In the recent court decision of Trenfield v HAG Import Corporation (Australia) Pty Ltd [2018] QDC 107, the liquidators recovered unfair preferences from a retention of title creditor who argued it was a secured creditor.
The issues
In the recent decision of Heavy Plant Leasing [2018] NSWSC 707, a creditor successfully defended an unfair preference claim by establishing it did not have reasonable grounds to suspect the insolvency of the debtor company, who was a subcontractor in the earth moving business.
The most common way of defending a liquidator’s unfair preferences claim is to rely upon section 588FG(2) of the Corporations Act 2001(Cth); commonly called the ‘good faith defence’.
You have instructions to commence proceedings for damages for personal injury against a defendant company only to find that the company has entered in to a Company Voluntary Arrangement (“CVA”). What procedural issues arise and what steps should be taken?
What is a CVA?
The long-awaited new Practice Direction – Insolvency Proceedings (PDIP), which came into force on 25 April 2018, has now brought procedure into line with the changes introduced by the significant amendments to the Insolvency Act 1986 (the Act) introduced last year and the Insolvency (England and Wales) Rules 2016 (IR 2016), as amended. This has finally brought to an end the agonisingly long period (over 12 months) in which the provisions of the previous Practice Direction have been at odds with the Act as amended and IR 2016.
Commonly, a creditor being sued by a liquidator to refund an alleged unfair preference is owed money by the company in liquidation.
Liquidators argue that under section 553(c)(1) of the Corporations Act 2001 (Act) a creditor is not able to set-off the outstanding indebtedness owed by the company to the creditor to reduce any liability of the creditor to refund any unfair preference. Similar arguments are made by liquidators in relation to insolvent trading claims.
A snapshot of the court decisions
In light of the radically and rapidly changing face of bricks and mortar retail, cases providing guidance on the way in which liabilities are to be dealt with in the course of the restructuring / insolvency process are extremely valuable not only for stakeholders and practitioners dealing with the consequences of those processes but also to those guiding and devising the strategies in the first instance.
Wright and Rowley v Prudential Assurance Company Limited is one such case arising out of the collapse of the British Home Stores (‘BHS’) retailing group in 2016.
This article was first published for Thomson Reuters' Practical Law Dispute Resolution Blog.
On 11 September 2017, the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 was passed by the Senate. The Bill features two key changes to the Corporations Act:
Just because a liquidator asserts you have received an unfair preference, does not necessarily mean you have or that there are no potential defences available to you.