In February 2019 the Federal Court delivered its decision in Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) (No 2).[1] The proceedings were commenced by the liquidators of three companies, SK Foods Australia Pty Ltd (in liquidation), Cedenco JV Australia Pty Ltd (in liquidation) and SS Farms Australia Pty Ltd (in liquidation).

This week’s TGIF considers the decision in Cremin, in the matter of Brimson Pty Ltd (In Liquidation) [2019] FCA 1023, which confirms that liquidators should approach the Court before taking steps to realise trust assets.

Background

How should the liquidator of an insolvent trustee company ensure payment out of trust assets of the entirety of his or her remuneration and expenses?

Who should read this eBrief:

• Company directors
• Accountants
• Financial Advisors

Proposed changes to Commonwealth legislation could have a significant impact on the potential for transferring assets out of one company into a new company to avoid paying liabilities.

If enacted, the changes will give liquidators, ASIC, and the ATO new powers to prosecute culpable directors and associated persons.

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.