Big changes are proposed to the use of trusts as trading enterprises by the Law Commission as part of its ongoing review into trust law.
Recommendations include:
From 28 September 2012 the maximum priority amount for employees in liquidations, receiverships and bankruptcies will increase from $18,700.00 to $20,340.00 per employee.
Liquidators, receivers and the Official Assignee in a personal bankruptcy must pay certain amounts to employees, in priority to ordinary unsecured creditors.
These preferential employee entitlements include:
It’s now official. Priority between competing security interests under the Personal Property Securities Act (PPSA) is assessed at the time those interests come into conflict. This will usually, but not always, be when receivers are appointed.
The PPSA is silent on the issue but the general view, now confirmed by the High Court, has been that the rule established in the Canadian Sperry1 case is the correct approach.
The Law Commission is looking into whether the regulation of trading trusts gives enough protection to creditors and beneficiaries in circumstances of insolvency.
Submissions are due on the issues paper by 2 March 2012.
What is a trading trust?
Making a payment to a creditor (in this case, the IRD) will in and of itself give that creditor priority over competing creditors. A recent Court of Appeal judgment to that effect, under section 95 of the Personal Property Securities Act (PPSA), carries serious implications for receivers.1
The High Court has confirmed its broad power to bypass the strict legislative requirements that otherwise govern voluntary administrations. Section 239ADO(1) of the Companies Act allows the Court to make any order that it thinks appropriate about how the voluntary administration provisions of the Companies Act are to operate in relation to a particular company.
The Supreme Court has affirmed the Court of Appeal’s finding in August of this year that a voluntary administrator may only use a casting vote at a watershed meeting where the number of creditors voting for and against a proposed deed of company arrangement (DOCA) is equal.
Recent decisions from the courts have raised the legal risk for directors and underlined the exposure to third party liability of auditors, trustees and promoters.
As a result, we can probably expect this year to have more claims made by receivers, liquidators and out-of-pocket investors against those involved in:
The Insolvency Practitioners Bill is now unlikely to come into force until early 2013 due to the disruption caused by the election. The Finance and Expenditure Select Committee’s report on the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill will also be delayed until next year.
Insolvency Practitioners Bill
Receivers cannot escape personal liability on contracts they cause the company to enter into simply because all of the company’s assets have been paid out.
So the Court of Appeal found last week in a decision which explored the application of limitation of liability clauses where, as is common practice, the liability is limited to the “available assets” of the company.