Everyone loves a bargain – accordingly, there is a lot of interest when liquidators and other insolvency practitioners put a business up for sale. Purchasers jostle like shoppers in the Myer stocktake sale, trying to position themselves as the perfect purchaser. At the same time they try to convey their concern about the value of the business or assets – everyone expects a discount for a distressed business.

In brief

A recent decision by the New South Wales Court of Appeal in Buzzle Operations Pty Ltd (in liq) –v- Apple Computer Australia Pty Ltd [2011] NSWCA 109 provides useful guidance on the key aspects of shadow directorships and to what extent advices can be given by an interested party such as a financial accountant or a lender to a debtor without that interested party falling within the definition of "shadow director".

Background

In insolvency circles, the word "success" is definitely a relative term. Often it only means that a complete meltdown of the company's business has been averted, or that employees have at least received their statutory entitlements on their way out the door.

The ABC Learning Centre story has, however, definitely been a success by any measure – including some measures which are not generally part of the metrics of insolvency.[1] In order to see why this insolvency administration deal was both unique and uniquely successful, it is necessary to understand some of the background.

Our clients must be sick to death about hearing us comment on the Australian Sons of Gwalia saga (which we have been doing for more than three years) but finally there is good news to report. The short version of the saga is thatSons of Gwalia was a decision by Australia's highest court that shareholder damages claims should be treated as pari passu unsecured claims in an Australian insolvency proceeding.

Under section 449E(2) of the Corporations Act 2001 (Cth), the Court may review the remuneration of the administrator of a company on the application of the administrator. In the recent decision of Paul’s Retail Pty Ltd v Morgan, the New South Wales Court of Appeal considered the issue of whether an administrator could be precluded from access to the abovementioned statutory provision for the review by the Court of remuneration already determined.

The Facts

The New South Wales Supreme Court decision in Rapid Metal Developments (Aust) Pty Ltd v Rildean Pty Ltd (No 3) examined the Australian statutory provision that is broadly equivalent to s 32(5) of the Receiverships Act (NZ).

Mana bought proceedings against the liquidators of James for legal costs resulting from the liquidator's decision to continue an appeal against Mana, in respect of successful specific performance proceedings brought by Mana against James.

Fodare Pty Ltd v Shearn considered the admissibility of transcripts of public examinations made under Australia's Corporations Act 2001.

Introduction

On 26 November 2010, the Federal Parliament passed the Corporations Amendment (Sons of Gwalia) Bill 2010 (“Bill”). The Bill amends section 563A of the Corporations Act 2001 (Cth) (“Act”) such that any claim brought by a person against a company that arises from the buying, selling, holding or other dealing with a shareholding will be postponed in an external administration until all other claims have been paid. The Bill has the effect of reversing the High Court decision of Sons of Gwalia v Margaretic [2007] HCA 1.

Statutory Demands pursuant to the Corporations Act are a mechanism available to creditors for the payment of debt. Upon the expiry of a Statutory Demand, the Corporations Act presumes that the company is insolvent and allows the entity making the demand to apply to the court for their winding up on grounds of insolvency.