The consummation of a plan of reorganization typically involves a series of complex actions by the debtor and its stakeholders (for example, existing debt and equity are extinguished and new debt and equity issued in their place). If an appeal of a confirmation order is taken, and the appeal reaches the appellate court following consummation of the plan, it raises the difficult question of whether it is possible to grant effective relief to the appellant at that stage. As a constitutional matter, courts — including appellate courts — cannot hear matters that have become moot.

The last few years have seen the Commonwealth increasingly crack down on misuse of the Fair Entitlements Guarantee, or FEG, program. The cases that have resulted have led to various disputes in insolvency law about the priorities of different creditors. The priorities to be applied in insolvent trading trusts have been one issue recently puzzling lawyers and insolvency practitioners alike. Relief may well be around the corner, however, as the High Court is set to weigh in.

What the FEG?

On August 14, 2018, the United States Court of Appeals for the Eleventh Circuit issued a decision holding that section 547(c)(4) of the Bankruptcy Code, which provides a defense to the avoidance of preferential transfers to the extent the transferee provided new value to the debtor,[1] does not require new value to remain unpaid as of the date the bankruptcy petition was filed.

The question in Pleash (Liquidator) v Tucker [2018] FCAFC 144 (29 August 2018) was whether financial documents of a discretionary trust ought to be produced for the purpose of a liquidator investigating the ability of an examinee (and former director of the company) to satisfy any judgment debt that may be obtained against him.

On June 20, 2018, the United States Bankruptcy Court for the District of Delaware issued a decision sustaining the debtors’ objection to the proof of claim filed by Contrarian Funds, LLC.

When it comes to voting on a plan, Section 1126(e) of the Bankruptcy Code provides that a bankruptcy court may designate (or disallow) the votes of any entity whose vote to accept or reject was not made in “good faith” (a term that is not defined in the Bankruptcy Code).

Ordinarily, a company entering liquidation is considered the commercial equivalent of “game over”, “checkmate”, “the end”, “K.O” or whatever other synonyms creditors can conjure up. This would be true for the most part because, at the end of the liquidation process, the company is usually deregistered and ceases to exist.

However, in some cases it is possible for the liquidator, a creditor or a “contributory” (member) of the company to apply to the Court for an order terminating the winding up. If made, this would return control of the company to the directors.

On 24 August 2017, Messrs Park, Olde and Hansell were appointed joint and several administrators of SurfStitch Group Limited. Prior to their appointment, two shareholder class actions were commenced against SurfStitch. The administrators identified 3,313 shareholders who may be potential group members in the class actions.

Summary

It may now be easier for Australian insolvency practitioners to carry out investigations and recover assets located in Hong Kong and in mainland China. On 8 February 2018, and for the first time, the High Court of Hong Kong granted an application for recognition and assistance in that jurisdiction for voluntary liquidators of an entity incorporated in the British Virgin Islands.