Key Points:

This case presented a difficult and unique set of circumstances for the court to navigate while the scheme clock was ticking.

The recent approval of the David Jones scheme of arrangement demonstrates how, in the absence of shareholder opposition, the inexorability of a scheme timetable can cause problems for a court when there is a major development after the first court hearing.

In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd, a decision seemingly inconsistent with established law, the Supreme Court of NSW earlier this year held that an omission in the affidavit supporting a statutory demand did not amount to “some other reason why the demand should be set aside”. The NSW Court of Appeal has now reversed the decision, restoring a degree of certainty in this much-litigated area of law.

The Law

Di Cioccio v Official Trustee in Bankruptcy [2014] FCA 782

Examination of whether shares purchased from a bankrupt’s income below the threshold amount in respect of which he was required to make contributions to his trustee under Division 4B of Part 6 of the Bankruptcy Act 1966(Cth) is within the meaning of “after acquired property” in s 58(1).

In the decision Young, Jr (on behalf of debtor-in-possession of Buccaneer Energy Ltd) v Buccaneer Energy Ltd [2014] FCA 711, the Federal Court of Australia considered whether Chapter 11 proceedings under the United States Bankruptcy Code should be recognised as a foreign main proceeding under the Cross-Border Insolvency Act 2008 (Cth) (CBIA) and Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (Model Law).

In the last week, two cases have been handed down regarding funds held on trust in liquidations and liquidators’ fees.

Saker, in the matter of Great Southern Limited [2014] FCA 771 (Great Southern) considered whether funds from floating charge assets held separately for satisfaction of priority employee entitlements were held on trust, and the impact on the liquidators’ fees and secured creditors’ recoveries in the absence of such a trust.

The Hon Joe Hockey announced the final terms of reference for a new financial system inquiry on 20 December 2013.  The purpose is to examine how the financial system could be best positioned to meet Australia's evolving needs and support Australia's economic growth.

An interim report was released on 15 July 2014.  Section 3 discusses potential changes to the current external administration regime in Australia. 

Key Points:

Courts will remove liquidators where there's apparent bias even where it might cause significant inconvenience and expense to the liquidation.

The Full Court of the Federal Court has found that a conflict of interest arose in circumstances where liquidators were required to investigate transactions with an entity that also refers work to the liquidators (ASIC v Franklin; Re Walton Construction Pty Ltd [2014] FCAFC 85).

Obtain advice before you lodge a proof of debt or vote in a liquidation

Secured creditors should remember that submitting a proof of debt and voting in a liquidation may result in the loss of their security if they get it wrong.

The Supreme Court of New South Wales has delivered a timely reminder to secured creditors of a company in liquidation, where the secured creditor lost its security because it submitted a proof of debt for the full amount of its debt and voted on a poll at a creditor’s meeting for its full debt.

The recent decision of the Federal Court in the matter of Divitkos, in the matter of ExDVD Pty Ltd (In Liquidation) [2014] FCA 696 confirms that where a receiver is required to make a payment under Section 433 of the Corporations Act 2001 (Cth) (Act) to a priority creditor (such as employee entitlements), the secured creditor (who appointed the receiver) may be entitled to be subrogated to the rights of that priority creditor in the winding up of the company.

The Law

The recent appeal decision of the Full Court of the Federal Court in ASIC v Franklin (liquidator) and ors [2014] FCAFC 85 reinforces the importance of the independence of liquidators and also provides further guidance on the contents of declarations of independence, relevant relationships and indemnities (known as a “DIRRI”) by administrators.