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.
With the significant increase in cross-border bankruptcy and insolvency filings in the 43 nations or territories that have adopted the UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law"), including the U.S., the incidence of "COMI migration"—the shifting of a debtor’s "center of main interests" ("COMI") to a country with more favorable insolvency laws—has also increased. As demonstrated by a ruling handed down by the U.S.
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
In Short
The Situation: In cross-border restructuring cases, court-approved insolvency protocols are applied to facilitate communication between U.S. and foreign courts and standardize certain common procedures. The protocols are sometimes adapted to address case-specific issues.
The Result: Case-specific provisions tend to address information-sharing guidelines, claims reconciliation, the management of assets, and dispute resolution.
In the March/April 2013 edition of the Business Restructuring Review, we reported on an opinion by the U.S. Bankruptcy Court for the Southern District of New York concluding that a chapter 15 debtor’s sale of claims against Bernard Madoff’s defunct brokerage company was not subject to review as an asset sale under section 363(b) of the Bankruptcy Code.
In Short
The Situation: For cross-border insolvency matters, parties increasingly depend on court-approved protocols to assist in the management of complex insolvencies involving a debtor or debtors whose assets, liabilities, or operations span international borders.
The Action: Courts in Bermuda, the British Virgin Islands, Singapore, the United Kingdom, and some U.S. bankruptcy districts have implemented Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters.
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.
All Australian states have sale of goods legislation that, in certain circumstances, allows an unpaid seller to retain possession of goods in transit where the buyer becomes insolvent. The statutory right, called stoppage intransitu, is a useful remedy to obtain payment.
A registered security interest on the PPSR is not required to exercise the statutory right. Administrators and liquidators may be trumped by a notice under the stoppage in transitu provisions.
However, the sale of goods legislation is not identical in each state.