Key Points:

Section 562A of the Corporations Act does not apply where liquidator realises a sum of money by assigning the proceeds of the reinsurance claim to a third party.

Liquidators of insurance companies face a major quandary when assessing reinsurance recoveries.

A new Court decision may undercut the legislative policy that reinsurance proceeds should be quarantined from the normal rules for paying out creditors of insolvent companies.

BACKGROUND

Westnet concerned an application under section 511 of the Corporations Act 2001 by a liquidator in a members’ voluntary winding-up, involving 10 related companies.

In underlying facts described by the Court as “very odd”, the court was asked to determine two questions:

Another judgment has been handed down in the ongoing dispute between the MFS/Octaviar liquidators and Fortress Credit Corporation (Australia) II Pty Ltd (Fortress). In this latest decision, the NSW Court of Appeal has confirmed that a creditor can attack a litigation funding agreement entered by a liquidator.

The relevant facts were as follows:

The High Court has granted special leave to appeal the decision in Commissioner of Taxation v Australian Building Systems Pty Ltd(in liq) [2014] FCAFC 133 which held that a liquidator is not required to retain funds from the proceeds of sale of an asset to pay tax before an assessment is issued.

Practical Implications

The High Court of Australia unanimously reversed the decisions of the New South Wales Court of Appeal, and of Justice Black at first instance, in finding that liquidators cannot rely on the procedural court rules of a State or Territory to apply, outside the period allowed in the Corporations Act 2001 (Cth) (Corps Act), to extend the time within which they can bring voidable transaction proceedings under s. 588FF of Corps Act.

In brief - Courts will not grant further extensions if second application is made too late

In brief - Courts will not grant further extensions if second application is made too late

In brief: In two decisions arising from the Octaviar liquidation, the High Court has given guidance on liquidators' ability to seek extensions of time for bringing voidable transaction claims. The decisions also highlight the risks of such applications. Partner Christopher Prestwich (view CV) and Lawyer Julia Baine report.

HOW DOES THIS AFFECT YOU?

ABILITY TO SEEK AN EXTENSION OF TIME

Section 588FF(3) of the Corporations Act 2001 (the Act) provides liquidators with a mechanism by which to obtain an extension of time within which proceedings against the recipients of voidable transactions may be commenced.

There are circumstances where a liquidator may approach the Court concerned that their position in future proceedings may be weakened if the matters they put before the Court in current proceedings are revealed. In an appropriate case the Court will make a non-publication order to prevent prejudice to the proper administration of justice. The recent case of Australian Securities and Investment Commission v Piggott Wood & Baker (a firm) [2015] FCA 18 examined in what circumstances a non-publication order is necessary.

BACKGROUND