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).

CGU Insurance Limited v Blakeley & Ors [2016] HCA 2

The High Court of Australia has held unanimously¹ that a person who commences proceedings against an insolvent company or a bankrupt individual can join that defendant’s insurer to the proceedings and seek a declaration that the insurer is liable to indemnify the defendant.

In a decision which potentially increases the assets available to liquidator and bankruptcy trustee plaintiffs, the High Court in CGU Insurance v Blakeley¹ has recently determined that plaintiffs may seek to join insurers to proceedings in circumstances where indemnity under the insurance contract is denied and the defendants to the primary claim are bankrupt or being wound up or likely to become so as a result of the claim.

Vizcaya Partners Limited v Picard and another [2016] UKPC 5

Privy Council advice that addresses what is required for foreign judgements

Two critical components affecting liquidators have come out of Tuesday’s decision by Brereton J in the NSW Supreme Court.

CGU Insurance Limited v Blakeley [2016] HCA 2

Liquidators brought action against company directors under s 588M(2) of Corporations Act 2001 (Cth) – Liquidators sought to join third party insurer after insurer denied liability – Supreme Court had jurisdiction to grant declaratory relief on liquidators’ application – Meaning of justiciable controversy

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)).