The Federal Court of Australia in Frisken, in the matter of Avant Garde Investments Pty Ltd v Cheema [2020] FCA 98 has considered a dispute between a receiver and the director of the company as to whether the provisional liquidator, Mr Banerjee, should be appointed as the liquidator.
The director sought the appointment of different liquidators on the basis that Mr Banerjee’s conduct as provisional liquidator was such that a reasonable person might apprehend that he might not be impartial as liquidator.
The transaction involved the restructuring of certain loan facilities via creditors' schemes of arrangement (Schemes). Prior to implementation, the Schemes terminated automatically by their terms as certain required payments had not been made by the relevant condition precedent satisfaction date.
Ipso Facto is the sort of phrase people throw around when they're trying to sound more lawyery, but it's also the name of a regime that operates and affects your contractual rights when one of your contracting parties becomes insolvent.
Even with the fiscal stimulus and other measures taken by the Federal and State governments in Australia, corporate insolvencies are likely to increase in coming months.
Under Australia’s insolvency regimes, a distressed company may be subject to voluntary administration, creditor’s voluntary winding up or court ordered winding up (collectively, an external administration). Each of these processes raises different issues for the commencement and continuation of court and arbitration proceedings.
It is unresolved whether a creditor can rely upon a section 553C set-off under the Corporations Act 2001 (Cth) to reduce an unfair preference claim. Until the controversy is resolved by a binding court decision, liquidators and creditors will continue to adopt opposing positions.
This week’s TGIF considers the decision of In the matter ofCohalan & Mitchell Roofing (in liquidation)[2020] VSC 222, where the Supreme Court of Victoria refused to grant an extension of time for filing voidable transaction proceedings.
Background
This week’s TGIF considers the decision in McCallum, in the Matter of Re Holdco Pty Ltd (Administrators Appointed)[2020] FCA 666, where the Court granted leave for administrators to sell assets in which third parties claimed ownership or security interests, after determining that those interests were adequately protected.
Key takeaways
The COVID-19 restrictions are slowly easing but the economic impacts are far from over. While businesses struggle to find ways to free up cash, it is likely we will see restructuring of loans and waiving of debts.
Taxpayers and their advisors need to be aware of the taxation implications of restructuring and forgiving loans, including the Commercial Debt Forgiveness (CDF) rules, Division 7A and the CGT rules.
Key takeaway
COVID-19 has had a debilitating effect on many sectors of the economy and unfortunately, the coming 12 months will see more businesses in financial distress and an uptick in business insolvency.
In such an environment, the commercial reality is that many businesses will be owed debts that will not be paid in full or at all. For many businesses, this could spell disaster. For this reason, debtor management is crucial in the present environment.
As we know, the Federal Government has implemented a package of changes to Australian insolvency and bankruptcy laws to provide relief from the economic impacts of COVID-19.