The eagerly anticipated judgment in Amerind (Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20) was handed down by the High Court yesterday after the High Court heard the matter in early February of this year. Mills Oakley acts for the Receivers who sought the directions given by the Court.

In three separate judgments, the High Court dismissed the appeal by Carter Holt Harvey, with the key findings as follows:

Key takeaways

Will a Court order security for costs against a liquidator with litigation funding? Not always, as a recent decision of the NSW Supreme Court made clear.

Background

The defendant was the director of a company (Commercial Indemnity Pty Ltd or ‘Commercial Indemnity’) which provided agency services for commercial and industrial rental and petroleum bonds.

The Insolvency Law Reform Act 2016 (Cth) (ILRA) introduced a range of measures intended to better inform and arm creditors in relation to external administrations and bankruptcies generally, but also specifically in the contentious area of practitioner remuneration. Although many of the reforms do appear to be changing the dynamics in disputes about remuneration, it is far less clear that the reviewing liquidator position is being utilised in corporate insolvency.

The appeal decision of the Full Federal Court in AIG Australia Limited v Kaboko Mining Limited confirmed that an insolvency exclusion was not triggered where a cause of action by a company against its former directors did not contain allegations of insolvency, notwithstanding that the directors’ actions arguably led to the company’s insolvency.

Background

On 19 June 2019, the High Court delivered its judgment in one of the most hotly anticipated insolvency judgments this year, the Amerind appeal: Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth.

The High Court unanimously dismissed the appeal, upholding the Victorian Court of Appeal’s decision and confirming (although for differing reasons) that:

It is a defence to an unfair preference claim to show there were no reasonable grounds to suspect the insolvency of the debtor company.

Referred to as the ‘good faith defence’, the creditor has the onus of establishing the defence contained in section 588FG(2) of the Corporations Act 2001 (Cth).

Suspicion of insolvency

The courts have identified the following principles with respect to the good faith defence:

In this technical update we discuss several points of principle from the recent High Court decision in Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20 (Carter).

Directors are first and foremost responsible to the company as a whole and must exercise their powers and discharge their duties in good faith in the best interests of the company and for a proper purpose. The reference to "acting in the best interests of the company" has generally been interpreted to mean the collective financial interests of the shareholders.

A key part of the international scheme landscape

The use of creditors' schemes of arrangement is on the rise in Australia (as we discussed in our previous article - Update on Creditors Schemes of Arrangement in Australia). Along the way the Australian courts have made valuable contributions to international scheme jurisprudence. In this article we look at some of these contributions and then explore how Australian law might be further developed to remain a leading jurisdiction for creditors' schemes.