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

Ordinarily, a company entering liquidation is considered the commercial equivalent of “game over”, “checkmate”, “the end”, “K.O” or whatever other synonyms creditors can conjure up. This would be true for the most part because, at the end of the liquidation process, the company is usually deregistered and ceases to exist.

However, in some cases it is possible for the liquidator, a creditor or a “contributory” (member) of the company to apply to the Court for an order terminating the winding up. If made, this would return control of the company to the directors.

In this newsletter, we will explore how the new impending ipso facto reforms, which come into effect on 1 July 2018, could affect landlords under commercial leases or parties under other contractual arrangements.

What are the Ipso Facto Reforms?

The ipso facto reforms seek to prevent certain termination and other ipso facto rights under a contract from being enforced against a counterparty:

This week’s TGIF considers QBH Commercial Enterprises Pty Ltd (In liq)v Dalle Projects Pty Ltd & Ors [2018] VSC 171 in which the Court considered whether privilege can be waived by a director of a company in liquidation.

What happened?

QBH Commercial Enterprises (QBH) was placed into liquidation on 22 February 2018.

In late 2015, the High Court handed down its decision in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2015] HCA 48. The High Court held (by a majority of 3:2) that, in the absence of an assessment, a liquidator is not required to retain funds from asset sale proceeds in order to meet a tax liability which could become payable as a result of a capital gain made on the sale. In doing so, the majority of the High Court affirmed the decision of the Full Federal Court and provided long awaited guidance to liquidators, receivers and administrators.

Introduction

The statutory demand is a formidable card up a creditor’s sleeve that can result in a company being deemed to be insolvent if it does not pay the creditor’s debt within 21 days of service of the demand. Whether a statutory demand served on an incorporated body other than an Australian company will be effective largely depends on the State or Territory in which the incorporated body is based and whether it is served pursuant to the correct section of the Corporations Act 2001 (Cth) (Corporations Act).

What is a statutory demand?

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’.

In September 2017, ‘safe harbour’ reforms to insolvency law were introduced to encourage directors to engage in a course of action early that is reasonably likely to achieve better outcomes for companies than immediate administration or liquidation. However, the existence of a safe harbour may not be enough if shareholders are locked into an intractable dispute.

Always deal with the house before going bankrupt (or else do it shortly after).

Far too often as solicitors we find ourselves wishing the client had come and seen us sooner.

This scenario is prevalent in bankruptcy. When a person first goes bankrupt, but they still own a house (or half a house), there’s usually very little equity. Discussions are sometimes held with the bankruptcy trustee (trustee) about buying the equity or getting the trustee to disclaim any interest in the house (meaning that the trustee won’t deal with it further).