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:

In DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96, the Court of Appeal considered the meaning of the “interests of the creditors as a whole” under section 600A of the Corporations Actand the circumstances in which the Court will intervene to set aside or impose conditions on resolutions passed at creditors meetings.

BACKGROUND

In the recent matter of JP Morgan Chase Bank, National Association v Fletcher; Grant Samuel Corporate Finance Pty Ltd v Fletcher [2014] NSWCA 31, the NSW Court of Appeal handed down a decision with important consequences for liquidators and the time they have to commence proceedings for voidable transactions. The decision also illustrates the frequently inconsistent operation of the Corporations Act 2001 (Cth) and Court procedure rules. Senior Associate, Elisabeth Pickthall and Associate, Stefano Calabretta discuss the decision.

Introduction

When the UNCITRAL Model Law on Cross-Border Insolvency (Model Law) was introduced into Australian law in 2008, Australian admiralty practitioners expressed concern that the legislation which enacted the Model Law into Australian law did not take into account its potential impact on the right to arrest a ship in Australia.  The concern was that the Model Law would prevent parties from arresting ships in Australia, if the shipowner or charterer was the subject of foreign insolvency proceedings.  

Result

In a recent Federal Court case in Australia (Global Tradewaves Ltd ("GTL") [2013] FCA 1127), liquidators appointed by the British Virgin Islands (BVI) court to GTL, successfully obtained leave to examine a former director of GTL in relation to the company's affairs and to compel him to produce certain company records.

UNCITRAL Model Law on Cross-Border Insolvency