With the on-going shortage of construction workers in the industry and other factors ranging from weather to procurement problems, the threat of project delay is real. When a contract contains a liquidated damages clause for assessing project delays, real financial consequences for contractors can result. Courts have long allowed parties to apportion contractual risks as they deem appropriate especially in the commercial context where the parties are considered to be sophisticated even if their bargaining power is not equal.

In the recent decision in N.Chanthiran a/l Nagappan v Kao Che Jen [2023] 5 MLRA 247, the Federal Court had the occasion to put to rest, the question of whether leave of court is required for the commencement of proceedings against a court appointed liquidator. In this regard, the Federal Court clarified that leave of court is indeed required.

Brief Facts

The Government of Hong Kong continues its push towards favouring digitisation over using hardcopy documents. The new changes to local bankruptcy laws allows: (1) electronic service of statutory demands; (2) using electronic bundles and skeletons for winding-up and bankruptcy applications; and (3) allowing electronic submission of documents to the Official Receiver.

Electronic service of statutory demands: A game changer for creditors and debtors

This article is a part one of two series that explores the key issues we have recently seen and the case law arising in Misfeasance and Wrongful Trading claims.

Introduction

What is Wrongful Trading?

There are certain circumstances where liquidators can be held personally liable for costs orders made in proceedings taken by them.

Under the so called “Ballyrider Principles[1]”:

To prevent "trafficking in corporate shells," the Bankruptcy Code prohibits any discharge of corporate or partnership debts if the debtor is not an "individual" and, in a chapter 11 case, if the debtor proposes a liquidating chapter 11 plan contemplating the cessation of the debtor's business following confirmation.

In this week’s TGIF, we consider Jahani, in the matter of Ralan Property Services Pty Ltd (receivers and managers appointed) (in liq) [2023] FCA 738, a Federal Court decision approving the liquidators’ entry into funding agreements.

Key takeaways

Insolvency and Asset Recovery partner Tim Symes appeared on Sky News’ Business Live with Ian King as the latest government figures revealed that company and individual insolvencies in England and Wales remain close to an all time high.

In certain circumstances the official liquidator of a Cayman company may be able to take action to recover assets which have been transferred in the run up to the company’s insolvency. It is important for those concerned with the affairs of a Cayman company in the twilight of insolvency to be aware of the statutory powers available to the official liquidator and the Grand Court in the Cayman Islands.

Summary

Subchapter V eligibility requires a debtor to be “engaged in” commercial/business activities.

Case Law Consensus

Case law consensus is that such activities must exist on the petition filing date. That means a debtor cannot utilize Subchapter V when:

• business assets are fully-liquidated;
• unpaid debts are the only remnant of the failed business; and
• prospects for resuming such activities are nil.

So . . . here’s the question: Is that the right eligibility standard?

I say, “No.”

A Hypothetical