Australia is making several significant reforms to its insolvency legislation – with more changes likely to come – to provide much-needed comfort for directors and to align legislation on ipso facto clauses in order to prevent contractual terminations simply as a result of the commencement of an insolvency proceeding. (See the Productivity Commission Report on Business Set-up, Transfer and Closure (available here)).

History

On 1 May 2014, the Creditor commenced proceedings against the Debtor for a sequestration order against his estate in respect of unpaid legal costs awarded by the Magistrates Court of Western Australia.

Various preliminary issues protracted the case, including:

This week’s TGIF considers the decision of Commonwealth Bank of Australia v Currey in which the Court looks at whether a breach of clause 25.1 of the Code of Banking Practice renders a guarantee void or voidable.

BACKGROUND

A bank lent money to a family company, which was secured by personal guarantees provided by the applicants. 

By its much anticipated yet hardly surprising judgment in Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed) v General Electric International Inc  [2016] NSWSC 52, the Supreme Court of New South Wales has again shone a bright light on the importance of perfection of security interests under the PPSA, and the dramatic consequences that follow for failing to do so by reason of the PPSA vesting rules.  Indeed, the failure to register in this case has had multi-million dollar consequences.

Under the Corporations Act 2001, directors have a duty to prevent insolvent trading. They can be ordered to pay compensation, and can even be convicted of an offence, where their company trades while insolvent. The threshold is low in that the director need only have a suspicion that the company is insolvent for the duty to be engaged. Once triggered, the duty requires directors to take steps to prevent further debts being incurred by ceasing active trading or by placing the company into administration. If prevented from doing those things, the director needs to resign.

Executive summary

On 11 February 2016 the High Court delivered a unanimous judgment¹ which clears the path for liquidators and others to join insurers of defendants to proceedings, enabling the determination at the same trial as to whether an insurer has an obligation to indemnify defendants in respect of any liability that may be found against those defendants.

Key Points:

A Senate Economics References Committee has recommended that the Commonwealth enact uniform national security of payment legislation, albeit with a target of around 2018 for implementation.

Security of payment (SOP) reform discussion papers were released by the Queensland and New South Wales Governments in the run up to Christmas. That timing happened to coincide with the publication by the Senate Economics References Committee of its report "'I just want to be paid': Insolvency in the Australian Construction Industry".

Introduction

It sometimes happens that stakeholders become disgruntled with the liquidator appointed to wind up the affairs of a company. So, what can be done?

There is power in s 473(1) of the Corporations Act 2001 (Cth) for the court to remove (and replace) a liquidator. But, how hard is this process?

Discussion of recent Federal Court case

WHAT HAPPENED?

In April 2013, the liquidators of Akron Roads Pty Limited (in liq) (Akron Liquidators) commenced proceedings against three former directors including Trevor Crewe (an Akron Director) and Crewe Sharp Pty Ltd (an alleged de-facto director) (the Directors) for breaches of the insolvent trading provisions of the Corporations Act 2001 (the Act).

Voidable transactions When a company becomes insolvent, sections 588FA and 588FB of the Corporations Act 2001 (Cth) (Corporations Act) empower liquidators to investigate voidable transactions, including unfair preference and uncommercial transactions as well as unreasonable director-related transactions.