Boensch v Pascoe [2019] HCA 49

The High Court has recently considered the question of whether, and in what circumstances, property held by a bankrupt on trust for a third party vests in the trustee in bankruptcy pursuant to s 58 of the Bankruptcy Act 1966 (Cth): Boensch v Pascoe [2019] HCA 49. The decision was handed down late last year, providing further guidance for trustees following Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 93 ALJR 807.

Forum bias, along with some technical issues, are still challenges in cross-border insolvencies in Australia

Just over ten years ago, Lehman Brothers filed for bankruptcy in the US, which turned out to be one of the largest cross-border insolvency cases in history.

Last year also marks:

Prior to March 2017, any right to sue that comprised an asset of a bankrupt’s estate could only be litigated by the trustee of the bankrupt. The inability of a trustee to assign a bankrupt’s cause of action resulted in many such actions not being litigated due to factors such as a lack of resources. This position changed through the insertion into the Bankruptcy Act 1966 (Cth) in Schedule 2 of the Insolvency Practice Schedule (Bankruptcy), which expressly permits a trustee to assign to a third party any right to sue that is held by of a bankrupt estate (see section 100-5).

The operation of section 133 

The law currently provides an easy out for trustees of a bankrupt, specifically in respect of real property  

Section 133 of the Bankruptcy Act 1966 (Cth) (the Act) provides an option for the trustee in bankruptcy to disclaim real property where it is burdened by onerous covenants. This disclaimer is often exercised where the amount owed in the form of a mortgage and further caveats or covenants registered on title of the real property exceeds the value of the property.  

Always deal with the house before going bankrupt (or else do it shortly after).

Far too often as solicitors we find ourselves wishing the client had come and seen us sooner.

This scenario is prevalent in bankruptcy. When a person first goes bankrupt, but they still own a house (or half a house), there’s usually very little equity. Discussions are sometimes held with the bankruptcy trustee (trustee) about buying the equity or getting the trustee to disclaim any interest in the house (meaning that the trustee won’t deal with it further).

On August 11, 2020, the United States Court of Appeals for the Second Circuit issued an Opinion in Lehman Brothers Special Financing Inc. (“LBSF”) v. Bank of America, N.A., et. al, No. 18-1079,[1] an adversary proceeding brought in the Chapter 11 bankruptcy proceeding of Lehman Brothers Holdings, Inc.

In the matter of the Companies’ Creditors Arrangement Act (“CCAA”) of the S.M. Group, the Québec Court of Appeal rendered a ruling on the effect of the law of set-off on debts arising out of alleged fraud and the application of the same Court’s ruling in Kitco to this type of debts.

U.S. District Court for the District of North Dakota

In Kotalik v. A.W. Chesterton Co., several defendants filed motions to enforce the plaintiffs’ compliance with disclosure requirements of North Dakota’s Asbestos Bankruptcy Trust Transparency Act. Counsel for the defendants as well as plaintiffs moved the court for a hearing on the issue. Lastly, plaintiffs’ counsel moved for a certification of a question to the North Dakota Supreme Court regarding the constitutionality of the Trust Transparency Act.

Executive Summary

This Legal Update provides an outline of the Thai rehabilitation process, by reference to the Thai Airways proceedings currently underway in Bangkok's Central Bankruptcy Court.

Toward the end of this Legal Update, we also touch on how airlines could use US Chapter 11 proceedings, a process understood to have been mooted by Thai Airways.