Australia’s new ipso facto regime is now in effect. It stays the enforcement of contractual rights triggered upon the entry of a corporate counterparty into certain restructuring and insolvency processes. The regime will affect a broad range of contracts entered into on or after 1 July 2018; however, certain contracts and contractual rights have been excluded from the operation of the stay pursuant to statutory instruments which have just been issued.

The Supreme Court of Western Australia has recently made a freezing order in the matter of Trans Global Projects Pty Ltd (In Liquidation) (TGP) v Duro Felguera Australia Pty Ltd (Duro) [2018] WASC 136.

This decision sheds light on:

This week’s TGIF considers QBH Commercial Enterprises Pty Ltd (In liq)v Dalle Projects Pty Ltd & Ors [2018] VSC 171 in which the Court considered whether privilege can be waived by a director of a company in liquidation.

What happened?

QBH Commercial Enterprises (QBH) was placed into liquidation on 22 February 2018.

In late 2015, the High Court handed down its decision in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2015] HCA 48. The High Court held (by a majority of 3:2) that, in the absence of an assessment, a liquidator is not required to retain funds from asset sale proceeds in order to meet a tax liability which could become payable as a result of a capital gain made on the sale. In doing so, the majority of the High Court affirmed the decision of the Full Federal Court and provided long awaited guidance to liquidators, receivers and administrators.

Introduction

The statutory demand is a formidable card up a creditor’s sleeve that can result in a company being deemed to be insolvent if it does not pay the creditor’s debt within 21 days of service of the demand. Whether a statutory demand served on an incorporated body other than an Australian company will be effective largely depends on the State or Territory in which the incorporated body is based and whether it is served pursuant to the correct section of the Corporations Act 2001 (Cth) (Corporations Act).

What is a statutory demand?

In the recent decision of Heavy Plant Leasing [2018] NSWSC 707, a creditor successfully defended an unfair preference claim by establishing it did not have reasonable grounds to suspect the insolvency of the debtor company, who was a subcontractor in the earth moving business.

The most common way of defending a liquidator’s unfair preferences claim is to rely upon section 588FG(2) of the Corporations Act 2001(Cth); commonly called the ‘good faith defence’.

In September 2017, ‘safe harbour’ reforms to insolvency law were introduced to encourage directors to engage in a course of action early that is reasonably likely to achieve better outcomes for companies than immediate administration or liquidation. However, the existence of a safe harbour may not be enough if shareholders are locked into an intractable dispute.

In Short

The Background: The administrators of an Australian auction house and gallery business applied to the Federal Court of Australia for directions to recover in excess of $1 million in fees and costs incurred with respect to performing a stocktake of the auction house's inventory and returning consigned goods to owners.

The Issue: Did an equitable lien exist over the consigned goods in favour of the administrators for their fees and costs and, if so, could the administrators recover those fees and costs?

InLongley v Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32, the Queensland Court of Appeal has clarified the ability of liquidators to disclaim onerous property, including obligations that arise in respect of that property under State environmental legislation.