The Honourable Justice Black of the NSW Supreme Court has ruled on an application pursuant to s90-15 of the Insolvency Practice Schedule (Corporations) involving the complex interplay between s556 and s561 of the Corporations Act 2001 (Cth) (Act).
Originally published in the March 2023 issue of the Australian Restructuring & Turnaround Association Journal (ARITA), this article explores the interaction of statutory set‑off and unfair preference claims through its legislative origins, historical application and consideration by the courts, before discussing the High Court’s recent judgment and concluding with key takeaways for insolve
In the matter of Mediacloud Pty Ltd (Administrators Appointed) [2021] NSWSC 357 the New South Wales Supreme Court demonstrated its wide discretionary power. The decision extended the period of administration of a company to avoid it being automatically wound up for failing to execute a deed of company arrangement within the required time. This, in effect, permitted the administrators to ‘re-do’ a second meeting of creditors, enabling the creditors to decide the company’s future again.
Liquidators generally have the power to assign causes of action belonging to a company, or claims conferred on the liquidator by the Corporations Act 2001 (Cth) (Act). However, a liquidator’s power to sell or assign causes of action has certain limitations which were considered in Anderson v Canaccord Genuity Financial Limited [2022] NSWSC 58 (Anderson Judgment).
The Probuild and Virgin Australia administrations confirm that virtual meetings in external administrations are now an integral part of insolvency in a post-pandemic world. Although recent changes to the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR) provide greater flexibility, there are aspects that insolvency practitioners need to consider and Court directions may be necessary.
Yesterday, the Federal Government announced the following temporary measures for financially distressed businesses:
Whilst Australia navigates the effects of COVID-19 including health authorities advising people to stay home to contain the spread of COVID-19, people are likely to consume less and spend differently. The ultimate impact on Australian businesses may be significant.
Government Economic Stimulus Package
Liquidators will generally be pretty happy if a court finds that a transaction was both an uncommercial transaction and an unfair preference and dismisses any defence. Unfortunately for the liquidator in Re Cyberduck Software Pty Ltd (In Liq) & Anor [2018] VSC 122 you can still fail.
In Cyberduck:
In 2014 the liquidators of Walton Constructions were removed by the Federal Court due to a perceived lack of independence arising from a referral relationship.
ASIC v Franklin1 (Walton) was commented on by the media, ASIC and ARITA and brought about changes to the ARITA Code of Professional Practice to expand the scope of disclosure required in relation to referral relationships.
Under the Corporations Act 2001, directors have a duty to prevent insolvent trading. They can be ordered to pay compensation, and can even be convicted of an offence, where their company trades while insolvent. The threshold is low in that the director need only have a suspicion that the company is insolvent for the duty to be engaged. Once triggered, the duty requires directors to take steps to prevent further debts being incurred by ceasing active trading or by placing the company into administration. If prevented from doing those things, the director needs to resign.