The High Court’s recent decision in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 has confirmed a bankruptcy court can exercise a discretion to go behind the judgment debt where sufficient reason is shown for questioning whether there is a debt due to the petitioning creditor.

In the recent decision of Lane (Trustee), in the matter of Lee (Bankrupt) v Deputy Commissioner of Taxation [2017] FCA 953, Cooper Grace Ward acted for the trustee in bankruptcy, who sought directions from the Court regarding the administration of a trading trust where the bankrupt was the trustee.

Facts

Section 477(2B) of the Corporations Act 2001 (Cth) provides that a liquidator must not enter into any sort of agreement that may last longer than three months without first obtaining approval of the Court, of the committee of inspection or by a resolution of the creditors.

Typically, a litigation funding agreement will be caught by this section because it will last more than three months.

The reference to ‘enter into an agreement’ could also catch a novation, and potentially a variation, to an agreement.

Ever since the introduction of the ‘out of court’ procedure to appointment an administrator, there has been a practice of filing successive Notices of Intention to Appoint an Administrator. This practice has been the topic of much discussion and its legality was recently addressed by the Court of Appeal in the case of JCAM Commercial Real Estate Property XV Limited –v- Davis Haulage Limited [2017] EWCA Civ 267.

Introduction

All Australian states have sale of goods legislation that, in certain circumstances, allows an unpaid seller to retain possession of goods in transit where the buyer becomes insolvent. The statutory right, called stoppage intransitu, is a useful remedy to obtain payment.

A registered security interest on the PPSR is not required to exercise the statutory right. Administrators and liquidators may be trumped by a notice under the stoppage in transitu provisions.

However, the sale of goods legislation is not identical in each state.

Competing claims to goods are common where there is an unpaid seller with alleged retention of title, the supplier’s customer has gone into external administration and the goods are in the possession of a transport or warehouse provider. Thrown into the mix may be an administrator or liquidator demanding possession of the goods to sell them.

The recent case of M Webster Holdings Pty Limited (administrators appointed) v Specific Freight Pty Limited [2017] FCA 269 illustrates how a transport provider can become ‘the meat in the sandwich’ when a consignee of goods becomes insolvent.

Webster, a fashion retailer, operated two well-known Australian businesses, David Lawrence and Marcs. Webster was placed into administration in February 2017 and its administrators continued to trade with a view to securing a purchaser.

On 6 April 2017, the Insolvency Rules 2016 came into force. The new rules aim to modernise the insolvency process; and make it more efficient. Physical meetings, as the default decision making process, have been abolished. Where the debtor ‘customarily’ communicated with a creditor by way of email notices can be served by email under deemed consent, rather than through the post. The rules also introduce the use of websites to publish notices, without the need to inform creditors of any postings.

When someone is made bankrupt, all property owned by them, at the date of bankruptcy, forms part of the bankruptcy estate. Property not only includes physical assets, such as goods, land and money, but also intangible assets, such as a cash balance with a bank, debts, benefits under contracts, legacies and causes of action. These assets are known as ‘things in action’. The bankruptcy estate vests in a trustee in bankruptcy upon appointment.

On 23 March 2017, Justice Robson of the Supreme Court of Victoria declined to follow the Victorian Court of Appeal decision of Re Enhill, finding that the decision was not binding with respect to different legislation (the Companies Act 1961 (Vic) as opposed to theCorporations Act 2001 (Cth)).

Background

Since the early 1980s, there has been a divergence of judicial opinion in the decisions of Re EnhillPty Ltd [1983] 1 VR 561 and Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99.