The UK Supreme Court, which is the UK's highest court, has handed down its long-awaited decision in Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc [2011] UKSC 38, in which the Court considered the validity and enforceability of so-called "flip" clauses under English bankruptcy law.

The Australian unit trust industry recently experienced financial difficulties. The formal legal process of handling those difficulties has revealed gaps in the Australian regulatory map.

This article highlights some of those problems and the Government’s response to them.

Background

Few now remember that Chapter 5C of the Corporations Act can trace its origins to the afternoon of 23 July 1991. For the past year, the unlisted property trust industry had been in meltdown. The value of the assets held by the industry had fallen over 20%. Investors were scrambling to get out, and collapses seemed imminent.

In insolvency circles, the word "success" is definitely a relative term. Often it only means that a complete meltdown of the company's business has been averted, or that employees have at least received their statutory entitlements on their way out the door.

The ABC Learning Centre story has, however, definitely been a success by any measure – including some measures which are not generally part of the metrics of insolvency.[1] In order to see why this insolvency administration deal was both unique and uniquely successful, it is necessary to understand some of the background.

In the recent case of Dwyer & Ors and Davies & Ors v Chicago Boot Co Pty Ltd [2011] SASC 27, Chicago Boot claimed that certain payments made to it by two insolvent companies were not unfair preference payments, because of, amongst other defences, the purported application of a retention of title clause in relation to the supply of goods by Chicago Boot.

Your insurer goes bust – can you as an insured claim the reinsurance proceeds? An important decision in the NSW Supreme Court gives useful guidance on when a court will allow departures from the statutory scheme controlling the application of reinsurance proceeds (Amaca Pty Ltd v McGrath & Anor as liquidators of HIH Underwriting and Insurance (Australia) Pty Ltd [2011] NSWSC 90).

The insurer goes broke, and there are all these claimants at the door…

A recent opinion by the U.S. District Court for the Southern District of New York affirms a 2010 ruling by the Lehman Brothers bankruptcy court, which rendered certain netting and setoff provisions unenforceable in bankruptcy. The core holding – that a counterparty cannot offset pre-petition and post-petition amounts – should come as no surprise to market participants.

On January 25, 2011, Lehman Brothers filed an amended version of its plan of liquidation (the Plan). Contrasted against its predecessor version, the Plan creates some winners and some losers in terms of the percentage of projected payouts to creditors of various Lehman entities. More important than the percentage distribution, however, may be the means by which the debtors seek to fix a creditor’s claim amount. With regard to claims based on derivatives contracts, Lehman proposes to take a novel – and for holders of those claims, potentially alarming – approach.

Key Points: The High Court held there was no variation in the terms of the Charge and therefore no registration was required.

On 1 September 2010 the High Court handed down its much anticipated decision in the appeal from the Queensland Court of Appeal in Re Octaviar Ltd (No 7) [2009] QCA 282, unanimously dismissing the appeal in Public Trustee of Queensland v Fortress Credit Corporation (Aus) 11 Pty Ltd [2010] HCA 29.

The fixed and floating charge

After months of negotiations and conferences among key legislators, President Obama signed into law a final version of regulatory reform legislation on July 21, 2010. More than 2,000 pages long, the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the Act) provides new legal guidelines for both “financial companies” and non-financial companies and instructs federal agencies to develop a myriad of regulations to enforce the concepts provided in the Act.