Anti-phoenix laws were introduced in 2020, however, it wasn’t until last week that a judgment enforced these laws in Court, setting out clear precedent for future cases. In the case of Intellicomms Pty Ltd (in Liquidation) (Intellicomms) & Ors v Technologie Fluenti Pty Ltd (Technologie Fluenti), Associate Justice Gardiner observed that the case had “all the classic hallmarks of a phoenix transaction” before handing down his decision.
The insolvency moratorium the government put in place in 2020 kept insolvency numbers low. Once this was lifted on 1 January 2021, we all expected a wave of insolvencies, however, the various business support packages and lack of pressure from banks and the Australian Tax Office (ATO) gave businesses breathing room.
The new 2021 year brought in various changes to insolvency laws, which included the introduction of the Small Business Restructuring (SBR) process to assist small businesses in restructuring their debts. This new regime provides an opportunity for eligible small businesses which are financially distressed, but otherwise viable, to continue trading into 2021 and beyond. However, a question that we have recently been faced with is whether a company that is a corporate trustee of a trust, also known as a trustee company, is able to avail itself of the SBR process.
The Federal Government has recently announced that from 1 July 2021 the statutory minimum amount to serve a creditor’s statutory demand will increase from $2,000 to $4,000. The 21 day period within which a debtor must respond to a statutory demand and the personal liability on Directors for insolvent trading will remain the same.
In the recent decision of Badendoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in Liquidation) (receivers and managers appointed) [2021] FCAFC 64 (Badendoch) the Full Court of the Federal Court of Australia effectively abolished the “peak indebtedness” rule for liquidators pursuing unfair preference claims.
introduction
A further element of the announcement made on 3 May 2021 by the Treasurer and Assistant Treasurer of Australia was in relation to the possible reform of the law relating to the “safe harbour” for Directors, protecting them from liability for insolvent trading. The announcement foreshadowed a “review whether the insolvent trading safe harbour provisions, which were introduced in 2017 and designed to promote a culture of entrepreneurship and innovation by providing breathing space for distressed businesses, remain fit for purpose.”
2017 safe harbour provisions
On 24 September 2020 the Federal Government announced, as part of its JobMaker plan, a package of reforms directed at streamlining insolvency processes for small businesses.
The reforms draw on key features of the US Chapter 11 bankruptcy process and include:
In recent decisions involving accessories retailer Colette Group and Virgin airlines, the Federal Court of Australia found that the extraordinary circumstances of COVID-19 warrant a grant of relief for the administrators from personal liability for rent.
In both cases, the Court acknowledged the uncertainty caused by COVID-19 and found that the rent reprieve for the administrators was in the best interests of the creditors as a whole.
colette group
On 22 March 2020, the Australian Federal Government announced a raft of proposed temporary changes to insolvency laws in light of the financial distress and challenges COVID-19 has caused to Australian businesses.
The proposed changes are summarised below:
companies
Statutory demands
The COVID-19 outbreak, this week declared a pandemic by the World Health Organization, is presenting new and unprecedented challenges for businesses across the globe, including in Australia. Challenging trading conditions are bringing into sharp relief the duty of directors to avoid trading whilst the company is insolvent. The safe harbour provisions in the Corporations Act 2001 (Cth) provide an opportunity for directors to weather the storm, whilst avoiding personal liability for insolvent trading.