In the recent court decision of Trenfield v HAG Import Corporation (Australia) Pty Ltd [2018] QDC 107, the liquidators recovered unfair preferences from a retention of title creditor who argued it was a secured creditor.

The issues

In the recent decision of Heavy Plant Leasing [2018] NSWSC 707, a creditor successfully defended an unfair preference claim by establishing it did not have reasonable grounds to suspect the insolvency of the debtor company, who was a subcontractor in the earth moving business.

The most common way of defending a liquidator’s unfair preferences claim is to rely upon section 588FG(2) of the Corporations Act 2001(Cth); commonly called the ‘good faith defence’.

Commonly, a creditor being sued by a liquidator to refund an alleged unfair preference is owed money by the company in liquidation.

Liquidators argue that under section 553(c)(1) of the Corporations Act 2001 (Act) a creditor is not able to set-off the outstanding indebtedness owed by the company to the creditor to reduce any liability of the creditor to refund any unfair preference. Similar arguments are made by liquidators in relation to insolvent trading claims.

A snapshot of the court decisions

Just because a liquidator asserts you have received an unfair preference, does not necessarily mean you have or that there are no potential defences available to you.

It is common for commercial contracts to contain ipso facto clauses, which allow a party to terminate or modify the terms of the contract where the other party experiences an insolvency event. A concern addressed by the Government is that these clauses can prevent a financially distressed company from turning their situation around.

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

SAW (SW) 2010 Ltd & Anor v Wilson & Ors [2017] EWCA Cif 1001 (25 July 2017)

The Court of Appeal has held that the validity of a floating charge (and the appointment of joint administrators under that floating charge pursuant to paragraph 14 of Schedule B1 to the Insolvency Act 1986) does not depend on the existence of uncharged assets of the company at the time of its creation, nor upon the power of the company to acquire assets in the future.

BACKGROUND

Randhawa & Anor v Turpin & Anor [2017] EWCA Civ 1201

In a fascinating (and very readable) judgment, the Court of Appeal has held the appointment of joint administrators made under paragraph 22 of Schedule B1 to the Insolvency Act 1986 ("IA 1986") to be invalid because, among other things, the appointment was made following an inquourate board meeting. Readers are encouraged to read the judgment, as the following is merely an overview of the facts and conclusions.

BACKGROUND

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.