The proliferation of the trust as a vehicle for commercial activity presents issues in litigation – principally, whether a beneficiary can step around an impecunious or assetless trustee and recover against other beneficiaries or third parties.

Snapshot

Proposed exceptions to the stay on enforcing ipso facto clauses now published; public consultation open

The reform

From 1 July 2018, the moratorium on reliance by solvent counterparties on “ipso facto” clauses in voluntary administration, certain receiverships and creditors schemes of arrangement will come into effect (unless it is proclaimed to commence earlier, which is not presently expected).

The New South Wales Supreme Court recently confirmed that an insolvent construction contractor is not able to immediately enforce its right to payment of an adjudication decision under the NSW Security of Payment legislation (Building and Construction Industry Security of Payment Act 1999 (NSW)) against another party which has an offsetting claim.

On 16 April 2018, the Australian Federal Government (Government) launched a public consultation on proposed exceptions to the recently enacted stay on ipso facto clauses. These exceptions, which will be contained in a forthcoming declaration and regulations, will be critical to the operation of the new ipso facto regime, and its impact on stakeholders.

In the recent case of Cash Generator Limited v Fortune and others [2018] EWHC 674 (Ch), the Court determined that non-compliance with the deemed consent procedure for nominating liquidators did not invalidate their appointment. The case provides a useful summary on the relatively new provisions governing the deemed consent procedure and welcome relief to Insolvency Practitioners (“IPs”) that a failure to fully comply with such provisions will not necessarily invalidate their appointment.

Brief facts and arguments

The recent appellate decision of the Full Court of the Federal Court on 19 April 2018 in White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) v Robertson [2018] FCAFC 63 (Re Mossgreen) provides guidance regarding equitable liens and a stern warning to insolvency professionals to seek directions from the Court before engaging in conduct which affects property of third parties.

Highlights

Stakeholders have until 11 May 2018 to comment on a key part of the new ipso facto regime – the exceptions to the statutory stay on ipso facto clauses in certain categories of contracts and rights.

The new insolvency legislation commencing 1 July 2018 (Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017) introduces a statutory stay on the exercise of contractual rights arising by reason of certain insolvency trigger events.

In September 2017, the Australian government introduced the most significant reforms to Australia's insolvency regime for the past 30 years with the enactment of the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth).

Employees as Operational Creditor

The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”) considers all employees and workmen as operational creditors.

Operational Creditor is defined under Section 5 (20) of the IB Code as: 

"Operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;”

Operational Debt is defined under Section 5 (21) of the Code which states that: