Understanding whether a company is insolvent, and the date of insolvency, is essential for directors and accountants who advise companies, as well as liquidators and other parties bringing insolvency-based claims. In understanding these issues, the analysis may need to go beyond establishing present-day liquidity – for example, what impact do long term-debts have on a company’s solvency and how are they used to prove insolvency? Which debts are relevant to the cashflow test? Whether a company is ‘able to pay all its debts’ as and when they become ‘due and payable’?
Hundreds and hundreds of claims for personal injury and property damage associated with PFAS contamination have been accumulating in the courtroom of a Federal Judge in South Carolina. A little over four years ago the Federal Judicial Panel on Multidistrict Litigation determined that Federal claims that Aqueous Film-Forming Foams (AFFF) containing PFAS used to fight fires had contaminated drinking water had enough in common that they should all be sent to Federal Judge Gergel in South Carolina for disposition.
On 8 February 2023, the High Court of Australia (being Australia’s highest court) simultaneously handed down two highly anticipated insolvency law decisions:
A bankruptcy court’s recent denial of a debtor’s petition for bankruptcy relief on narrow grounds casts a long shadow on the viability of bankruptcy relief for those employed in the cannabis industry. Though confining the court’s holding to this debtor’s case, the court concluded that because the debtor engaged, and intended to continue engaging, in activities that violate the Federal Controlled Substances Act, the debtor could not objectively have filed for bankruptcy or proposed a plan of reorganization in good faith, as required by Federal bankruptcy law.
The latest amendments to the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) took effect on December 1, 2022. This collection of modifications may be broadly divided into two categories: (i) amendments and a new rule promulgated to account for the Small Business Reorganization Act of 2019 (the “SBRA”), and (ii) amendments clarifying or consolidating non-SBRA specific Bankruptcy Rules.
SBRA-Related Amendments
In the recent case of LMN v Bitflyer Holdings Inc & Ors [2022] EWHC 2954, the High Court of England and Wales made orders directed at a number of cryptocurrency exchanges requiring them to provide information in relation to misappropriated crypto assets.
Could bankruptcy protection be on the horizon for individuals and companies actively involved in the cannabis industry? Potentially yes, following President Biden’s October 6, 2022 request for the Secretary of Health and Human Services to begin the administrative process to review marijuana’s classification as a Schedule I substance under the Controlled Substance Act (“CSA”).
The Court’s decision in Barokes Pty Ltd (in liq) [2022] VSC 642 is important because, for the first time in Australia, a Court has granted a creditor leave to bring a derivative action in the name of a company in liquidation against its liquidators. This case opens another significant gateway for creditors to seek redress for their losses.
This is an important update in the Australian corporate and insolvency law context because, in BTI 2014 LLC v Sequana SA and others [2022] UKSC 25, the UK Supreme Court (being the UK’s highest court) confirmed the existence of a duty owed by directors to creditors in certain circumstances (creditor duty). Under the common law and equity (together, general law), there is a gateway to applicability of the creditor duty in Australia.
Part 1 of this two-part series explored potential legislative changes which could impact the Australian insolvency landscape in 2022 and beyond. Part 2 addresses the recent major developments in case law that have the potential to shape the insolvency landscape in Australia for many years to come.