Before embarking on any litigation, or continuing any litigation that is on foot at the time of the liquidator's appointment, a liquidator should carefully weigh up the benefits and risks of pursuing a particular course of action.

A liquidator can be exposed personally in litigation. We discuss the risks to a liquidator associated with litigation by examining some recent cases where liquidators have been ordered to pay costs personally. We provide guidance on ways to mitigate this risk.

Balancing risk – weighing up competing priorities

introduction

A further element of the announcement made on 3 May 2021 by the Treasurer and Assistant Treasurer of Australia was in relation to the possible reform of the law relating to the “safe harbour” for Directors, protecting them from liability for insolvent trading. The announcement foreshadowed a “review whether the insolvent trading safe harbour provisions, which were introduced in 2017 and designed to promote a culture of entrepreneurship and innovation by providing breathing space for distressed businesses, remain fit for purpose.”

2017 safe harbour provisions

In the recent decision ofBadenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) [2021] FCAFC 64,the Full Court of the Federal Court of Australia abolished the use of the peak indebtedness rule in A

After last year’s significant reforms to Australia’s insolvency framework, the Government has demonstrated a further commitment to simplifying and streamlining insolvency law to allow viable businesses that encounter economic challenges to restructure and continue trading.

This commitment is demonstrated by the Government continuing to examine ways to improve Australia's insolvency laws, including consulting on options to:

Introduction

On 3 May 2021, the Treasurer and Assistant Treasurer of Australia announced that, as part of Australia’s economic recovery plan, the Government would be reviewing further aspects of the insolvency laws including to “consult on improving schemes of arrangement processes to better support businesses, including by introducing a moratorium on creditor enforcement whilst schemes are being negotiated.”

This week’s TGIF considers the decision of the Federal Court in In the matter of Thousand Angeles Island Pty Ltd (in liq) (No 2) [2021] FCA 283, where the Court held that only a ‘theoretical conflict’ existed for a liquidator entering into a deed where he was also bankruptcy trustee of the company’s sole shareholder.

Key takeaways

On 3 May 2021, the Treasurer announced that the Morrison government is pursuing further measures to improve Australia’s insolvency framework for both small and large businesses.

As part of the 2020–21 budget, the government announced the most significant reforms to Australia’s insolvency framework in 30 years. These reforms, which commenced on 1 January 2021, created new simplified liquidation and debt restructuring processes for small companies, and has provided directors with the control and flexibility they need to either restructure their business or wind down operations.

The Federal Government has foreshadowed further changes to Australia’s insolvency laws. These changes build on the raft of measures introduced over the previous year discussed in our earlier articles here and here.

On 24 September 2020, the Morrison government announced reforms to Australia’s insolvency framework to better support Australian small businesses, their creditors and employees, in particular businesses facing financial difficulties following the COVID-19 pandemic.

In Re Octaviar Ltd,^[1] the Supreme Court of Queensland has given a recent example of a settlement considered too ‘good’ to approve, even while noting its failure to achieve perfection.