When a company is in danger of becoming insolvent or has entered voluntary administration, a Deed of Company Arrangement (DOCA) may be put into place. A DOCA is a binding agreement between a company and its creditors setting out how the affairs and assets of the company will be dealt with.
However, if the DOCA is subsequently terminated or the company enters liquidation, can a payment made during the course of a DOCA be recovered as an unfair preference?
In the recent litigation involving Henclo Investments Pty Ltd (Henclo), the NSW Supreme Court confirmed that non-payment of a debt cannot be relied upon as evidence of insolvency if a winding-up application is filed on grounds other than failure to comply with a creditor’s statutory demand.
Background
1. Before using the Online Bankruptcy Portal
The consequences of bankruptcy are serious, and a bankruptcy cannot be cancelled if you change your mind.
Before filing any documentation with the Australian Financial Security Authority (AFSA), seek advice from an insolvency lawyer. An insolvency lawyer will be able to provide you advice on your rights and obligations throughout the bankruptcy process.
2. Create an Account
This week’s TGIF considers the decision of Palace v RCR O’Donnell Griffin Pty Ltd (in liq)[2021] QCA 137, in which the Queensland Court of Appeal provided useful guidance on the principles to be applied when a party seeks leave under section 500(2) of the Corporations Act 2001 (Cth) to bring proceedings against a company in liquidation.
Key Takeaways
The motivation for the recent insolvency law reforms is to give insolvent companies breathing space to try to reorganise their affairs and allow viable businesses to continue to trade
With the threat of increased insolvencies as an effect of the COVID-19 pandemic remaining very real, the construction sector needs to be aware of the impact of changes to insolvency laws.
Changes to insolvency laws in the UK, Australia and Singapore may affect how parties deal with the termination of construction contracts where one party to the agreement is insolvent.
Derivatives specialist Louise McCoach has authored the 2021 Australia chapter of the ‘International Comparative Legal Guide - Derivatives 2021’, which summarises the laws and regulations of derivatives in Australia. The chapter covers documentation and formalities, credit support, regulatory issues, insolvency/bankruptcy, close-out netting, taxation and bespoke jurisdictional matters and market trends in the Australian derivates market.
This was first published in the LexisNexis Insolvency Law Bulletin (Vol. 21, No. 5 & 6).
This article is co-authored by Justin Ward of Litigation Capital Management and Marcel Fernandes of 12 Wentworth Selborne Chambers.
On 1 July 2021, the Australian Financial Security Authority (AFSA) released its Personal Insolvency Compliance Program 2021–22, Regulatory Charter and Regulatory Actions Cooperation and Support Policy. These documents underpin AFSA’s regulatory priorities and enforcement obligations for the forthcoming year, particularly in relation to personal insolvency and the Personal Property Securities Register (PPSR).
Personal Insolvency Compliance Program 2021–22
The Federal Court has recently confirmed that liquidators are able to assign their rights to examine people and to obtain the production of documents.
Liquidators may now find that there is greater interest from litigation funders to purchase potential claims that have not been fully investigated.
Overview
Section 90-15 of the Insolvency Practice Schedule (the IPS) confers on Courts wide powers to adjust rights related to companies in external administration. Here, the administrators of a mining group obtained orders approving their entry into a deed to fund the ongoing operation of the group pending sale and limiting their liability under the deed to the company’s assets. The Court accepted the administrators’ evidence that this funding was urgently required to continue the Group’s operations pending a sale, the prospects of which were thereby maximised.