The proposed scaling back of directors' liability provisions is good news for insolvency practitioners.

In good news for insolvency practitioners, the NSW Government formally adopted the Council of Australian Governments guidelines on "Personal Liability for Corporate Fault" as NSW policy on 31 July 2012 .

What are the "Personal Liability for Corporate Fault" guidelines?

Following a case known as Goldacre, it was held that if an administrator is in occupation of a leasehold property, which is being retained for the purposes of the administration, and rent falls due (monthly or quarterly) during his / her occupation, then such rent is to be treated as an expense of the administration (and therefore paid in priority to unsecured creditors). This remains the case even if the administrator occupies only part of the property and whether or not he / she occupies the property for the whole quarter.

Receivers and employees are the greatest losers from a recent chain of court cases. Unless overturned on appeal or by legislation, the cases impose financial burdens on employees and administrative burdens on receivers.

At stake are employees' accrued leave entitlements and the statutory requirement to pay them once a company enters external administration. Employees of companies in receivership can lose entitlements they would ordinarily receive during liquidation depending entirely on the time at which a company enters administration or liquidation.

One could almost be forgiven for thinking that nowadays delayed second creditors' meetings are just par for the course.

Applications to extend the time for the second meeting - often for months - have become quite routine, and are rarely (if ever) refused.

Some observers might thus wonder if we are losing sight of one of the objectives of the VA procedure - that it "should be expeditious".^[1]

Although the Australian voluntary administration regime served as the model for the UK administration system, one notable difference has emerged between the two systems: pre-packs.

Pre-packs – the use of a statutory insolvency regime to implement a pre-agreed debt / corporate restructuring – have not really taken off in Australia. In the UK, of course, they form a significant proportion of all administrations.

The statutory exemption can be refreshed each time a person signs a new contract, even if he/she continues to hold the same position.

Receivers of a failed company have been unable to convince the Federal Court that statutory restrictions on termination payments reduced the payout entitlement of a senior executive (White v Norman; In the Matter of Forest Enterprises Australia Limited (Receivers and Managers Appointed) (in Administration) [2012] FCA 33).

Background

Australia needs to rein in ipso facto clauses in order to develop a turnaround culture for financially troubled companies.

Within hours of Kodak's move into Chapter 11 bankruptcy, the internet was alive with bad jokes:

"Kodak's business didn't develop the way they expected."

"Kodak was overexposed to the GFC."

"Kodak's Chapter 11 hearing was held in camera."

Australian businesses and liquidators might be forgiven for thinking that the bigger joke is Australia's lack of a Chapter 11 turnaround culture.

Key2Law (Surrey) LLP v De'Antiquis [2011] EWCA Civ 1567

In this case the Court of Appeal held that, as a general rule, administration does not fall within regulation 8(7) of TUPE 2006 (which disapplies the automatic transfer principle meaning that employees do not transfer) and instead falls within regulation 8(6) of TUPE 2006 (which is much narrower in scope and only protects a transferee against the transfer of certain liabilities to employees).

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