The coronavirus (COVID-19) outbreak has widespread and significant implications for the financing situation of companies. Mandatory emergency measures, such as closure orders, have cut off entire sectors from revenue and cash flows with severe consequences for corporate liquidity. In addition, deteriorating market conditions are putting additional pressure on companies and their ability to service their debt.

With the rampant spread of COVID-19 worldwide, there are increasing concerns as to the financial impact of the outbreak. With forced business closures a potential reality, it seems inevitable that the Australian economy is on its way to a recession.

It is therefore critical that directors of companies are fully aware of the extent of their duties and understand what they must do to comply.

On 4 February 2020, the Federal Court of Australia considered the circumstances in which it might be said that a provisional liquidator of a company ought not be appointed as the official liquidator because of an alleged "reasonable apprehension of bias". The issue was ventilated before the Court in the matter of  Frisken (as receiver of Avant Garde Investments Pty Ltd v Cheema [2020] FCA 98.

Appointing a provisional liquidator

Entering into liquidation can be a scary time for any company and its officers, even one which chooses to do so voluntarily. However, the directors, shareholders and creditors of a company entering into liquidation do not have absolute discretion as to who they may appoint as the liquidator of the company. Together, the Corporations Act and common law principles of independence regulate the eligibility of a liquidator to be appointed to a company, and to remain in the appointment.

Overarching eligibility

What makes a contract an unprofitable contract which can be disclaimed by a trustee in bankruptcy without the leave of the Court under section 133(5A) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act)? Can a litigation funding agreement be considered an unprofitable contract when the agreement provides for a significant funder's premium or charge of 80% (85% in the case of an appeal)?

Yesterday the UK Insolvency Service released their quarterly statistics spanning October to December 2019. These confirm that liquidations and administrations in 2019 hit levels not seen for over five years. This signals a potentially serious underlying concern about the UK economy.

Chinese firms acquiring foreign assets has been a hot topic for some time. But one often overlooked question is what happens to those overseas assets if the Chinese business fails? Given the scale of Chinese investment overseas and the financial problems currently being experienced by many Mainland businesses, this question is of growing importance. Two recent decisions – one in Hong Kong and one in New York – address this issue and point to the growing demystification and recognition of Chinese insolvency law outside China.

In the recent decision of Boensch as Trustee of the Boensch Trust v Scott Darren Pascoe [2019] HCA 49, the High Court has clarified whether property held by a bankrupt on trust for another vests in the bankrupt's trustee in bankruptcy, and the circumstances in which a trustee in bankruptcy will have reasonable cause to lodge a caveat to protect an interest in the trust property.

Background

In the recent decision of In the matter of Parkway One Pty Limited (in liquidation) [2019] NSWSC 1495 (Parkway), Rees J dismissed an application to terminate the winding up of Parkway One Pty Ltd (in liquidation) (the Company) due to inconclusive evidence as to the solvency of the Company and, having regard to the non-compliance by its director of her statutory duties and the likelihood of the Company not being able to service the current and foreseen indebtedness, her Honour held that it would be contrary to commercial morality to terminate the wi

In a recent decision, the Federal Court of Australia declined to annul a bankruptcy in circumstances where the bankrupt claimed the proceedings should have been adjourned given his incarceration and solvency at the time the order was made: Mehajer v Weston in his Capacity as Trustee of the Bankrupt Estate of Salim Mehajer [2019] FCA 1713. The judgment is useful in reiterating what factors the Court will consider when deciding whether to order an annulment under section 153B(1) of the Bankruptcy Act 1966 (Cth) (the Act).