Australia has an Insolvency Law Reform Bill in Parliament and plans for more change further down the track in the form of recommendations from the Australian Productivity Commission, which the Australian Government has signalled it will adopt.
These developments will be of interest to New Zealand insolvency practitioners, company directors and creditors. We summarise the proposed changes and comment briefly on the possibility of similar reform in New Zealand.
Insolvency Law Reform Bill
With the number of companies entering external administration on the rise and the crucial post-Christmas retail trading period nearing an end, it is important for owners to ensure that they fully understand what rights they have to terminate a lease and recover unpaid rent if a tenant goes into external administration and its creditors then vote to enter into a Deed of Company Arrangement (DOCA).
If a tenant is in arrears and a DOCA is in place, can an owner exercise its contractual right to terminate the lease?
Late last year, the High Court handed down its decision in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2015] HCA 48. The High Court held (by a majority of 3:2) that, in the absence of an assessment, a liquidator is not required to retain funds from asset sale proceeds in order to meet a tax liability which could become payable as a result of a capital gain made on the sale.
High Court says "Yes"
Need to know
In a win for creditors of insolvent companies, on 10 December 2015 the High Court determined that the obligation of a liquidator under section 254(1)(d) of the Income Tax Assessment Act 1936 (Cth) (1936 Act) to retain sufficient funds to pay tax on assets realised during the winding up only arises after a tax assessment has been made. If the funds are distributed prior to a tax assessment being made, then the obligation does not arise.
Although most western legal systems have recognised for some decades the public benefit in rehabilitating failed enterprises, some countries do it better than others. To some extent, this is because of differences in local legislation (sometimes small, but with far-reaching effects), which either shapes, or is shaped by, popular or political attitudes to business failure.
Key Points
On 10 December 2015, a majority of the High Court of Australia ruled inCommissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation)1 that liquidators are not obliged to, and are not personally liable for, failing to retain sufficient funds for the purpose of discharging a tax liability until the Commissioner issues a notice of assessment.
What does this mean for practitioners?
On 7 December 2015, the Federal Government released the National Innovation and Science Agenda, delivering a range of new initiatives. Among the key focus areas, the Government highlighted insolvency law as a primary area overdue for reform. Whilst not introducing wholesale reforms to mimic the United States ‘Chapter 11’ framework, the targeted reforms seek to eliminate the stigma associated with business failure.
The assignment of debts is common in many transactions - from the sale of businesses to restructuring scenarios.
Assigning a debt requires written notice of the assignment being given to the debtor. Under conveyancing legislation this notice can be given by either the assignor or assignee (for example, section 12 Conveyancing Act (NSW)).
Additional rules now apply for debts captured by the Personal Property Securities Act (PPSA).
Edgeworth Capital Luxembourg Sarl (2) Aabar Block Sarl V Glenn Maud [2015] EWHC 3464 (Comm)
The High Court in England has ruled on whether Spanish Law has the effect of extinguishing third party guarantees when the beneficiary of the guaranteed liabilities enters into insolvency proceedings in Spain.