Significant insolvency legislative reforms were introduced in 2017. One year on, we assess what changes, if any, these reforms have had on the insolvency market in Australia.

The most significant insolvency law reforms in 20 years were introduced in 2017 to improve efficiency, communication, engagement and competition in external administration processes. The reforms were implemented in two tranches pursuant to the Insolvency Law Reform Act 2016 (Cth) (ILRA).

Introduction

In Botsman v Bolitho [2018] VSCA 278, the Court of Appeal unanimously allowed an appeal from the decision of Croft J to approve the settlement of two related proceedings arising from the failed merger of Banksia Securities Limited (Banksia) and Statewide Secured Investments Limited (Statewide).

In Short

The Situation: Section 553C of the Corporations Act 2001 (WA) ("Act")provides that if a creditor and a company in liquidation have mutual dealings, the creditor must offset any sum the creditor owes to the company in liquidation against debt owed by the company.

The Question: Does the existence of a third party security interest over circulating assets (floating charge) which are intended to be set off against other debts prevent the dealings from being "mutual"?

In this proceeding, the Full Court of the Federal Court considered three main issues:

• whether certain on-lending arrangements gave rise to legitimate tax deductions for interest;
• duties and liabilities of directors who were not directly involved in the impugned transactions; and
• costs payable by a representative where claims were brought against the estate of a deceased director and the representative of that estate, in his own right.

Facts

The serious consequences that follow a failure to comply with the Personal Property Securities Act 2009 (Cth) (PPSA) were highlighted in the recent decision of Ward CJ in Eq of the Supreme Court of New South Wales in Psyche Holdings Pty Limited [2018] NSWSC 1254 (Psyche Case).

The Psyche Case is another reminder of:

The Court of Appeal - Supreme Court of Western Australian has delivered a decision confirming that a statutory set-off under s 553C of the Corporations Act can still be available to a creditor where a general security interest has attached to the amounts it is seeking to set-off (provided those amounts are circulating assets of the insolvent company), whilst leaving the door open for creditors to rely upon set-off rights at general law in those instances where set-off under s 553C is unavailable.

Liquidators have more certainty about their ability to disclaim the environmental liabilities and responsibilities of a company in liquidation.

Global Restructuring Review is a leading source of news and insight on cross-border restructuring and insolvency law and practice, read by international lawyers, insolvency practitioners and accountants, judges, corporate counsel, investors and academi

Last Friday Derrington J in the Federal Court in Queensland tackled this question which remains unresolved in Australia, in Lane (Trustee), in the matter of Lee (Bankrupt) v Commissioner of Taxation (No 3) [2018] FCA 1572.

When faced with multiple class action threats, there is little downside in a company giving consideration to a creditors’ scheme of arrangement to achieve a quicker and cheaper resolution of the underlying claims.