The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth) (Act) introduced new laws which operate to stay the enforcement of ipso facto clauses that are triggered upon a company suffering an insolvency event. These new laws come into effect for contracts entered into on or after 1 July 2018.

A recent Supreme Court of Queensland decision as to what constitutes a ‘’construction company’’ under the QBCC Act brings consequences for construction groups who undertake works under different State entities.

Partner, Ted Williams, and Senior Associate, Gemma Twemlow, review the decision and what it means for construction companies.

The Federal Court has confirmed that there is no difference between liquidation and deed administration of a corporate trustee in relation to dealings with trust assets and the distribution of proceeds of those assets for the benefit of creditors.

Background

Manpak operated as the trustee for the MP Unit Trust, which carried on the business of a product wholesaler. Under the Trust Deed, Manpak would be disqualified from holding office if it suffered an Event of Default, which included the appointment of an administrator.

This week’s TGIF article looks at the decision of Hooke v Bux Global Ltd (No 6) [2018] FCA 1545, where Bux Global Ltd (Bux Global) was wound up on just and equitable grounds and the perceived independence of a director-appointed liquidator was questioned.

Background

Ipso facto clauses An ipso facto clause is a contractual provision that allows one party to the contract to terminate or modify the operation of the contract upon the occurrence of a specified insolvency related event (such as the appointment of an administrator, receiver or liquidator) in respect of another party.

Get your 5 Minute Fix of major projects and construction news. This issue: discover the latest cladding developments; resources construction work now caught by WA training levy; mind the gap: public transport at the urban fringe; avoid slip-ups in your payment schedule; and the availability of insolvency processes under the Corporations Act 2001 for recovering SOP debts.

Cladding update ‒ NSW

Can the Trustee in Bankruptcy claim an interest in the family home because the bankrupt is living there, even if the bankrupt is not registered on the title as an owner?

The short answer is yes: if the Trustee can prove a common intention constructive trust.

The latest decision in the external administration ofMirabela is a reminder of the utility of the section 424 directions process for receivers, and an example of the steps to be taken in the face of competing asset claims.

The Court directed that the receivers of Mirabela were justified in distributing sale proceeds of approximately US$59.5 million in the face of a third party claim to the proceeds, provided the receivers first gave 21 days’ notice of intent to do so.

The case is a timely reminder that:

It is an unfortunate reality that your business can be severely affected when one of your customers become insolvent. It can be financially crippling on your business and emotionally stressful for you. Although you cannot control the financial viability of your customers, there are a few strategies you can implement to minimise your exposure when your customer is in financial distress.

In the beginning

It is important at the start of a new business relationship that you implement some strategies which can minimise your exposure if your customer is insolvent:

On 28 September 2018, the NSW Supreme Court in Greenwood Futures v DSD Builders (No. 2) [2018] NSWSC extended a stay of a judgment in favour of a contractor based upon a Security of Payment Act NSW (SOPA) adjudication on the basis that the contractor was at risk of insolvency. This is consistent with previous decisions of the court in similar circumstances.