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’?

In this week’s TGIF, we consider the recent case of Vita Group Ltd, in the matter of Vita Group Ltd [2023] FCA 400, in which his Honour Justice Jackman outlined practical changes to the way schemes of arrangement should be implemented through the Federal Court to make them simpler, faster and more cost efficient.

Key takeaways

With increased stress in global, domestic, and regional economies, the number of Australian businesses at risk of bankruptcy is approaching a three-year high.

In a recent decision, Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88, lenders to the Arrium Group, a company that collapsed, have lost their appeal regarding the personal liability of the Chief Financial Officer and Group Treasurer. The NSW Supreme Court had previously dismissed the lenders' claims, and the Court of Appeal has now affirmed that decision.

In this week’s TGIF, we consider the Court of Appeal’s decision in Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88 and the challenges faced by lenders in accepting representations as to solvency and the financial position of borrowers.

Key takeaways

Introduction