MK Builders Pty Ltd v 36 Warrigal Road Pty Ltd & Ors [2014] VSC 149

The decision is significant because it confirms that a payment of a dividend to a creditor does not necessarily extinguish the company’s claim for the balance in fact owing to it.

The Court refused to declare an appointment of administrators invalid under section 447C of the Corporations Act 2001 (Cth) on the basis of a previous purportedly invalid removal of a director and alleged insufficient grounds to establish that the company was, or was likely to become insolvent.  This case illustrates the Court’s willingness to overlook technical anomalies in exercising its discretion under section 447C where the end result for the company would be the same, and a broad approach in assessing whether there are reasonable grounds to form a view that a company

The recent WA Supreme Court decision in White v Spiers Earthworks Pty Ltd [2014] WASC 139, highlights the consequences of not registering a security interest under the Personal Property Securities Act 2009 (PPSA) when a company becomes insolvent.

The case also provides guidance about certain PPSA savings provisions, the treatment of transitional security interests and the primacy of PPSA over pre-PPSA legislation.

BACKGROUND

A Supreme Court of New South Wales decision in February 2014 is a timely reminder to creditors to ensure that agreements clearly articulate arrangements where funds are to be held on trust for a specific purpose.  The Court revisited the question of the entitlement to retention funds and competing creditor claims in the matter of National Buildplan Group Pty Ltd (subject to deed of company arrangement)(Buildplan)

Korda v Australian Executor Trustees (SA) Ltd [2014] VSCA 65

In Korda v Australian Executor Trustees (SA) Ltd, the VSCA may have assisted the investors in a radiata pine managed investment scheme at the expense of trusts law orthodoxy.

The ability of limited recourse provisions to protect borrowers and financiers against insolvency risks may be weaker due to a recent English court case.

Limited recourse clauses are often used in project and structured finance transactions. Borrowers want to avoid the risk of their directors being liable for trading while insolvent; and financiers may want to avoid the possibility of insolvency clawback actions if they seek to enforce their security documents.

Approximately 11 years ago, largely as a result of public resentment of bonuses being paid to directors of insolvent companies, the Corporations Act was amended by the Corporations Amendment (Re-Payment of Director’s Bonuses) Act 2003. The amendment made it possible for liquidators to not only seek to recover director bonuses but to also recover any “unreasonable director-related transactions” pursuant to the newly added section 588FDA of the Corporations Act.

Legislation

In a decision of interest to both secured creditors and liquidators, the High Court has now overturned a decision of the Court of Appeal of the Supreme Court of Victoria that found a liquidator was not entitled to an equitable lien to secure his reasonable costs in obtaining a settlement sum.

On 7 May 2014, the High Court handed down its eagerly anticipated decision on the scope of the liquidator’s equitable lien in Stewart v Atco Controls Pty Ltd (In Liquidation) [2014] HCA 15.

I           INTRODUCTION

The ultimate aim of the Bankruptcy Act 1996 (Cth) is to provide a fair and orderly process for the administration of the affairs of a debtor.  In many circumstances the debtor may attempt to avoid his obligations to some or all of his creditors.  The Bankruptcy Act recognises this and has long had provisions which empower trustees in bankruptcy to recover certain assets of a bankrupt.  The two types of powers given to the trustee are where: