“Bad news comes in threes.” “Third time’s the charm.” “Three strikes and you’re out.”

One of these three adages may come to characterize the outcome of a case of significant import argued before the US Supreme Court this week. The Supreme Court heard arguments on Wellness Int’l Network, Ltd. v. Sharif. The case is the third in a trilogy including Stern v. Marshall and Executive Benefits Ins. Agency v. Arkison, which examine the scope of the constitutional exercise of judicial power by bankruptcy courts.

Under section 365(f)(1), a debtor is permitted to assume and assign leases and executory contracts notwithstanding contractual limitations or “applicable law” that restricts such assignment. However, that broad general authorization begins with the limiting language, “except as provided in subsection (b) and (c) of this section….”

In ordinary civil litigation, appellate review is generally limited to “final judgments,” in order to prevent the wastefulness of appeals on rulings that are not truly dispositive of the case. That notion becomes somewhat more difficult in a bankruptcy, where there are often multiple litigations within the umbrella bankruptcy case. But does that mean that notions of finality should be different in the bankruptcy context? Not so, at least according to the Sixth Circuit.

The Federal Court has recently handed down a decision that clarifies the power of receivers to administer trust property under a debenture. In Benton, in the matter of Mackay Rural Pty Ltd (Receivers and Managers Appointed) [2014] FCA 1285, the Federal Court confirmed that section 420 of the Corporations Act 2001 (“the Act”) confers upon receivers a power to dispose of trust property, provided that this is necessary for the purpose for which they have been appointed.

FACTS

The Supreme Court of Western Australia recently handed down its decision in Soil and Contracting Pty Ltd v Boban Pty Ltd [2014] WASC 402 which confirmed that, notwithstanding the operation of s 459R of the Corporations Act, the slip rule is available to extend the time limit within which a winding up application may be determined.

SECTION 459R

Connections Total Fitness for the Family Pty Limited (Connections) operated a gym on premises owned by Selkirk Pastoral Co Pty Limited (Selkirk). The gym business ultimately failed and ceased trading when administrators were appointed on 4 October 2013. Connections’ assets were limited to some cash at bank and a $1.1m claim against Selkirk.

Most lawyers are generally familiar with the concept of a floating lien under the Uniform Commercial Code. A secured creditor takes a lien in a collateral category that changes from time to time as items are added or subtracted. A common example is a working capital loan, in which financed inventory is produced and sold, then becoming an account, which is collected to provide the funds to produce new inventory.  A secured creditor may perfect a lien in the changing mass of inventory and receivables, as each category exists from time to time.

The respondent in this matter, Mr Culleton, owed Macquarie Leasing Pty Limited (Macquarie) a debt arising out of two chattel mortgage agreements.

Macquarie obtained judgment against Mr Culleton in the amount of $94,304. The judgment debt was not paid and Macquarie petitioned for a sequestration order to be made against Mr Culleton’s estate.

Macquarie served the Bankruptcy Notice on Mr Culleton by affixing it to a padlocked gate at his last known address.

FACTS

InKitay, in the matter of South West Kitchens (WA) Pty Ltd [2014] FCA 670, Mr Kitay was appointed liquidator of South West Kitchens (WA) Pty Ltd (SW Kitchens) by voluntary winding up. SW Kitchens was trustee of a trust and owned all its assets as trustee of that trust. The trust deed provided that SW Kitchens was disqualified from acting as trustee if it was wound up.

In Rathner in his capacity as Official Liquidator of Kalimand Pty Ltd (in liq) v Hawthorn [2014] FCA 1067, the Federal Court considered the elements of voidable transactions under Pt 5.7B of the Corporations Act, and the meaning of becoming insolvent “because of” entering into a transaction.