In brief - Courts identify three circumstances for ordering priority repayments

In the recent decision, In the matter of Mirabela Nickel Ltd (subject to deed of company arrangement) [2014] NSWSC 836, the NSW Supreme Court has granted leave to the deed administrators under section 444GA of the Corporations Act 2001 (Cth) (Act) to transfer 98.2% of the existing shares of Mirabela Nickel Ltd (Mirabela) to unsecured creditors without the consent of its shareholders.

FACTS

A statutory demand is normally the first step that is taken by a creditor in the winding up of a company on the grounds of insolvency. 

The process of serving a statutory demand, and any subsequent winding up proceedings, can be an effective and legitimate process used by creditors to recover amounts owed by a debtor company (company).[1]

Obtain advice before you lodge a proof of debt or vote in a liquidation

Secured creditors should remember that submitting a proof of debt and voting in a liquidation may result in the loss of their security if they get it wrong.

The Supreme Court of New South Wales has delivered a timely reminder to secured creditors of a company in liquidation, where the secured creditor lost its security because it submitted a proof of debt for the full amount of its debt and voted on a poll at a creditor’s meeting for its full debt.

The recent decision of the Federal Court in the matter of Divitkos, in the matter of ExDVD Pty Ltd (In Liquidation) [2014] FCA 696 confirms that where a receiver is required to make a payment under Section 433 of the Corporations Act 2001 (Cth) (Act) to a priority creditor (such as employee entitlements), the secured creditor (who appointed the receiver) may be entitled to be subrogated to the rights of that priority creditor in the winding up of the company.

The Law

In brief

The recent decision of Divitkos, In the matter of Ex DVD Pty Ltd (In liquidation) has paved the way for secured creditors who pay employee entitlements out of secured assets to receive a priority for that payment from preference claims recovered in a subsequent liquidation.

Summary

Secured creditors should not allow a liquidator to sell a secured asset without first:

In brief

​It has become our recent practice to dust off the crystal ball and look ahead to what we expect will be the ‘big five’ insolvency issues.   

Below is a retrospective assessment of how we did last time and our best guess as to what will dominate the next 12 months.

The big issues for 2013

Our ‘top five’ picks for last year were:

In our September 2013 Insolvency Update ‘The Early Bird Gets the Worm: Tax Office Recovers Debt Before Foreign Creditors’, we highlighted the decision of De Ackers (as joint foreign representative) v Saad Investments Company Limited; In the matter of Saad Investments Company Limited (in official liquidation) [2013] FCA 738 (Saad case).