A Practical Guide to Bankruptcy:
Part 1: A Broad Overview of Bankruptcy
‘As privileged professionals, who live by the words of the English language, lawyers have a special duty to be clear in what they say and write’[1]
When discussing any area of law, precision is essential.
The new 2021 year brought in various changes to insolvency laws, which included the introduction of the Small Business Restructuring (SBR) process to assist small businesses in restructuring their debts. This new regime provides an opportunity for eligible small businesses which are financially distressed, but otherwise viable, to continue trading into 2021 and beyond. However, a question that we have recently been faced with is whether a company that is a corporate trustee of a trust, also known as a trustee company, is able to avail itself of the SBR process.
This week’s TGIF considers a recent decision of the Federal Court where a company was found to be ‘insolvent’ for the purposes of assessing breach and termination of a contract, despite its subsequent survival and ongoing trading.
Key Takeaways
The Supreme Court of New South Wales has recently handed down its decision in proceedings (“Arrium Proceedings”) brought by a number of lenders against former officers and employees of Arrium Limited and its subsidiaries (“Arrium”).
Introduction
Justice Ball’s landmark decision1 dismissing the lenders’ claims addressed various important issues that often arise when a borrower is facing financial distress in Australia, including:
In Australia, s 436A of the Corporations Act 2001 (Cth) (Act) provides for the circumstances in which a company may appoint a voluntary administrator. This provision requires the company’s board to resolve that: (a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and (b) an administrator of the company should be appointed.
The following company law cases have been reported in CCH Pinpoint:
Directors’ duties: director breaches multiple duties by causing companies to provide security for unrelated parties
This week’s TGIF looks at In the matter of Gary John Anderson in his capacity as liquidator of G & G Contractors Pty Ltd (In Liquidation) [2021] FCA 1185, the latest of a line of Federal Court decisions confirming the approach to be taken by liquidators of trustee companies that have ceased to be trustees as a result of going into liquidation.
Key Takeaways
Full Court of Federal Court rebuts presumption of advancement – Commissioner of Taxation v Bosanac [2021] FCAFC 158
Introduction
A recent decision of the Full Court of the Federal Court of Australia has set a low water mark in rebutting the presumption of advancement. The decision has significant implications for professionals and businesspeople who have structured their affairs for asset protection, as well as bankruptcy trustees seeking to recover assets.
The abolition of the "peak indebtedness" rule will complicate liquidators' tasks, not least its adverse effect on pursuing preferences where it's unclear what forms the single transaction.
Our research shows rescue financing in Australia has been deployed as one element of a broader restructuring strategy, most commonly by an existing stakeholder, rather than as a profitable activity in itself.