Introduction – why does this matter?

With the Australian Taxation Office very active in winding up companies for unpaid taxes, it is now commonplace for insolvency professionals to be faced with pending winding up petitions when considering an appointment as voluntary administrator. Obtaining an adjournment of the petition is often the first critical task in an administration.

Since the landmark decision in Re Solfire Pty Ltd (In Liq) (No. 2) [1999] 2 Qd R 182, the Queensland Supreme Court has often marched to its own tune when reviewing applications for insolvency practitioner remuneration and disbursements. In two related decisions arising from the insolvency of LM Investment Management and managed investment schemes of which it is responsible entity, the Court has now turned its attention to the controversies in this area over proportionality and access to trust assets with which its counterparts in New South Wales have grappled over the last 18 months.

The recent decision in Re Swan Services Pty Limited (in liq)

In a series of recent decisions1, the Federal Court of Australia has held that section 588FL of the Corporations Act 2001 (Cth) (Corporations Act) operates such that any new security granted by a company in external administration2. that could only be perfected by registration on the Personal Property Securities Register (PPSR), and which is not the subject of an effective registration made before the appointment of the external administrator, will be ineffective3.

Liquidators of insolvent Australian companies often pursue directors of the failed company in recovery proceedings for the benefit of creditors. Following a High Court of Australia decision in April 2016, it is now clear that a liquidator can join liability insurers of defendant directors in such proceedings, even when the insurer has denied liability under a policy. The liquidator, even though not a party to the contract, may then seek a declaration in the same proceedings that the insurer is liable to indemnify the insured defendant.

On 1 September 2017, the remaining parts of the new Insolvency Practice Schedule (IPS) introduced by the Insolvency Law Reform Act 2016 (Cth) as Schedule 2 of the Corporations Act 2001 (Cth) (Corporations Act) commenced operation, including the provisions relating to "funds handling" contained in Division 65 of the IPS. These provisions apply to all "external administrations"1. including those that commenced prior to 1 September 20172.

In a wide-reaching judgment concerning an appeal by Mighty River International in the administration of Mesa Minerals, the Western Australian Court of Appeal, has recognised that “holding” Deed of Company Arrangement (DOCA) is permissible under Part 5.3A of the Corporations Act.

The key points – Holding DOCAs as a flexible framework

The key points for insolvency and turnaround professionals to take from Mighty River International v Hughes are:

Yesterday in Canberra, a significant step forward for Australian insolvency law reform was taken: Parliament passed the much anticipated "safe harbor" for directors in relation to insolvent trading liability and moratorium on reliance by solvent counterparties on “ipso facto” clauses in voluntary administration and creditors schemes of arrangement.

Key Points

On the key points:

In a decision of importance for liquidators and litigation funders, the Western Australian Court of Appeal in Perrine v Carrello has further explained the important issue of how to determine the amount of compensation recoverable by liquidators where insolvent trading has occurred.