In Australian Building Systems Pty Ltd v Commissioner of Taxation [2014] FCA 116, the Federal Court held that liquidators do not have an obligation to retain an amount for the payment of tax of a portion of the proceeds from the sale of property owned by the company before liquidation when no tax assessment has been issued. However, Justice Logan made clear that a prudent liquidator would be entitiled to retain the gain until an advice or assessment from the Commissioner, was issued.

Background

The recent case of Young, Jr, in the matter of Buccaneer Energy Limited v Buccaneer Energy Limited [2014] FCA 711 considered the concept of “the centre of main interests”, described in the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (United Nations General Assembly Resolution A/RES/52/158 (1997)). Senior Associate, Sarah Drinkwater and Associate, Tim Logan discuss.

Application

The recent decision of the Federal Court in Canadian Solar (Australia) Pty Ltd v ACN 138 535 832 Pty Ltd (subject to deed of company arrangement) [2014] FCA 783, is a useful reminder that a deed of company arrangement (DOCA) approved by a majority of creditors at the second creditors meeting can still be terminated by order of the Court if it is found to be unfairly prejudicial to one or more creditors or contrary to the interests of creditors as a whole. 

Key Points:

This case presented a difficult and unique set of circumstances for the court to navigate while the scheme clock was ticking.

The recent approval of the David Jones scheme of arrangement demonstrates how, in the absence of shareholder opposition, the inexorability of a scheme timetable can cause problems for a court when there is a major development after the first court hearing.

In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd, a decision seemingly inconsistent with established law, the Supreme Court of NSW earlier this year held that an omission in the affidavit supporting a statutory demand did not amount to “some other reason why the demand should be set aside”. The NSW Court of Appeal has now reversed the decision, restoring a degree of certainty in this much-litigated area of law.

The Law

Di Cioccio v Official Trustee in Bankruptcy [2014] FCA 782

Examination of whether shares purchased from a bankrupt’s income below the threshold amount in respect of which he was required to make contributions to his trustee under Division 4B of Part 6 of the Bankruptcy Act 1966(Cth) is within the meaning of “after acquired property” in s 58(1).

In the matter ofMustang Marine Australia Services Pty Ltd [2014] NSWSC 1074, Brereton J of the New South Wales Supreme Court held that there is no principle that before instituting proceedings a liquidator must be satisfied of the material facts that constitute its cause of action, and that absent such satisfaction the proceedings are an abuse of process. As long as proceedings are instituted for bona fide relief claimed and are not doomed then there is no abuse of process.

FACTS

On 4 September 2014, the Government introduced the Fair Entitlements Guarantee Amendment Bill 2014 to the House of Representatives (Bill).  The Bill is intended to amend the Fair Entitlements Guarantee Act 2012 (Cth) so as to limit the entitlements payable by the Government to those employees made redundant due to the liquidation or bankruptcy of their employer. 

In Sharpe v WH Bailey & Sons Pty Ltd [2014] FCA 921, Justice Gleeson found that the Farm Debt Mediation Act 1994 (NSW) (FDM Act) did not operate to prevent an individual from pursuing their rights under the Bankruptcy Act1966 (Cth), even though those rights may have been related to a farm mortgage.  In doing so, Justice Gleeson confirmed that the Bankruptcy Act1966 (Cth) will have priority over the FDM Act where the requirements of section 5 of the FDM Act are met.

FACTS

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.