In the recent Gunns decisions, the Federal Court considered three separate unfair preference claims brought by the liquidators of Gunns Limited (in Liquidation) (Gunns) against:

The Corporations Act 2001 sets out a regime for the order in which certain debts and claims are to be paid in priority to unsecured creditors.

That's straightforward enough for a liquidator, right?

Unfortunately, matters are not that straightforward. In effect, there are two priority regimes under the Act for the preferential payments of particular creditors, each of which applies to a different "fund", and we've observed this has led to some liquidators being unsure of how to proceed – or even worse, using funds they should not.

This week’s TGIF considers the decision in Cant v Mad Brothers Earthmoving Pty Ltd[2020] VSCA 198, where the Court of Appeal refused to find that a payment made by a third party on behalf of an insolvent company was an unfair preference.

Key takeaways

A decision by the Victorian Court of Appeal (Cant (as liquidator of Eliana) & Anor. v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198) on 5 August 2020 provides guidance to creditors and liquidators on when payments from a third party to a creditor can be considered a payment ‘from the company’ and be potentially voidable as a preference payment under part 5.7B of the Corporations Act (2001) (Cth) (Act).

The key facts

The United Kingdom and Australia have recently implemented legislative changes to permit external administrators to assign or sell causes of action available to them.

The tragically unforeseen current novel coronavirus (COVID-19) global pandemic has brought unprecedented challenges to all aspects of Hong Kong society including the health of its citizens, the economy and the business community. Economic activities across most sectors globally are being devastated. The dire economic situation in Hong Kong has been exacerbated by the trade war between Washington and Beijing and the new national security law.

This week’s TGIF considers a recent decision of the Federal Court which demonstrates that, irrespective of the COVID-19 landscape, the Court will continue to support administrators acting to maximise a return for creditors and stakeholders.

Key takeaways

For a company that is in financial difficulty, but which is still ultimately a viable going concern, a debt for equity swap can be an effective way to restructure its capital and borrowings and, in doing so, strengthen its balance sheet and deal with issues such as over gearing.

A debt for equity swap involves a creditor converting debt owed to it by a company into equity in that company. The effect of the swap is the issue of the equity to the creditor in satisfaction of the debt, such that the debt is discharged, released or extinguished.

This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.

In this Edition, we consider another recent Panel decision in the insolvency context, RBA’s comments on Australian economic outlook and the looming “return to normal” for regulators as the COVID-19 pandemic continues to drag on.

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