The High Court has handed down its long-awaited decisions in Bryant v Badenoch Integrated Logging Pty Ltd [2023] (Badenoch) HCA 2 and Metal Manufactures Pty Ltd v Morton [2023] HCA 1 (Morton) providing guidance on common defences to unfair preference claims that may be brought by liquidators. The key takeaways for insolvency practitioners are:

The High Court of Australia in Metal Manufactures Pty Limited v Morton [2023] HCA 1 has confirmed the view of the Full Court of the Federal Court of Australia that the "set off" defence under section 553C of the Corporations Act 2001 (Cth) (Act) is no longer available to claims by liquidators for an unfair preference claim made under section 588FA of the Act.

This decision brings finality to claims brought by Creditor Defendants to such claims and no doubt brings much joy to liquidators across Australia.

Co-author: Ben  Gibson, Barrister, Victorian Bar

Case Name:Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2

Issues: Voidable transactions and unfair preferences: abolition of the peak indebtedness rule, the existence of a continuing business relationship.

The abolition of the peak indebtedness rule will likely reduce the quantum of unfair preference claims where there is a running account and render some claims unviable for further pursuit.

Insolvency practitioners and creditors facing voidable transaction claims will need to reassess the value of any potential or threatened unfair preference claims or other voidable transaction claims, following two important insolvency decisions in the High Court yesterday (Metal Manufactures Pty Limited v Morton [2023] HCA 1 (Metal Manufactures); Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2 (Badenoch).

It held that:

In a historical first female majority High Court Judgment, Bryant v Badenoch Integrated Logging Pty Ltd[1]saw all seven Judges unanimously uphold the decision to abolish the Peak Indebtedness Rule, and set in place the starting point for calculation of “all transactions” in a “running account”.

If you’re thinking about tidying your corporate structure, now is the time to do it.

The first major review of Australia’s corporate insolvency in more than 30 years is underway with public submissions now closed. The review is broad in its scale, considering the entirety of Australia’s corporate insolvency regime and its related practices and procedures.

While the review is relevant to anyone conducting business in Australia, any developments or changes to corporate insolvency laws are particularly important for businesses in financial distress or creditors looking to recoup debts they are owed.

The corporate insolvency review to date

Jabaluka Pty Ltd (Jabaluka) was the Trustee of the Morgan Unit Trust, which operated an IGA Supermarket (the Supermarket) from 22 September 2010 to 13 March 2020. This case concerned an application by the Liquidator of Jabaluka (the Liquidator) under s 57 of the Federal Court of Australia Act 1976 (Cth) for an order that the Liquidator be appointed without security as receiver and manager of the assets and undertaking of the Morgan Unit Trust.

In BTI 2014 LLC v Sequana SA and Others, the United Kingdom Supreme Court considered a case on appeal which asked the Court to expand the common law duty of directors in a significant way. The Appellant sought to argue that common law director duties should require directors to have regard to the interests of creditors even in circumstances where their company is solvent.

Background

Introduction for Insolvency & Restructuring Case Summaries 2021-2022 It gives us great pleasure to introduce our Insolvency & Restructuring Case Summaries 2021-2022.

This is the first year that we have published a collated version of the Case Summaries in addition to our regular insolvency InFocus updates. The Case Summaries have been produced in response to feedback that this would be a useful resource.