What you need to know
The Court of Appeal - Supreme Court of Western Australia has confirmed that the existence of a general security interest does not of itself destroy mutuality between a company in liquidation and its creditors and as a consequence section 553C of the Corporations Act 2001 (Cth) (Corporations Act) can apply to allow a creditor to set-off its debts against amounts owed to the company in liquidation.1
In a comprehensive unanimous decision, the Court of Appeal confirmed the following propositions:
Introduction
The concept of winding up does not exclusively apply to insolvent companies. Solvent companies can also be wound up, on the initiation of the company’s directors and shareholders (for example, as part of a corporate reconstruction or to close down non-operating or redundant entities).
An overview of the two key procedures to effect the dissolution of a solvent Australian company, being Members’ Voluntary Liquidation and Deregistration, is set out below.
Key Points
A binding contract by exchange of email did not arise where parties were simply exploring a potential deal.
Sale by auction is often appropriate where an asset is difficult to value.
Where no differential treatment of creditors, unfair harm requires that a decision does not withstand logical analysis.
The Facts
Investors may, for reasons outside of their control, find themselves with a financially distressed company in their portfolio and possibly in unfamiliar territory. Consequently, it is not just those investors who actively seek out opportunities within the distressed space who should be mindful of the implications of insolvency processes (most commonly administration which can often also be used as part of a wider restructuring).
Key points
Failure to comply with sections 333 and 363 of the Insolvency Act constitutes contempt of court for which a committal order may be obtained.
A trustee in bankruptcy should not usually require permission to apply for a committal order.
Correct procedure for application confirmed by the court.
Key points
Information obtained by compulsion can be shared between officeholders of connected estates (parent/subsidiary)
There must, however, be a possibility that there will be a surplus in the subsidiary estate
The prospect must be real as opposed to fanciful
The facts
Since the landmark decision in Re Solfire Pty Ltd (In Liq) (No. 2) [1999] 2 Qd R 182, the Queensland Supreme Court has often marched to its own tune when reviewing applications for insolvency practitioner remuneration and disbursements. In two related decisions arising from the insolvency of LM Investment Management and managed investment schemes of which it is responsible entity, the Court has now turned its attention to the controversies in this area over proportionality and access to trust assets with which its counterparts in New South Wales have grappled over the last 18 months.
In a series of recent decisions1, the Federal Court of Australia has held that section 588FL of the Corporations Act 2001 (Cth) (Corporations Act) operates such that any new security granted by a company in external administration2. that could only be perfected by registration on the Personal Property Securities Register (PPSR), and which is not the subject of an effective registration made before the appointment of the external administrator, will be ineffective3.
Key points
Court reiterated circumstances in which it will sanction a proposed course of action by administrators
Requirement that the course of action be “particularly momentous”
Court sanctioned proposed settlement in the circumstances
The Facts