This week’s TGIF considers the decision of Kimberley Diamonds Ltd, in the matter of Kimberley Diamond Company Pty Ltd (in liq) [2016] FCA 1016 in which the Court refused to allow the mandatory examination of a liquidator under s 596A.

BACKGROUND

In July 2015, administrators were appointed to a company which operated a diamond mine. A marketing campaign in respect of the mining operations of the company commenced shortly after the administrators’ appointment.

This week’s TGIF considers the recent NSW Court of Appeal decision of Commissioner of Taxation of the Commonwealth of Australia v 4 Doonan Street Collinsville Pty Ltd (in liq) [2016] NSWCA 69 in which the Court considered the validity of the Commissioner of Taxation’s treatment of debits and credits in an insolvency context.

FACTS

This week’s TGIF considers the case of Bowesco Pty Ltd v Westpoint Management Ltd [2015] WASCA 184, which considered whether a guarantor had a right of subrogation enabling it to be repaid in advance of the second ranking creditor. 

BACKGROUND

Background

In In the matter of Nexus Energy Ltd (subject to a deed of company arrangement) [2014] NSWSC 1910, the deed administrators of Nexus Energy Limited (subject to a Deed of Company Arrangement) (Nexus) sought leave of the Court to transfer all ordinary shares in Nexus to SGH Energy (No 2) Pty Ltd (SGH2). SGH2 was the proponent of the Deed of Company Arrangement (DOCA) and was also associated with the secured lender.

On 11 September 2014, the Supreme Court of New South Wales delivered judgment in Allco Funds Management Limited (Receivers and Managers Appointed) (In Liquidation) v Trust Company (RE Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2014] NSWSC 1251.

The decision reminds directors of the risks associated with their involvement in transactions where they are in a position of conflict.

BACKGROUND

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.

In Lehman Brothers Australia Limited, in the matter of Lehman Brothers Australia Limited (in liquidation) (No 2) [2013] FCA 965, the Federal Court again confirmed that schemes of arrangement are a viable restructuring tool to compromise claims involving a class of creditors and third parties.

BACKGROUND

The Facts

In this case the liquidators of Octaviar Administration had obtained an extension to the time for them to bring voidable transaction proceedings under section 588FF(1) of the Corporations Act (Extension Order). Before the expiration of the Extension Order, the liquidators sought a further extension under s588FF(3)(b) or, alternatively, asked the Court to vary the date in the Extension Order pursuant to the Court’s procedural powers under r 36.16 of Uniform Civil Procedure Rules 2005 (NSW) (UCPR).

This week’s TGIF considers Krejci, in the matter of Union Standard International Group Pty Limited (in liq) (No 7) [2022] FCA 890, in which the Federal Court gave liquidators approval to conduct extensive and expensive public examinations despite there being limited expected return to creditors, in part to try and uncover the truth behind $585 million that cannot be accounted for in the company’s dealings.

Key takeaways

In a recent decision of the Federal Court of Australia (Sino Group International Limited v Toddler Kindy Gymbaroo Pty Ltd [2022] FCA 630), administrators were held to have validly admitted a $5 million claim for a nominal value of one dollar.

The case is a timely reminder of the importance of appropriately evidencing debts, particularly for the purposes of creditors meetings to determine next steps.

Key takeaways