While the High Court has provided some clarity on the operation of the statutory priority regime, insolvency practitioners will still need to tread carefully when dealing with corporate trustees.

For insolvency practitioners who need clarity on how receivers and/or liquidators should pay, out of trust assets, priority employee claims arising from trust liabilities, the High Court's decision in Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth of Australia & Ors [2019] HCA 20 (Amerind) is a welcome result.

A recent Full Court decision is a win for directors who hold D&O insurance policies, as well as those seeking to bring proceedings against directors of an insolvent company – probably to the dismay of insurers.

This week’s TGIF considers a recent insolvent trading claim involving novel questions in relation to privilege against self-incrimination and the apportionment of liability between successive directors.

Background

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: