Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2

The High Court has unanimously dismissed an appeal against the Full Court decision in Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) [2021] FCAFC 64, finding that the “peak indebtedness rule” does not form part of s 588FA(3) of the Corporations Act and providing guidance as to how to approach the analysis required under that section.

Background

1. INTRODUCTION

Material Chapter 11 cases have morphed to the point that the outcome is often predetermined at the “first day” hearing. Unsecured creditors with material credit exposure should engage early to protect their interests and reduce risk of loss.

Strelia assisted a franchisor in an action brought against a personal surety – a company director – who attempted to escape his obligations by filing for his personal bankruptcy. However, according to the Court of Cassation, a company director cannot automatically be considered as an enterprise and therefore is not capable of filing for bankruptcy.

In the much-anticipated decision of Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2 (Badenoch (HCA)), the High Court of Australia (the HCA) has now confirmed that the peak indebtedness rule may not be used when assessing the quantum of an unfair preference claim arising from a continuing business relationship.

Strelia stond een franchisegever bij in een procedure tegen een persoonlijke borgsteller – een bedrijfsleider – die zich aan zijn verplichtingen als borg wilde onttrekken door zichzelf failliet te laten verklaren. Echter, volgens het Hof van Cassatie kan een bedrijfsleider niet automatisch als onderneming gekwalificeerd worden en dus niet zomaar zijn faillissement aanvragen.

When a company becomes financially distressed, directors are often required to act quickly and decisively. However, directors may at the same time find themselves held back by the requirements of the Corporations Act 2001 (Cth) (the “Corporations Act”) or their company constitution.

On 2 March 2023 the Supreme Court of Victoria published its reasons in the matter of Atlas Gaming Holdings Pty Ltd [2023] VSC 91 (the Atlas case) in which Gadens acted on behalf of the Liquidator of four companies seeking a pooling order pursuant to section 579E of the Corporations Act 2001 (Cth) (the Act). There have been very few judgments on section 579E which was introduced in 2007 by the Corporations Amendment (Insolvency) Act 2007 (Cth) Sch 1 items 133ff and operative from 31 December 2007.

This is the second in a two-part series article providing suggestions with respect to the recent discussion paper published by the MCA on 18 January 2023, proposing several major amendments to the IBC Code, 2016.

MCA’s recent discussion paper has proposed significant amendments to address several nagging issues in the working of the IBC. In the first part of this series, we highlighted some proposals that required a closer look. This piece discusses positive suggestions that could substantially improve the insolvency regime and enhance its efficiency.

Miles J’s judgment in Re Sova Capital Ltd [2023] EWHC 452 (Ch) will, like that of Jonathan Hilliard QC in Re Petropavlovsk Plc,be welcomed as a further example of the courts acting to assist insolvency practitioners selling assets in unusual circumstances.