The recent Victorian Supreme Court decision of Grapecorp Management Pty Ltd (in liq) v Grape Exchange Management Euston Pty Ltd [2012] VSC 112 clarifies the application of set-off provisions for insolvent companies.

BACKGROUND

Grape Exchange Management Euston Pty Ltd (Grape Exchange) provided various services in relation to vines and grapes, pursuant to a Management Agreement with Grapecorp Management Pty Ltd (in liq) (Grapecorp).

Grape Exchange claimed that it had a right of set-off under section 553C of the Corporations Act.

The recent case of Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Limited [2012] FCA 363 is a rare example of the Court allowing an adjournment of a winding up application in connection with a tax debt pending an appeal.

Facts

We recently released an e-alert on the law reforms on directors’ derivative liability. Although not directly part of the derivative liability reforms, the close of 2011 and the first half of 2012 has seen a variety of exposure drafts, submissions, and parliamentary jostling over another key area of directors’ liability – the Federal Government’s law reforms to counter phoenix activities.

Background: the Timbercorp Group

On 15 February 2012 the Commonwealth Government introduced the Corporations Amendment (Similar Names) Bill 2012.

Purpose

The purpose of this Bill is to amend the Corporations Act such that directors of failed companies can be jointly and individually liable for the debts of a company that has a similar name to a pre-liquidation name of a failed company.

The Bill itself is purportedly part of the Government’s election commitment from the Government’s Protecting Workers Entitlements Package announced in July 2010.

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.