In brief

This week’s TGIF considers the decision of the Supreme Court In the matter of IW4U Pty Limited (In Liquidation) [2021] NSWSC 40, where the liquidators failed to recover compensation despite establishing contraventions of directors’ duties following an apparent phoenix.

Key takeaways

This week’s TGIF considers the decision in Nikitins v EncoreFX (Australia) Pty Ltd (No 2) [2021] FCA 27, where the Federal Court found that funds paid into a holding account for the provision of foreign exchange services were held on trust and were not property of the liquidation.

Key takeaways

In March 2020 the Australian Government announced a series of amendments to the insolvency and bankruptcy laws as part of the wider economic response to the COVID-19 pandemic.

Those amendments were initially scheduled to end on 25 September 2020 and were then extended until 31 December 2020 to allow further breathing space for debtors.

On 1 January 2021 those amendments came to an end however most of these ameliorating changes have been kept, while some altered – possibly for the long term.

Corporate Debtors and Statutory Demands

2020 was a Jekyll and Hyde year for insolvency, both for New Zealand and our closest neighbour, Australia.

In our 2019 Litigation Forecast, we said 2020 would see two significant senior court decisions on directors’ duties engaged on insolvency.

The COVID-19 pandemic has created a number of significant challenges for Australian businesses, and it seems these challenges are not over yet.

The temporary relief measures for financially distressed businesses and individuals that were introduced in March 2020 expired on 31 December 2020.

Although new insolvency reforms took effect from 1 January 2021, which are designed, in part, to help small companies survive insolvency, the recent wave of COVID-19 outbreaks and the consequential restrictions and lock-downs present further challenges for Australian businesses.

This week’s TGIF considers a recent decision of the NSW Supreme Court which determined an application to extend the time to bring voidable transaction claims, where the potential defendants were themselves insolvent, deregistered or bankrupt and the prospect of returns from the proceedings unclear.

Key takeaways

In March 2020, as a result of COVID 19, the Commonwealth Government introduced measures to:

1.      increase the minimum amount claimable under:

a.      statutory demands from $2,000 to $20,000; and

b.      bankruptcy notices from $5,000 to $20,000.

2.      extend the time for compliance with statutory demands and bankruptcy notices from 21 days to 6 months.

In any economic downturn, there is usually an increase in the number of demands made throughout supply chains and in particular by owners / employers on project securities (e.g. for performance issues, upon termination or following insolvency) and the recent global economic slowdown caused by the coronavirus pandemic is no different.

The real lesson from Debut Homes – don't stiff the tax (wo)man

The Supreme Court has overturned the 2019 Court of Appeal decision Cooper v Debut Homes Limited (in liquidation) [2019] NZCA 39 and restored the orders made by the earlier High Court decision, reminding directors that the broad duties under the Companies Act require consideration of the interests of all creditors, and not just a select group. This is the first time New Zealand’s highest court has considered sections 131, 135 and 136 of the Companies Act, making this a significant decision.