This week’s TGIF considers whether a flexible payment arrangement between a subsidiary and its holding company creditor meant the parent suffered no loss on the insolvency of the subsidiary.

What happened?

On 17 August 2017, the West Australian Court of Appeal published its reasons in Perrine v Carrello [2017] WASCA 151 drawing a close to the long-running dispute between the Perrines and the liquidator (Liquidator) of their failed pod-home building company (PodCo).

In a decision of importance for liquidators and litigation funders, the Western Australian Court of Appeal in Perrine v Carrello has further explained the important issue of how to determine the amount of compensation recoverable by liquidators where insolvent trading has occurred.

The reforms introducing a safe harbour for directors of insolvent companies and, from 1 July 2018, a limited stay on the operation of ipso facto clauses have been passed by both Houses of the Australian Parliament and will likely be enacted by month end. Late on Monday evening, after some debate, the Senate passed the reforms with only minor amendments. The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 then returned to the House of Representatives who formally passed the amended Bill last night.

Safe harbour

In the recent decision of Lane (Trustee), in the matter of Lee (Bankrupt) v Deputy Commissioner of Taxation [2017] FCA 953, Cooper Grace Ward acted for the trustee in bankruptcy, who sought directions from the Court regarding the administration of a trading trust where the bankrupt was the trustee.

Facts

In a big 24 hours for restructuring and insolvency, the safe harbour reforms were passed by the Senate late last night, and anti-phoenixing reforms were announced this morning.

Safe harbour reforms

The safe harbour laws will commence operation the day after the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 receives Royal Assent, with the ipso facto provisions set to commence on 1 July 2018 (or earlier by proclamation).

On 12 September 2017, some of the most significant reforms of Australia’s corporate insolvency laws in recent years were passed by both Houses of the Australian Federal Parliament. These reforms will introduce:

The Senate Economics Legislation Committee has recommended that the Treasury Laws Amendment (2017 Enterprise IncentivesNo. 2) Bill 2017 (Bill) which provides a ‘safe harbour’ defence and automatic stays on certain ipso facto clauses be passed. We expect that the Bill will be passed by Parliament this year, giving company directors more flexibility when dealing with financial distress.

History

This update deals with “onerous property” and the issues involved when a trustee in bankruptcy disclaims onerous land, including the potential impact on lenders.

Disclaimer of onerous land by a trustee in bankruptcy

At any time, the trustee of a bankrupt estate may disclaim land which is burdened with onerous covenants or is unsaleable or not readily saleable (s 133 of the Bankruptcy Act 1966 (Cth)).

The NSW Supreme Court has given a Landlord leave to commence proceedings against a company for rent and make good costs arising after the date of the DOCA.

BACKGROUND

On 22 August 2017, the Supreme Court of New South Wales approved the Boart Longyear creditor schemes of arrangement following substantial alterations to the terms of the schemes after clear messaging from the Court that it was unlikely to approve the schemes as originally formulated, on fairness grounds. In this article, we discuss some of the implications of this important judgment, which advisers will need to take into account when devising restructuring plans involving creditors’ schemes of arrangement.

In brief