The High Court has granted special leave to appeal the decision in Commissioner of Taxation v Australian Building Systems Pty Ltd(in liq) [2014] FCAFC 133 which held that a liquidator is not required to retain funds from the proceeds of sale of an asset to pay tax before an assessment is issued.

Practical Implications

Background

Coin Co International PLC (Administrators Appointed) (Coin Co) was a company incorporated in the UK which conducted a cash services business in the UK and a global currency exchange business in various countries, including Australia.

In brief: A Supreme Court of Queensland judgment handed down today has provided greater certainty for secured creditors of companies that earn profits following the appointment of a receiver. The judgment dispels suggestions that the law was uncertain and means that secured creditors can continue to fund receivers confident that any trading profits will be distributed to them as secured creditors and not to priority creditors.

Personal liability of members of management committees of incorporated associations for debts incurred by the association if it traded while insolvent has been an uncertain area of law in Queensland. Directors of companies that trade while insolvent have potentially been personally liable for debts incurred by the company, but there has always been a question mark over whether members of management committees of incorporated associations face the same personal liability. 

On 17 April 2015, the Commissioner of Taxation successfully sought special leave to appeal the decision in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133 to the High Court.

Directors of an insolvent company face a strict duty not to allow their company to trade whilst insolvent. Whilst there are exceptions and defences available for directors, the recent case of Smith v Bone [2015] FCA 319 demonstrates that:

a director will not easily be excused, especially where they fail to seek advice on the company’s solvency in circumstances which would warrant such an enquiry; and that directors should not assume that simply entering into certain arrangements with creditors is enough to prevent them being liable for insolvent trading.

Summary

Insolvency practitioners pursuing unfair preference claims should give consideration to a recent Queensland District Court judgment which has endorsed the application of section 553C of the Corporations Act 2001 (Cth) (Act) - which enables an insolvent company and a creditor to set-off their mutual debts against each other - to unfair preference claims.

In brief: The Victorian Supreme Court has provided guidance on set-off rights in the context of insolvency, particularly in relation to inconsistency between provisions of the Corporations Act and security of payment legislation. Partner Nick Rudge (view CV) and Lawyer James Waters report.

A recent Victorian Supreme Court decision considered whether, in the context of liquidation, securing the indebtedness of a third party to avoid potential litigation exposure is an uncommercial transaction. The decision indicates that such a transaction will not necessarily be uncommercial and consequently voidable where the company receives a benefit in avoiding a potential exposure and the company's net position remains the same.

In brief

The low oil price and limited capacity for oil and gas producers to further reduce operating costs is presenting challenges for producers of all shapes and sizes. In 2015 we expect that a number of producers will conduct strategic reviews which may lead to the sale of 'non-core' assets.