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.

If a director can exercise a right of set-off against a company in liquidation for a debt owed to the director or for a liability of the company to the director (which may be unascertained in amount or contingent), it may help to cancel out or significantly reduce the director’s liability to the company for insolvent trading.

BACKGROUND

A bank loaned over $8,000,000 to Areaworks Pty Ltd for a property development in Victoria. Adrian Liddell (Liddell) provided a guarantee of the debt. Subsequent to default under the facility, the bank sold the secured property and commenced debt recovery proceedings against Liddell for the shortfall of over $700,000 owing to it.

A sequestration order was subsequently made against Liddell upon the presentation by Liddell of a debtor’s petition, with admitted debts in his bankruptcy totalling $3,303,078.

Background

In Re CMI Industrial Pty Ltd (in liq); Byrne & Ors v CMI Limited [2015] QSC 96, liquidators sought directions as to whether they were required to pay trading profits made by the receivers to priority creditors under s433 of the Corporations Act.

Update: Re CMI Industrial Pty Ltd (In Liq); Byrnes & Ors v CMI Limited [2015] QSC 96

Receivers do not have to distribute profits from the sale of inventory acquired by them during their appointment to priority creditors.

The question of whether priority creditors have a statutory entitlement to receivers’ inventory trading profit has largely been left unanswered until the decision handed down by Justice Mullins on 27 April 2015. 

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.  

Orla McCoy explains the connections between retention of title clauses, insolvency, and the Personal Property Securities Act.

Click here to view video.

The important role of standard terms of sale

The standard terms of sale of a supplier can form part of a credit application by its customer, appear on sales invoices or order forms or on the supplier’s website and there are many other combinations of documentation and procedures that can be used to establish written evidence of the terms of the contract between the supplier and its customer. Just as important, there are many reasons why these combinations may come unstuck.