This week’s TGIF considers a recent decision of the Federal Court of Australia in which the Court relieved administrators of liability for entering a funding agreement with a major creditor in order to keep the company trading.

Key takeaways

In the case of Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2) [2021] NSWSC 1025 (Anchorage v Sparkes), the Supreme Court of NSW considered the obligations of company officers to sophisticated commercial lending entities, and whether company officers could be personally liable for making misleading statements.

Significance

Welcome to the October 2022 edition of the HFW Commodities bulletin.

In this extended edition, a number of our partners from across the globe have taken time to reflect on the profound impact of the Russian invasion of Ukraine on the commodities sector. It includes contributions from our offices in Australia, Geneva, London and Singapore, with articles on energy and food security, sanctions, insolvency, regulation, the energy transition and force majeure.

On the back page, you will find details of the latest news and where you can meet the team next.

A comprehensive review has begun into the effectiveness of Australia’s corporate insolvency laws in protecting and maximising value for the benefit of all interested parties and the economy. Undertaken by the Federal Government’s Parliamentary Joint Committee on Corporations and Financial Services, the review is seeking submissions by 30 November 2022.

The Australian Federal Court has clarified the limitations for foreign entities and their office holders in pursuing action in Australia to access the voidable transaction provisions of the Australian Corporations Act.

WHITE PAPER An Update on Insolvency in the Australian Construction Industry The construction sector in Australia has long been affected by insolvency and broader liquidity issues. In the last year, construction companies accounted for 26% of businesses that entered into insolvency, and insolvencies in the construction sector more than doubled. This year, contractors have been further squeezed by inflation, supply chain issues and labour market shortages. As the federal government has wound back its COVID-19 economic stimulus packages, further collapses seem inevitable.

The Need for Reform

Insolvency figures bring into stark light the reality of business in the construction industry. In the last financial year, 13% of companies entering external administration in the Northern Territory were from the construction sector.

Significant causes of contractor failure include inadequate cash flow, poor strategic management of the business, inadequate contract administration skills and a lack of working capital to see a project or a dispute through.

The High Court of Australia has confirmed that Australian Supreme Courts have the power to make orders freezing the Australian assets of a foreign company in anticipation of a possible judgment in a foreign court being obtained against that foreign company.

Background

With continuing market volatility a number of companies remain under financial pressure. Businesses or individuals receiving payments from companies that might be financially distressed should be aware of the ability of a liquidator to apply to a court under the Corporations Act 2001 (Cth) (Corporations Act) to recover payments made to creditors in the six months prior to the appointment of a liquidator/administrator on the grounds the payment constituted an “unfair preference”.

Quick Recap on the Relevant Provisions

The Implications of the Willmott Growers Decision

On 4 December 2013 the High Court handed down its decision in Willmott Growers Group Inc v Willmott Forests Limited (Receivers and Managers Appointed (In Liquidation)) [2013] HCA 51 (Willmott Growers case), clarifying the scope of a liquidator’s statutory power of disclaimer.