On 24 December 2020, the Federal Court of Australia published reasons for a decision in which I appeared for the liquidators of two related companies, Bestjet Travel Pty Ltd (in liq) and Wynyard Travel Pty Ltd (in liq). The decision can be accessed here.

As directors consider how to meet their duties during the COVID-19 pandemic, the safe harbour provisions may provide some protection from insolvent trading liability.

Introduction

A recent judgment of the Supreme Court of Western Australia, Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia [2020] WASC 132 (available here), demonstrates that the use of interim measures to provide security for an amount in dispute can be a very powerful remedy when structured through the creation of a trust.

Trusts are established for many reasons. One of the most common is asset protection.

The recent decision of Boensch v Pascoe [2019] HCA 49 from the High Court gives some insight into how that asset protection could be undone in the event of the bankruptcy of an individual trustee.

Facts

Introduction

The concept of winding up does not exclusively apply to insolvent companies. Solvent companies can also be wound up, on the initiation of the company’s directors and shareholders (for example, as part of a corporate reconstruction or to close down non-operating or redundant entities). 

An overview of the two key procedures to effect the dissolution of a solvent Australian company, being Members’ Voluntary Liquidation and Deregistration, is set out below. 

Antqip Hire highlights the importance of drafting a DOCA carefully, and properly communicating to creditors the commercial risks

The case of Antqip Hire was brought by the liquidators of two related entities (Antqip Pty Limited and Antqip Hire Pty Limited).

Orders were sought determining:

The Federal Court of Australia in Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632 has examined the circumstances in which a payment made by a company subject to a deed of company arrangement may be challenged as an unfair preference.

The principal question for Middleton J was whether payments required to be made by a deed of company arrangement were therefore made “under the authority of” the administrators, within the meaning of s 588FE(2B) of the Corporations Act 2001 (Cth).

Directors of Australian companies face significant personal monetary -- and potential criminal and adverse professional -- consequences if they allow the company to trade whilst insolvent.

Australian insolvent trading laws are harsher, and more frequently utilised to prosecute directors personally, than in many other jurisdictions including in the US and the UK.

Accordingly, frequent assessment of a company's solvency by its directors is crucial, particularly in financially difficult times, as are active steps to address any potential insolvency.

The Federal Court has permitted administrators to give notice of creditors’ meetings electronically, and to hold creditors’ meetings and future meetings of any committees of inspection by video or telephone conference.

Key Takeaways

In recent decisions involving accessories retailer Colette Group and Virgin airlines, the Federal Court of Australia found that the extraordinary circumstances of COVID-19 warrant a grant of relief for the administrators from personal liability for rent.

In both cases, the Court acknowledged the uncertainty caused by COVID-19 and found that the rent reprieve for the administrators was in the best interests of the creditors as a whole.

colette group