The recent Supreme Court of NSW decision In the matter of Anglican Development Fund Diocese of Bathurst Board (recs and mgrs apptd) [2015] NSWSC 6, confirms that a board of directors’ residual powers in receivership include consenting to judgment in favour of a creditor.   

BACKGROUND

A recent Federal Court decision has confirmed that liquidators of a corporate trustee are entitled to be remunerated out of the trust assets for costs incurred in monitoring and investigating claims made against the trust.

Cash flow is crucial to the efficient running of a business. Mounting debt can significantly affect the operations of your company, result in increased interest costs and cause you to be unable to meet your own financial liabilities. If not addressed, debts can reach critical levels and will ultimately lead to insolvency.

To survive, strategies to prevent debts getting out of control must be embedded into your company’s DNA.

The statutory demand is one of the most frequently used (and misused) tools utilized by companies and other persons to obtain payment of debts owed to them by a company. Service of a statutory demand can be the first step towards placing insolvent companies into liquidation.

The consequences for a company that does not respond to the service of a statutory demand can be severe.

One of those consequences is that the company may find itself in the position where it is required to prove solvency before a court, in order to avoid a winding up.

In DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96, the Court of Appeal considered the meaning of the “interests of the creditors as a whole” under section 600A of the Corporations Actand the circumstances in which the Court will intervene to set aside or impose conditions on resolutions passed at creditors meetings.

BACKGROUND

The Court found that the appointment of voluntary administrators to a company constituted oppressive conduct under section 232 of the Corporations Act 2001 (Cth) in circumstances where it was part of a clear strategy by the controlling shareholder to gain control of the company’s business, to the exclusion of the minority shareholders.  This case provides some useful observations on the operation of section 232, particularly around action by a parent company “of the affairs of” a subsidiary. 

This case serves as an important reminder that board appointments should not be taken lightly - even as a “personal favour”.  Directors should ensure that they are sufficiently abreast of the affairs of their companies and actively involved in their management.  An argument that a director was “not really involved” in management is unlikely to find favour when the company finds itself in strife.

The Victorian Court of Appeal recently held that a payment, disposition or grant of security by a company to a person on behalf of, or for the benefit of a director of the company, extends to a mortgage of land given by the company to a creditor of the director in consideration of a covenant by the creditor not to sue the director. 

As a result, insolvency practitioners now have stronger judicial guidance as to what constitutes a 'benefit' for the purposes of setting aside or varying voidable transactions, which should assist in recovering proceeds for unsecured creditors.

Two days before Christmas, the Supreme Court of New South Wales delivered a bonus for the general unsecured creditors of the collapsed discount giant Retail Adventures, and confirmed the requirements for deeds of company arrangement.

Deeds of Company Arrangement

In brief - Your actions will depend on whether you acknowledge or dispute the debt

If you are contacted by a debt collector, you should be frank about what you plan to do. If you dispute the debt, you should get legal advice as quickly as possible.

Debt collectors don't go away if you ignore them