General introduction to trust margin trading

If a director can exercise a right of set-off against a company in liquidation for a debt owed to the director or for a liability of the company to the director (which may be unascertained in amount or contingent), it may help to cancel out or significantly reduce the director’s liability to the company for insolvent trading.

In family law property settlement proceedings, if a spouse is declared bankrupt, the trustee in bankruptcy may join the proceedings in an effort to recover funds from the property pool to pay the bankrupt’s creditors.

While in theory this approach sounds sensible, it may not always be prudent for a trustee in bankruptcy to seek to be joined or consent to being joined. In particular, recent trends suggest that trustees are being very cautious about getting involved in proceedings between a bankrupt and their spouse.

The involvement of a trustee in bankruptcy

On 31 March, 2015, the Supreme People’s Court issued four model cases, including Shagang LLC. (Shagang) v. Kaitian LLC.(Kaitian), a case in relation to an objection to enforcement of a distribution plan. In the case, the Court has referred to the Deep Rock Doctrine originated from the United States, states for the first time that shareholders whose capital contribution is insufficient shall be subordinated to external creditors of the company with respect to their payable debts.

The High Court today granted special leave to the Commissioner of Taxation (Commissioner) to appeal against the decision of the Full Court of the Federal Court in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133. The appeal is likely to be heard later this year.

Significance

In Allco Funds Management Limited v Trust Co (Re Services) Ltd [2014] NSWSC 1251, an inter-company loan transaction was challenged by a receiver appointed by the secured creditor to one of the companies. Common directors were involved in the transaction. The issue was whether the directors breached their fiduciary duties entitling the company via the receiver to have the transaction set aside.

The background to the case

A debtor company can seek to have a statutory demand set aside if there is a genuine dispute as to the existence or amount of the debt, or the company has an offsetting claim.

Because the threshold for contesting a statutory demand is relatively low, a creditor may decide it is better to issue the statutory demand for the undisputed portion of the total debt after making an appropriate allowance for the amount of the total debt in dispute or the amount of the alleged offsetting claim.

On 16 January 2015, Justice Beech, of the Supreme Court of Western Australia, handed down his decision in the matters of Hamersley HMS Pty Ltd v Davis [2015] WASC 14 and Hamersley Iron Pty Ltd v James [2015] WASC 10 (the Hamersley Decisions). In both matters, Hamersley sought to set aside determinations made by an adjudicator pursuant to the Construction Contracts Act 2004 (WA) (CCA) and Forge Group Construction Pty Ltd (In Liq) (Receivers and Managers Appointed) (Forge) sought leave to enforce the determinations.

When a company is facing short term financial difficulties the directors or shareholders may decide to make a loan to the company to pay wages. 

On 11 December 2014, Justice Croft of the Victorian Supreme Court delivered judgment approving the settlement of multiple class actions brought by investors in managed investment schemes operated by an entity of the agribusiness Great Southern Group in 2005 and 2006.