The Parliamentary Joint Committee on Corporations and Financial Services inquiry into corporate insolvency in Australia tabled its final report to the Australian Parliament on 12 July 2023.

Key takeouts

Yes is the answer! On 12 July 2023, the Parliamentary Joint Committee on Corporations and Financial Services published its report regarding corporate insolvency in Australia.

Objective of the inquiry

The committee’s inquiry assessed how effective the current corporate insolvency regime is at providing benefits to, and protecting, stakeholders as well as the Australian economy. It looked at a number of aspects including:

Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd

In a decision that appears to be the first of its kind, the NSW Court of Appeal has found that a national airline should be afforded foreign State immunity against a winding up application.

Key points:

What is a Deed of Company Arrangement?

A Deed of Company Arrangement (DOCA) is a formal framework for a company in voluntary administration to restructure its affairs, repay its debts, and potentially continue operations, offering an alternative to immediate liquidation.

What is the purpose of a Deed of Company Arrangement?

The purpose of a DOCA is to:

In a recent case involving PT Garuda, the national airline of Indonesia, the New South Wales Court of Appeal dismissed an appeal by two creditors seeking to wind-up the airline, concluding that PT Garuda enjoyed immunity under the Foreign States Immunities Act 1985 (Cth).

Key takeaways

Most landlords seek advice prior to entering a commercial lease.

But, as the cautionary tales in this article suggest, if the tenant goes into administration or liquidation, landlords would be wise to seek specialist advice. The lesson is simple: a landlord should not lightly assume that the appointment of an administrator or liquidator implies the end of the lease or a right to re-enter the premises.

A decision which insolvency practitioners will welcome in, Cathro, in the matter of Cubic Interiors NSW Pty Ltd (In Liq) [2023] FCA 694, the Federal Court clarified that s588FL of the Corporations Act 2001 (Cth) (the Act) does not cover security interests granted by a security agreement made after the “critical time” as defined in s588FL(7) of the Act.

In Vincent Cold Storage Pty Ltd v Centuria Property Funds No 2 Limited (No 2) [2023] VSC 314, the Deed Administrator sought section 444F orders to restrain the property owner from retaking premises leased by Vincent Cold Storage in administration and was unsuccessful.

Key takeaways

By an Amended Special Case, Derrington J reserved for consideration by the Full Court of the Federal Court the following question: “Is statutory set-off, under s 553C(1) of the Act, available to the [appellant] in this proceeding against the [first respondent’s] claim as liquidator for the recovery of an unfair preference under s 588FA of the Act?” By majority, the Court of Appeal (Kiefel CJ, Gordon, Edelman and Stewart JJ) held that s 553C(1) of the Act does not entitle the creditor to such a set-off.

Background

Understanding whether a company is insolvent, and the date of insolvency, is essential for directors and accountants who advise companies, as well as liquidators and other parties bringing insolvency-based claims. In understanding these issues, the analysis may need to go beyond establishing present-day liquidity – for example, what impact do long term-debts have on a company’s solvency and how are they used to prove insolvency? Which debts are relevant to the cashflow test? Whether a company is ‘able to pay all its debts’ as and when they become ‘due and payable’?