The two limbs of the defence to an unfair preference claim under section 588FG(1)(b) and (2)(b) of the Corporations Act have separate work to do.
In a useful decision for liquidators and the insolvency industry, the WA Court of Appeal has clarified the nature of the tests creditors need to satisfy to maintain a defence to a liquidator's unfair preference claim in section 588FG(1)(b) or (2)(b) of the Corporations Act (White & Templeton v ACN 153 152 731 Pty Ltd (in liq) & Anor [2018] WASCA 119).
In Topfer v. Topfer (In re Topfer), Case No. 5-18-ap-00066 RNO (M.D. Pa. July 25, 2018), the Bankruptcy Court for the Middle District of Pennsylvania remanded a three-and half year old divorce proceeding that had been removed to bankruptcy court. But, the remand became more complicated than it needed to be.
The chapter 7 debtor had removed the divorce action immediately after filing for chapter 7 bankruptcy. Shortly after removal, the non-debtor spouse moved to remand the case on mandatory abstention and permissive abstention grounds.
The new ipso facto regime applies to all contracts to be entered into on or after 1 July 2018. Businesses should now be carefully reviewing the effect of that regime on their contracts and whether any of their contracts may be exempt under the Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 published on 24 June 2018.
The types of contracts excluded from the new ipso facto stay
Banks regularly enter into commercial relationships with their customers such as opening new depository accounts. These relationships are often contractual in nature and seem relatively straightforward until an unexpected incident occurs that causes the relationship to unravel. What then are the duties owed by each party to each another? The default rule seems to be that the terms and conditions that the parties agreed to at first govern the parties’ actions throughout their banking relationship.
The term “golden shares” is often referred to equity interests held by a specific party—commonly a lender or investor—that authorize such party to block or prevent a corporate entity from filing bankruptcy. Such shares are often negotiated by a party that wants to ensure that its consent is obtained before any bankruptcy is commenced. Without such consent, the party holding the golden shares can seek to dismiss to a corporate bankruptcy filing by based on a lack of corporate authority.
The restructuring, distressed and debt market in Australia continues to evolve. We have a competitive debt market that constantly seeks out that next transaction. We have an environment of innovation with restructuring professionals seeking to push the boundaries of what may be possible within the current legislative framework, and we have changes to that framework with the introduction of Safe Harbour as a defence to insolvent trading and ipso facto reform which seeks to lock in contracts post-insolvency.
An important part of last year's package of amendments to the Corporations Act 2001 (Cth) were the ipso facto reforms which will stay the exercise of certain contractual rights relating to a counterparty's insolvency or financial position. What, if any, contracts would be exempt from the stay has been a major question, not least for the construction industry.
This has now been answered, with the release of exposure drafts for public comment by May 11 2018 of the:
A recent NSW Supreme Court decision has decided that an insolvent contractor can claim under Security of Payment legislation, rejecting Victorian Court of Appeal precedent as "plainly wrong". It might have significant ramifications for participants in the building and construction industry across Australia.
In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWSC 412, the NSW Supreme Court considered the extent to which Security of Payment (SOP) legislation can be relied upon by an insolvent contractor.
Stakeholders have until 11 May 2018 to comment on a key part of the new ipso facto regime – the exceptions to the statutory stay on ipso facto clauses in certain categories of contracts and rights.
The new insolvency legislation commencing 1 July 2018 (Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017) introduces a statutory stay on the exercise of contractual rights arising by reason of certain insolvency trigger events.