The Hon Joe Hockey announced the final terms of reference for a new financial system inquiry on 20 December 2013.  The purpose is to examine how the financial system could be best positioned to meet Australia's evolving needs and support Australia's economic growth.

An interim report was released on 15 July 2014.  Section 3 discusses potential changes to the current external administration regime in Australia. 

Key Points:

Courts will remove liquidators where there's apparent bias even where it might cause significant inconvenience and expense to the liquidation.

The Full Court of the Federal Court has found that a conflict of interest arose in circumstances where liquidators were required to investigate transactions with an entity that also refers work to the liquidators (ASIC v Franklin; Re Walton Construction Pty Ltd [2014] FCAFC 85).

Obtain advice before you lodge a proof of debt or vote in a liquidation

Secured creditors should remember that submitting a proof of debt and voting in a liquidation may result in the loss of their security if they get it wrong.

The Supreme Court of New South Wales has delivered a timely reminder to secured creditors of a company in liquidation, where the secured creditor lost its security because it submitted a proof of debt for the full amount of its debt and voted on a poll at a creditor’s meeting for its full debt.

The recent decision of the Federal Court in the matter of Divitkos, in the matter of ExDVD Pty Ltd (In Liquidation) [2014] FCA 696 confirms that where a receiver is required to make a payment under Section 433 of the Corporations Act 2001 (Cth) (Act) to a priority creditor (such as employee entitlements), the secured creditor (who appointed the receiver) may be entitled to be subrogated to the rights of that priority creditor in the winding up of the company.

The Law

In brief

The recent decision of Divitkos, In the matter of Ex DVD Pty Ltd (In liquidation) has paved the way for secured creditors who pay employee entitlements out of secured assets to receive a priority for that payment from preference claims recovered in a subsequent liquidation.

Summary

The statutory demand is one of the most frequently used (and misused) tools utilized by companies and other persons to obtain payment of debts owed to them by a company. Service of a statutory demand can be the first step towards placing insolvent companies into liquidation.

The consequences for a company that does not respond to the service of a statutory demand can be severe.

One of those consequences is that the company may find itself in the position where it is required to prove solvency before a court, in order to avoid a winding up.

The Financial System Inquiry was formed on 20 November 2013 by our Federal Treasurer to examine how our financial system could be positioned to best meet Australia’s evolving needs and support economic growth. The Inquiry received over 280 first round submissions and released it’s Interim Report earlier this week. ^[1] 

Last Friday, the Full Court of the Federal Court of Australia handed down its decision in ASIC’s case seeking the removal and replacement of the liquidators of the Walton Constructions group, on the grounds of a perceived lack of independence.

Key Points:

A forbearance arrangement is a useful instrument to ensure that both the lender and the customer are aligned on the proposed turnaround or workout.

When the employer underwent a restructure, the employee’s reporting line changed, as well as his membership of a particular leadership team. His role was not abolished. For two months after the restructure, the employee continued to work in the same role, under the same contract, until he tendered his written resignation. He subsequently filed a dispute under the terms of the applicable Enterprise Agreement, seeking orders that he should have been retrenched by the employer.