Nearly four years after its decision in Stern v. Marshall raised new doubts about the place of bankruptcy courts in our legal system, the Supreme Court has finally put those doubts to rest. This week, in Wellness International Network, Ltd. v. Sharif, No. 13-935, the Court held that even for claims that must otherwise be resolved by an Article III court, a bankruptcy court may still adjudicate the matter based on consent.

In Allco Funds Management Limited v Trust Co (Re Services) Ltd [2014] NSWSC 1251, an inter-company loan transaction was challenged by a receiver appointed by the secured creditor to one of the companies. Common directors were involved in the transaction. The issue was whether the directors breached their fiduciary duties entitling the company via the receiver to have the transaction set aside.

The background to the case

A debtor company can seek to have a statutory demand set aside if there is a genuine dispute as to the existence or amount of the debt, or the company has an offsetting claim.

Because the threshold for contesting a statutory demand is relatively low, a creditor may decide it is better to issue the statutory demand for the undisputed portion of the total debt after making an appropriate allowance for the amount of the total debt in dispute or the amount of the alleged offsetting claim.

When a company is facing short term financial difficulties the directors or shareholders may decide to make a loan to the company to pay wages. 

Debts claimed in statutory demands must be due and payable to the creditor named in the statutory demand.

When disputing statutory demands it is common for debtor companies to argue an offsetting claim, so as to reduce or extinguish the amount claimed in the statutory demand.

For there to be a valid offsetting claim there must be ‘mutuality’, meaning that the legal capacities in which both the offsetting claim and the statutory demand debt are each claimed and owed must align.

Swiss Investigating Magistrate Entitled to U.S. Documents

The International Swaps and Derivatives Association, Inc. (“ISDA”) published the ISDA 2014 Resolution StayProtocol (the “Protocol”) on November 12, 2014 in response to continued efforts by regulators to build additional flexibility into the statutory regimes that would apply in the event of the insolvency of a major financial institution.

A recent Victorian case has worrying implications for financiers and creditors.

A decision of the Victorian Court of Appeal in Vasudevan v Becon Constructions (Australia) Pty Ltd [2014] VSCA 14 has the potential to significantly broaden the power of a liquidator to attack a company transaction under section 588FDA of the Corporations Act 2001 (Act) where there are ‘indirect benefits’ to a director or close associate of a director of the company.

Crumbs Bake Shop Inc. shut down in July and filed for bankruptcy in New Jersey court that same month. The bankruptcy court ordered an auction sale, and a purchaser has come forward to buy all of the company’s assets.

Obtain advice before you lodge a proof of debt or vote in a liquidation

Secured creditors should remember that submitting a proof of debt and voting in a liquidation may result in the loss of their security if they get it wrong.

The Supreme Court of New South Wales has delivered a timely reminder to secured creditors of a company in liquidation, where the secured creditor lost its security because it submitted a proof of debt for the full amount of its debt and voted on a poll at a creditor’s meeting for its full debt.