This article looks at how to deal with bankrupt Claimants and the effect that their bankruptcy has on both pre and post litigated claims, where the Credit Hire Organisations (CHOs) may continue to pursue the claim. We have focused on the law surrounding bankruptcy including what types of claim remain vested in a Claimant as well as how to deal with such a claim and issues that may arise.

Introduction

This article deals with the effect on claims, both pre-litigation and post, which are driven by Credit Hire Organisations (CHOs) who are insolvent or begin an insolvency process. We have focused on practical considerations to identify such claims as well as what you will need to bear in mind when handling credit hire claims where the CHO is insolvent.

Background

There are three main strands: -

Landlords have become used to the concept of the retail CVA over the past few years, but the new post COVID-19 breed of CVAs has been pushing the boundaries as never before. Further, a new restructuring option – described by some as a “CVA on steroids” – is now available to tenants courtesy of the recently enacted Corporate Insolvency and Governance Act: the s26A Restructuring Plan. Restructuring Plans enable companies, with the sanction of the Court, to impose new terms on creditors even in circumstances where not all classes of creditor have approved the plan.

The economic uncertainty for companies caused by the Covid-19 pandemic has placed a heavy burden on directors. That burden of responsibility is set to become even heavier as the temporary measures introduced in 2020 to support companies during the pandemic come to an end. Small and medium sized enterprises (“SMEs”) and those businesses operating in the travel, hospitality, leisure and manufacturing industries have been impacted in particular.

In the wake of the Victorian Court of Appeal’s decision in Cant v Mad Brothers Earthmoving [2020] VSCA 198 (‘Cant’), the Supreme Court of New South Wales’ recent decision in Re Western Port Holdings provides further encouragement for liquidators to pursue unfair preference claims with respect to third party payments and payments made during the operation of a deed of company arrangement (DOCA).

Key takeaways

The Treasurer has announced major proposed reforms to Australia’s insolvency framework aimed at facilitating the restructuring of small to medium businesses (MSMEs) and streamlining their liquidation if rescue is not achievable (Reforms). The Reforms are intended to come into effect from 1 January 2021, after the suite of current insolvency protections introduced to address the economic impact of COVID-19, expire on 31 December 2020.

The Australian Government has announced that the operation of temporary COVID-19 relief measures for businesses in the hope of aiding distressed companies and preventing further economic breakdown will be extended until 31 December 2020.[1]

The highly anticipated Supreme Court decision in Bresco Electrical Services Ltd (in Liquidation) v Michael J Lonsdale [2020] UKSC 25 has endorsed the use of adjudication in the context of insolvency set off, substantially reversing the decision of the Court of Appeal.

In its recent judgment involving the PAS Group of companies[1], the Federal Court held that rent payable by the PAS Group during an extension of the period in which an administrator had been excused from personal liability (Standstill Period) is an expense properly incurred by a ‘relevant authority in carrying on the company’s business’ and is therefore a priority debt under s 556(1)(a) of the Corporations