This week’s TGIF considers a recent decision of the High Court of Australia, in which a 4:3 majority held that a former trustee is not owed any fiduciary obligation by a successor trustee.

Key takeaways

In Davis-Jacenko v Roxy’s Bootcamp Pty Limited [2024] NSWSC 702, McGrath J delivered an extempore decision, appointing provisional liquidators in respect of Roxy’s Bootcamp Pty Limited (theCompany). His Honour stated that it was “a paradigm case” for the court to intervene to preserve the status quo.

Key Takeaways

In Harrington v. Purdue Pharma LP, in a 5-4 decision, the Supreme Court held that the Bankruptcy Code does not authorize bankruptcy courts to confirm a Chapter 11 bankruptcy plan that discharges creditors’ claims against third parties without the consent of the affected claimants. The decision rejects the bankruptcy plan of Purdue Pharma, which had released members of the Sackler family from liability for their role in the opioid crisis. Justice Gorsuch wrote the majority decision. Justice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Kagan and Sotomayor.

When do amounts owed to a company constitute ‘circulating assets’ and how should they be distributed? This crucial question has not always been answered predictably in recent cases. The Court of Appeal’s decision in Resilient Investment Group Pty Ltd v Barnet and Hodgkinson as liquidators of Spitfire Corporation Limited (in liq) [2023] NSWCA 118 has provided a framework for navigating the relevant principles in the context of a priority dispute over R&D tax refunds.

Key takeaways

Introduction

What happens when a shady businessman transfers $1 million from one floundering car dealership to another via the bank account of an innocent immigrant? Will the first dealership’s future chapter 7 trustee be allowed to recover from the naïve newcomer as the “initial transferee” of a fraudulent transfer as per the strict letter of the law? Or will our brave courts of equity exercise their powers to prevent a most grave injustice?

A foreign (non-U.S.) company can be dragged unwillingly into a U.S. bankruptcy case if the bankruptcy court has “personal jurisdiction” over the company.

A foreign (non-U.S.) company can be dragged unwillingly into a U.S. bankruptcy case if the bankruptcy court has “personal jurisdiction” over the company.

The issue of whether directors, officers, and/or shareholders breached their fiduciary duties to a company prior to bankruptcy is commonly litigated in chapter 11 cases, as creditors look to additional sources for recovery, such as D&O insurance or “deep-pocket” shareholders, including private equity firms. The recent decision in In re AMC Investors, LLC, 637 B.R. 43 (Bankr. D. Del. 2022) provides a helpful reminder of the importance of timing in bringing such claims and the use by defendants of affirmative defenses to defeat those claims.

In the recent case of Stubbings v Jams 2 Pty Ltd [2022] HCA 6, the High Court has allowed an appeal relating to asset-based lending (ABL) and the enforceability of security associated with these loans. The High Court held that whilst asset-based lending itself is not unconscionable, certain conduct may render loans and security unenforceable. The decision is a reminder that lenders should ensure the circumstances of potential borrowers are fully scrutinised prior to lending.