Introduction

Does the ATO have priority over secured creditors in a liquidation? Is a receiver required to account to the ATO for any tax payable out of funds received on the sale of an asset before accounting to the secured creditor? Are receivers and liquidators personally liable for the tax payable from funds received by them? Can receivers and liquidators avoid such personal liability by distributing funds received to creditors before a tax assessment arises? These issues were at the centre of a Federal Court judgment handed down on 21 February 2014.

Introduction

Early in his or her appointment a liquidator in a creditors' voluntary liquidation (CVL) should consider applying to the Court to convert the CVL to a Court ordered winding up in insolvency.  Conversion may benefit the unsecured creditors, in whose interests the liquidator acts, by enabling the liquidator to pursue claims and make recoveries not available in a CVL. 

The reasons liquidators have applied for conversion include:

The decision of the Queensland Supreme Court (Court) in International Cat Manufacturing Pty Ltd (in liq) & Anor v Rodrick & Ors [2013] QSC 307 is a reminder that liquidators who commence proceedings may be personally liable for costs of the proceeding where they are unsuccessful in their claim.

FACTS

It goes without saying that it is important for an insolvency practitioner to be independent and to be seen to be independent when accepting an appointment or continuing to act in an existing appointment. The recent Federal Court decision of ASIC v Franklin [2014] FCA 68 provides some welcome guidance on what this means in practice and also on the contents of a declaration of independence, relevant relationships and indemnities (commonly known as a “DIRRI”).

FACTS

A recent Federal Court of Australia decision has granted the Australian Commissioner of Taxation the right to recover, from a failed foreign company’s Australian assets, the pari passu amount the Commissioner would have been entitled to receive (on account of outstanding domestic tax and penalties) if he had been allowed to prove in the liquidation before the assets are remitted to the company’s foreign representatives (the liquidators). 

The Australian Corporations Act 2001 provides that a company in liquidation that holds insurance for the benefit of third parties must pay the proceeds of the insurance policy to those third parties in priority to other creditors.  Insurance proceeds payable to third parties under this provision are subject to deductions of "any expenses of or incidental to getting in" those proceeds.  The liquidator of Brighton Hall Securities Pty Ltd sought directions from the court regarding the liquidator's entitlement to deduct his fees and expenses from the insurance proceeds.

In our September 2012 insolvency update, we reported on Re Willmott Forests Ltd [2012] VSC 29, where the Victorian Court of Appeal found that a leasehold interest in land is extinguished by a liquidator's disclaimer of the lease pursuant to section 568(1) of the Australian Corporations Act 2001 (Cth).

The High Court of Australia recently decided that when a landlord goes into liquidation, the liquidator may be able to disclaim a lease granted by the landlord.

For a tenant there can be very serious and very expensive consequences if a lease it has taken is disclaimed by its landlord’s liquidator.

A tenant may, however be able to take some steps to protect itself and avoid the expensive and significant consequences of a disclaimer of a lease by the landlord’s liquidator.

What does disclaim mean?

The High Court has ruled that liquidators of lessors can disclaim leases, thus terminating the leasehold interests of tenants.

However, yesterday's High Court decision in Willmott Growers Group Inc. v Willmott Forests Limited (Receivers and Managers Appointed) (In Liquidation) [2013] HCA 51 leaves open another issue: do liquidators need to get Court approval before exercising this power, and, if so, how easy or difficult would it be to get that approval?

Key Points

Key Points

The High Court in Willmott Growers Group¹ has upheld a Victorian Court of Appeal decision that a lease can be disclaimed by the liquidator of a landlord. The decision will have very significant implications for tenants including: