It is anticipated that, by the middle of the year, Australia will see the most significant reform to the corporate and personal insolvency environment in two decades. The reforms, which appear likely to be supported by all sides of government, are designed to promote business preservation and allow greater flexibility in order to ‘turnaround’ distressed companies.

Failing to register a lessor’s security interest on the PPSR over plant and equipment at leased premises can result in the lessor’s unperfected security interest passing to the administrator of the lessee.

In the recent decision of Flown Pty Ltd v Goldrange Pty Ltd [2016] WASC 419, a lessee’s administrator successfully retained ownership of plant and equipment (which were not fixtures) in the leased premises.

Background

In the recent case of Hadley v BetHQ Pty Ltd [2016] FCA 1263, the debtor company, BetHQ, came to grief when a statutory demand was validly served at the company’s registered office in Brisbane as shown in ASIC records. The premises were a serviced office; however BetHQ had ceased operations at the serviced office and had moved its operations to Victoria.

When a secured creditor appoints a receiver it is usual for them to sign an agreement setting out the terms of the receiver’s appointment, including payment of the receiver’s remuneration, costs and expenses. Appointment documents commonly contain indemnity clauses in which the secured creditor agrees to indemnify the receiver in specified circumstances.

In our previous bulletin we discussed the ‘safe harbour’ model in the Government’s suggested reforms to the current insolvency laws.

This bulletin considers another of the focus questions in the Proposal Paper: the voiding of ipso facto clauses relating to insolvency events.

Background

On 29 April 2016, the Federal Government released a Proposals Paper titled ‘Improving bankruptcy and insolvency laws’.

The Government is proposing these reforms to encourage entrepreneurship and investment. It hopes to reduce the stigma and detriment around failed business ventures, while still balancing the need to protect creditors.

In December 2015, as part of its National Innovation and Science Agenda, the Federal Government announced a proposal to introduce a ‘safe harbour’ for directors from personal liability for insolvent trading.

Where a court has ordered the winding-up of a company, a shareholder may be able to have the winding up terminated under section 482 of the Corporations Act 2001.

Relevant factors

The power of the court to terminate a winding-up is discretionary. Relevant factors to be considered, which are not exhaustive, include the following:

With continuing market volatility a number of companies remain under financial pressure. Businesses or individuals receiving payments from companies that might be financially distressed should be aware of the ability of a liquidator to apply to a court under the Corporations Act 2001 (Cth) (Corporations Act) to recover payments made to creditors in the six months prior to the appointment of a liquidator/administrator on the grounds the payment constituted an “unfair preference”.

Quick Recap on the Relevant Provisions

If a director can exercise a right of set-off against a company in liquidation for a debt owed to the director or for a liability of the company to the director (which may be unascertained in amount or contingent), it may help to cancel out or significantly reduce the director’s liability to the company for insolvent trading.