A Win for Subcontractors and Suppliers

When a construction company goes broke, the subcontractors and suppliers often receive letters from the liquidator demanding repayment of so-called ‘unfair preferences’.

When an ongoing business relationship has existed between the creditor company and the company in liquidation, liquidators have historically worked out the amount of the ‘unfair preference’ on a ‘running account’ basis by reference to the so-called ‘peak indebtedness principle’. For example, if the following transactions took place:

Overview

On 18 February 2020, the Treasury Laws Amendments (Combating Illegal Phoenixing) Act 2020 (TLA(CIP)) was enacted. In broad terms, the TLA (CIP):

Full Court of Federal Court rebuts presumption of advancement – Commissioner of Taxation v Bosanac [2021] FCAFC 158

Introduction

A recent decision of the Full Court of the Federal Court of Australia has set a low water mark in rebutting the presumption of advancement. The decision has significant implications for professionals and businesspeople who have structured their affairs for asset protection, as well as bankruptcy trustees seeking to recover assets.

COVID-19 has made an undeniable and significant impact on many businesses around Australia. With each lockdown and implementation of harsh restrictions, business owners and directors are forced to scramble to keep their business afloat. No doubt liquidators will shortly be inundated with companies desperately trying to evaluate their options.

Insolvency, voluntary administration, bankruptcy and liquidation are terms that are consistently being thrown around. But what do they mean? Is there a difference?

Insolvency

The Melbourne RIT team recently published an article on the decision of the Full Court of the Federal Court of Australia in Badenoch (No 1) [2021] FCAFC 64. On 24 June 2021, the Full Court published a second judgment that fixed the start and end dates of the ‘single transaction’ between Gunns and Badenoch.

The Gunns liquidators have since made a special leave application to the High Court to appeal both of the Full Court’s decisions.

Administrators deprived of their right of indemnity

The pavlova, women’s right to vote, the flat white, the Rugby World Cup… New Zealand has a storied history of beating Australia to the punch. However, Aussie liquidators might not be so keen to throw their trans-Tasman cousins a friendly ‘chur!’ as their ability to pursue unfair preference claims continues to be eroded following the recent Full Court decision in Badenoch.

Liquidators and Trustees in Bankruptcy - Claw-Back

Sometimes service providers feel that they should not get involved to assist financially troubled clients obtain work-out or insolvency advice in fear that if their client goes into liquidation or bankruptcy that the WIP and/or fees/costs paid may be lost or "clawed back" by a liquidator because of an unfair preference claim.

You have done the work pursuant to the agreed terms of a customer service agreement ("CSA"). You should not have a dispute with your customer regarding what you have done and what you are entitled to be paid. However, they are not paying you or unable to pay you. What should you do to prevent this happening?

Security

Liquidators and Trustees in Bankruptcy - Claw-Back

Sometimes service providers feel that they should not get involved to assist financially troubled clients obtain work-out or insolvency advice in fear that if their client goes into liquidation or bankruptcy that the WIP and/or fees/costs paid may be lost or "clawed back" by a liquidator because of an unfair preference claim.