Welcome to this issue of Herbert Smith Freehills' Australian Construction Dispute Resolution Newsletter.

This newsletter updates you on legal developments relevant to your industry by featuring Australian court decisions and legislative developments of particular interest.

In this issue, we look at:

Section 447A

JOEL COOK Associate, Litigation and Dispute Resolution Group, McCabes

ANDREW LACEY Principal, Litigation and Dispute Resolution Group, McCabes

legal update

ONE SIZE DOES NOT FIT ALL

Varying the scope of the Part 5.3A moratorium on proceedings against companies in voluntary administration.

There have been recent reports that APR Energy PLC has threatened the Australian Government with a demand for $200 million in damages based on a claim under the Australia-United States Free Trade Agreement after it lost its security interest in multi-million dollar wind turbines it leased to an Australian company due to the operation of a provision in the Personal Property Securities Act 2009 (Cth) (PPSA).

When an individual becomes bankrupt, the bankrupt’s property vests in the bankruptcy Trustee with a number of exceptions. One exception is in respect of the bankrupt’s interest in a regulated superannuation fund, an approved deposit fund or an exempt public sector superannuation scheme.

Changes to Australia’s corporate insolvency laws are set to come into effect in 2017 and will result in an increase of powers for creditors in external administrations.

IN BRIEF

Two recent decisions have determined the applicability of security for payment legislation to insolvent contractors. One decided that the legislation does not apply to contractors in liquidation. The other decided that the legislation can be used by bankrupt contractors. At first glance, the decisions seem to be at odds, but on closer analysis the two decisions are not inconsistent.

Introduction

Following on from the Government’s National Innovation and Science Agenda,the Productivity Commission’s report into Business Set-Up, Transfer and Closure (‘the report’) released in December 2015 called for a number of reforms to the Corporations Act 2001 (Cth) (‘the Act’), that aim to reduce the stigma associated with insolvency and to assist recovery. We discuss two of these below.

‘Small liquidation’ process

In our previous bulletin we discussed the ‘safe harbour’ model in the Government’s suggested reforms to the current insolvency laws.

This bulletin considers another of the focus questions in the Proposal Paper: the voiding of ipso facto clauses relating to insolvency events.

Background

Last year’s Queensland District Court decision in Morton v Rexel Electrical Supplies Pty Ltd [2015] QDC 49 (Rexel) caused quite a stir in insolvency circles. In Rexel, Searles DCJ (a former partner of McCullough Robertson) found that section 553C of the Corporations Act 2001 (Cth) (Act) could apply to reduce an unfair preference claim brought by a liquidator, by allowing the amount still owing by the company to be set-off against the liquidator’s claim.