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:

Provided a liquidator is acting properly in conducting proceedings or realising assets, he or she is entitled to be paid fees in priority to a secured creditor.

The High Court has recently reaffirmed the principle that a liquidator is entitled to be paid his or her costs and expenses properly incurred in realising assets of a company in priority to a secured creditor. This is so even if the fund realised was derived from an action brought against a secured creditor (Stewart v Atco Controls Pty Ltd (in Liquidation) [2014] HCA 15).

Key points

First occasion where a deed administrator has sought leave under section 444GA of the Corporations Act 2001 (Cth) (theAct) in respect of a publicly listed company. The Court granted leave for 98.2% of each shareholders’ holding in Mirabela Nickel Limited (Mirabela) to be transferred to certain unsecured creditors as part of a broader recapitalisation, under a deed of company arrangement (DOCA), without shareholder approval.  

The High Court recently delivered judgment in the matter of Stewart v Atco Controls Pty Ltd (In Liquidation).^[1] The case turned on the application of the well-known principle in Universal Distributing

The Federal Court affirms that a secured creditor may be subrogated to the entitlements of priority creditors, to the extent that the Receivers’ payments to priority creditors have diminished its security.

In the decision Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) in its capacity as responsible entity of the Equititrust Income Fund v Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) in its own capacity [2014] FCA 692,the Federal Court of Australia considered an application to set aside or stay indefinitely liquidator examinations of former auditors under s596B of the Corporations Act 2001 (Cth).

Liquidators are commonly appointed to a company where, prior to liquidation the company was a trustee of a trust. Often when the liquidators are appointed, the company has ceased to be the trustee and a replacement trustee has not been appointed.

In these circumstances, the company in liquidation is a bare trustee in relation to the trust assets and the liquidator will assume this role until a replacement trustee is appointed. Often a replacement trustee is not appointed.

Does the liquidator as bare trustee have a power to sell trust assets?

When a Bank appoints a receiver under a charge, section 433 of theCorporations Act 2001 (Act) requires the proceeds of certain chargedassets to be used by the Receiver to satisfy certain employee entitlementsin priority to the Bank. Section 561 of the Act has a similar effect where acompany is in liquidation, but only if there are insufficient uncharged assets available.

The Supreme Court of Queensland decision of First Strategic Corporation Limited (In Liq) and Anor v Chan and Ors [2014] QSC 60 gives insolvency practitioners guidance as to what consideration can be taken into account when assessing the solvency of a company by the means and preparedness of someone to support the company.

Background