As foreshadowed earlier this year, on 2 June 2010 the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP introduced the Corporations Amendment (Sons of Gwalia) Bill 2010. Associate, Justin Le Blond summarises the Bill.

The proposed amendments in the Bill will return the order of claims in a corporate winding-up to the situation that was commonly understood to exist prior to the Sons of Gwalia judgment. That is, priority will be given to creditors ahead of shareholders in granting access to the equity of an insolvent company.

Before 1993, the question of whether a creditor of a corporation being wound up had received an unfair preference from that corporation was determined under section 122 of the Bankruptcy Act 1966 (Cth). In 1993, a new Part 5.7B was inserted into the Corporations Act to deal with voidable transactions such as unfair preferences. Since then two lines of divergent judicial authority have developed:

Introduction

The New South Wales Supreme Court has found a solicitor liable for facilitating unlawful ‘phoenix’ activity.1 Phoenix activity consists of transferring business assets out of an old debt-laden company (which subsequently goes into liquidation) to a new debt free company. The new company carries on the business of the old company; but the assets are put beyond the reach of the creditors of the old company.

The High Court’s recent decision in Bofinger v Kingsway involves the law respecting sureties, their obligation to indemnify the creditor and right to indemnity by the principal debtor, and the operation of the doctrine of equity associated with the term “subrogation”.

The High Court of Australia’s Sons of Gwalia Ltd v Margaretic (Sons of Gwalia) decision recognised an aggrieved shareholder’s claim for damages (in relation to the acquisition of shares) on equal footing with those of an insolvent company’s other unsecured creditors. Dispute Resolution Associate, Justin Le Blond, examines the Government’s response to the decision.

The Bankruptcy Act 1966 (Cth) was amended to address the outcome of the High Court's decision in Cook v Benson1. It was held in that case that a trustee in bankruptcy could not recover amounts transferred from a retirement fund to another superannuation fund after the bankruptcy of the member as the amounts rolled over to the fund by or on behalf of the member were made in good faith and for consideration (ie the member had a right to receive benefits on retirement).

Introduction

By unanimous decision in Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation1, five members of the High Court have reversed a controversial decision of the Full Federal Court to confirm that the Commissioner of Taxation (Commissioner) cannot ‘leap-frog’ other creditors in a liquidation.2

In a closely-watched case stemming from the demise of the Australian HIH insurance group, the UK House of Lords has ruled in McGrath & Anor & Others v Riddell and Others [2008] UKHL 21 that the English assets of four companies in that group, which are in liquidation in Australia and in ancillary insolvency proceedings in England, must be remitted to Australia for distribution under Australian insolvency law.

The House of Lords has ruled that English assets of the HIH group of companies are to be remitted to the Australian liquidators for distribution under Australian law. This briefing discusses the background to McGrath and another and others v Riddell and others [2008] UKHL 21 and the implications of the ruling.

Background

The House of Lords recently had to consider whether the English court should remit assets when faced with a request to do so by a foreign court.

MCGRATH AND ANOTHER v RIDDELL, House of Lords, 9 April 2008

The liquidators of the HIH group of Australian insurance companies appealed against the decisions of the High Court and the Court of Appeal that certain assets of the HIH group, mostly reinsurance claims on policies taken out in the London market, should not be remitted to Australia. The courts instead ordered that the assets should remain in England and be distributed to creditors in accordance with English insolvency laws.