We have heard it many times: “the only people who win when a company goes into liquidation are the lawyers and the accountants”. 

Whether that is true or not, certainly it is the case that having a corporate customer go into liquidation can cause significant damage to your cash flow, your morale and ultimately your business.

YOU MIGHT NEED TO REPAY MONEY TO YOUR DEFUNCT CUSTOMER’S LIQUIDATOR

Introduction

On 1 July 2015, the Commonwealth Government launched the Fair Entitlements Guarantee Recovery Programme for an initial period of two years. The purpose of the Recovery Programme is to increase the prospects of the Commonwealth recovering amounts it has paid to former employees of companies in liquidation pursuant to the Fair Entitlements Guarantee Scheme[1]. 

There has been some recent discussion around the use by insolvency practitioners of the security of payment legislation. The benefits of engaging this process are obvious – there is an opportunity to secure payment for the insolvent company in a quick and cost efficient manner while also avoiding the financial burden of a security for costs order which the insolvent company (and hence insolvency practitioner) is likely to face in court proceedings.  

You can lose your equipment by failing to register your interests on the Personal Property Securities Register (PPSR).

Failing to consider the impact of the Personal Property Securities Act 2009 (PPSA) is still having dramatic adverse implications for many construction industry participants. 

The Fair Entitlements Guarantee Act 2012 (Cth) requires the Commonwealth Government to pay outstanding superannuation, annual leave, redundancy and wages entitlements for eligible employees who have lost their jobs due to the liquidation or bankruptcy of their employers. It is generally recognised as an important safety net for employees, so that their superannuation is guaranteed.

The point at which a company becomes insolvent is not always clear. The Courts will consider “various indicia of insolvency”, including the company’s ability to raise further capital and access to alternative finance. In some situations, a director or related entity may be willing and able to contribute funds to the company to allow it to pay its debts. This can affect whether a company is viewed as solvent or not. Once insolvency is reasonably suspected, directors must prevent the company from incurring further debts or risk being held personally liable for the debts incurred.

Research and development expenditure not incurred

In Commissioner of Taxation v Desalination Technology Pty Limited [2015] FCAFC 96, the Full Federal Court upheld the Commissioner’s appeal from the earlier decision of Justice Perram in the Federal Court. That earlier decision was the result of an appeal by the Commissioner, on a question of law, from the decision of the Administrative Appeals Tribunal (AAT) in favour of the taxpayer (DST). 

The insolvency of one of the principals, contractors or subcontractors can seriously impact a construction project at all levels of the supply chain. Infrastructure and Projects partner, Ted Williams look at the issue and some practical thoughts on drafting contracts to help mitigate these risks.

“How did you go bankrupt?" Two ways. Gradually, then suddenly.” ? Ernest Hemingway

Key Points:

A DOCA can extinguish claims under a guarantee, even where those claims arise following the DOCA's termination.

If the underlying debt has already been extinguished by a DOCA, can a secured creditor still enforce the charge? A recent case explored the role of section 444D(2) of the Corporations Act in this situation, with implications for parties seeking to rely on guarantees from companies that have been through a DOCA (Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2015] WASCA 95).

Key Points:

Section 562A of the Corporations Act does not apply where liquidator realises a sum of money by assigning the proceeds of the reinsurance claim to a third party.

Liquidators of insurance companies face a major quandary when assessing reinsurance recoveries.

A new Court decision may undercut the legislative policy that reinsurance proceeds should be quarantined from the normal rules for paying out creditors of insolvent companies.