Two recent Supreme Court of Canada decisions demonstrate that the corporate attribution doctrine is not a one-size-fits-all approach.
Court approval of a sale process in receivership or Bankruptcy and Insolvency Act (“BIA”) proposal proceedings is generally a procedural order and objectors do not have an appeal as of right; they must seek leave and meet a high test in order obtain it. However, in Peakhill Capital Inc. v.
In Short
The Situation: Historically, creditors pursued by liquidators under the unfair preference regime could rely on a statutory set-off as a defence to the claim, reducing or eliminating their liability to repay what would otherwise be preference payments, on the basis that the liability for the unfair preference payment formed part of a running account between the creditor and the company.
In Short
The Situation: The High Court of Australia has confirmed in Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2 that the "peak indebtedness rule" is no longer available to liquidators when assessing the value of running accounts in unfair preference claims.
In Short
The Situation: In February 2020, amendments to the Corporations Act 2001 (Cth) expanded the kinds of transactions that may be voidable if a company is being wound up to include asset disposals undertaken as part of illegal phoenixing schemes. Such disposals are termed as "creditor-defeating dispositions" in the legislation.
In Short
The Situation: In the recent decision of Morton as Liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufacturers Pty Limited [2021] FCAFC 228, the Full Court of the Federal Court of Australia considered the availability of mutual set-off provisions in s 553C the Corporations Act 2001 (Cth) as a defence to unfair preference claims.
In Short
The Situation: The Full Court of the Federal Court has changed industry practice in Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) [2021] FCAFC 64 by holding that the "peak indebtedness rule" is not available to liquidators when assessing the value of running accounts in unfair preference claims.
One difficulty encountered by creditors and trustees in bankruptcy is the use of one or more aliases by a bankrupt. Whether it is an innocent use of a nickname or an attempt to conceal one's identity, the use of an alias can often create problems for creditors seeking to pursue debts and for trustees seeking to recover assets held by a bankrupt.
How does it happen?
In Short
The Situation: When determining and quantifying unfair preference claims in Australia, does the Corporations Act permit liquidators to value transactions forming part of a single "continuous business relationship" (such as a running account) from the point of peak indebtedness, even if doing so disregards earlier transactions that might act to reduce the value of the claim against the creditor?
As concerns about illegal phoenix activity continue to mount, it is worth remembering that the Corporations Act gives liquidators and provisional liquidators a powerful remedy to search and seize property or books of the company if it appears to the Court that the conduct of the liquidation is being prevented or delayed.