During the second half of 2019, it was generally accepted that the US/China trade war was the most likely macroeconomic event that would precipitate a global slowdown. Even then, given the enormous amount of ‘dry powder’ capital that was available in the market, the downturn, if any, was expected to be mild.

The perception of Australia as being a relatively “risky” place to sit on a Board has generally focused on the insolvent trading prohibition in section 588G of the Corporations Act 2001 (Cth) and how it interacts with general directors’ duties.^[1]

On 11 December 2019, the NSW Court of Appeal found that an administrator should not have used his casting vote to block a resolution for the appointment of a different person as the company’s liquidator. The decision (Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd (in liq) [2019] NSWCA 304) reverses a previous decision where the Court found that it did not have the power to disturb the result of the vote.

Background

This week’s TGIF considers a recent decision of the Supreme Court of Western Australia regarding an application for a company to be wound up under s 459P of the Corporations Act or, alternatively, on just and equitable grounds.

What happened?

In a decision of the Federal Court handed down on 18 October 2019 in Masters v Lombe (Liquidator); In the Matter of Babcock & Brown Limited (In Liquidation) [2019] FCA 1720, Foster J held that Babcock & Brown Limited (BBL) did not breach the continuous disclosure obligations in the Corporations Act 2001 and the ASX Listing Rules.

On 22 August 2019, the Federal Court of Australia (FCA) held that it could make a request to the New Zealand High Court (NZHC) that there be a joint hearing of those courts in respect of applications relating to the pooling of various funds held by companies subject to Australian and New Zealand liquidations, respectively.

Such a ‘letter of request’ could be issued by the FCA to a foreign court in the context of an Australian insolvency process pursuant to section 581 of the Corporations Act 2001 (Cth) (Corporations Act).

A recent decision of Justice Rees of the Supreme Court of New South Wales confirms the importance of keeping proper financial books and records in the context of insolvency.

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:

It is inevitable that companies will face periods of financial distress during their corporate lives. During these times, it is incumbent on the directors and management to seek to maximise the company's chances of survival and preserve value for stakeholders. Certainly it has not been uncommon for directors to use the threat of voluntary administration as a part of their stakeholder management strategy during these times.

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.