Background

1. Before using the Online Bankruptcy Portal

The consequences of bankruptcy are serious, and a bankruptcy cannot be cancelled if you change your mind.

Before filing any documentation with the Australian Financial Security Authority (AFSA), seek advice from an insolvency lawyer. An insolvency lawyer will be able to provide you advice on your rights and obligations throughout the bankruptcy process.

2. Create an Account

In a recent article [The Abolition of the Peak Indebtedness Rule in Preference Claims] we discussed the case of Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) [2021] FCAFC 64 (First Badenoch Decision) which effectively abolished the “peak indebtedness rule” in unfair preference claims.

In the recent case of Jane v Secatore (Liquidator), in the matter of Last Lap Pty Ltd (in liq) [2021] FCAFC 108, the Court heard an appeal of a decision that dismissed an application to discharge summonses issued concerning public examinations by the liquidator of Last Lap Pty Ltd (in liquidation) (Last Lap).

The fact of the Case

The applicant applied to the Court to discharge summonses issued to himself and various entities.

The application was on two main bases: