Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FACFC 89 concerned the powers of liquidators in Australia.  In 2009, joint liquidators were appointed to Octaviar Limited (Octaviar) and Octaviar Administration (Funder).  Fortress claimed to be a secured creditor of Octaviar under a charge, and was owed approximately $71 million.  The liquidators arranged for Octaviar and the Funder to enter into funding agreements that provided for the Funder to fund an investigation into the actions of Fortress and to commence litigation against Fortress.

In Saker, in the matter of Great Southern Managers Australia Ltd (Receivers and Managers Appointed) (in liquidation), the plaintiffs were the liquidators of Great Southern Managers of Australia Limited (GSMAL).

The recent English decision in the Australian liquidation, New Cap Reinsurance Corpn Ltd (in liquidation) and another v Grant and others (available here), has further opened up the possibility for New Zealand insolvency proceedings to be recognised and enforced in the United Kingdom. 

In the recent case of Dwyer & Ors and Davies & Ors v Chicago Boot Co Pty Ltd [2011] SASC 27, Chicago Boot claimed that certain payments made to it by two insolvent companies were not unfair preference payments, because of, amongst other defences, the purported application of a retention of title clause in relation to the supply of goods by Chicago Boot.

The Australian unit trust industry recently experienced financial difficulties. The formal legal process of handling those difficulties has revealed gaps in the Australian regulatory map.

This article highlights some of those problems and the Government’s response to them.

Background

Few now remember that Chapter 5C of the Corporations Act can trace its origins to the afternoon of 23 July 1991. For the past year, the unlisted property trust industry had been in meltdown. The value of the assets held by the industry had fallen over 20%. Investors were scrambling to get out, and collapses seemed imminent.

During the administration of a company, liquidators may identify creditors who have received payments in preference to other creditors, and apply to the court pursuant to section 588FF of the Corporations Act 2001 (Act) to recover those payments in order to achieve a more equitable distribution amongst all creditors.

What constitutes a preferential payment?

Over the past few months there have been a number of insurance portfolio transfers and a winding up of a general insurer.  Various judges of the Federal Court have considered aspects of the Insurance Act (Cth) 1973.

Portfolio transfers

There have been two scheme transfers of insurance portfolios from Australian branches of overseas insurers to Australian subsidiaries.  While objections to the transfers were raised, the Federal Court confirmed the schemes.

Statutory Demands pursuant to the Corporations Act are a mechanism available to creditors for the payment of debt. Upon the expiry of a Statutory Demand, the Corporations Act presumes that the company is insolvent and allows the entity making the demand to apply to the court for their winding up on grounds of insolvency.

The Government has passed amendments to the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Regulations) to overturn the impact of the decision in Sons of Gwalia v Margaretic (2007) 231 CLR 160 (Sons of Gwalia) and reinstate the longheld convention that creditors’ rights take precedence over shareholders’ rights in the instance of a winding up.

What was the outcome of Sons of Gwalia?