This week’s TGIF considers the circumstances in which a resolution passed at a creditor’s meeting will be set aside on the basis that it is contrary to the interests of creditors as a whole.

Background

BACKGROUND

Administrators were appointed to a company and as a result, the company entered into a Deed of Company Arrangement (DOCA). 

After the DOCA had been entered into, a secured creditor who had abstained from voting on the decision of whether the company should enter into the DOCA, purported to appoint an administrator under its security. 

The deed administrators sought a declaration from the Court that the second administration should be terminated (amongst other things). 

DECISION

If a director can exercise a right of set-off against a company in liquidation for a debt owed to the director or for a liability of the company to the director (which may be unascertained in amount or contingent), it may help to cancel out or significantly reduce the director’s liability to the company for insolvent trading.

BACKGROUND

A bank loaned over $8,000,000 to Areaworks Pty Ltd for a property development in Victoria. Adrian Liddell (Liddell) provided a guarantee of the debt. Subsequent to default under the facility, the bank sold the secured property and commenced debt recovery proceedings against Liddell for the shortfall of over $700,000 owing to it.

A sequestration order was subsequently made against Liddell upon the presentation by Liddell of a debtor’s petition, with admitted debts in his bankruptcy totalling $3,303,078.

Background

In Re CMI Industrial Pty Ltd (in liq); Byrne & Ors v CMI Limited [2015] QSC 96, liquidators sought directions as to whether they were required to pay trading profits made by the receivers to priority creditors under s433 of the Corporations Act.

Update: Re CMI Industrial Pty Ltd (In Liq); Byrnes & Ors v CMI Limited [2015] QSC 96

Receivers do not have to distribute profits from the sale of inventory acquired by them during their appointment to priority creditors.

The question of whether priority creditors have a statutory entitlement to receivers’ inventory trading profit has largely been left unanswered until the decision handed down by Justice Mullins on 27 April 2015. 

There has been some recent discussion around the use by insolvency practitioners of the security of payment legislation. The benefits of engaging this process are obvious – there is an opportunity to secure payment for the insolvent company in a quick and cost efficient manner while also avoiding the financial burden of a security for costs order which the insolvent company (and hence insolvency practitioner) is likely to face in court proceedings.  

The Fair Entitlements Guarantee Act 2012 (Cth) requires the Commonwealth Government to pay outstanding superannuation, annual leave, redundancy and wages entitlements for eligible employees who have lost their jobs due to the liquidation or bankruptcy of their employers. It is generally recognised as an important safety net for employees, so that their superannuation is guaranteed.

The point at which a company becomes insolvent is not always clear. The Courts will consider “various indicia of insolvency”, including the company’s ability to raise further capital and access to alternative finance. In some situations, a director or related entity may be willing and able to contribute funds to the company to allow it to pay its debts. This can affect whether a company is viewed as solvent or not. Once insolvency is reasonably suspected, directors must prevent the company from incurring further debts or risk being held personally liable for the debts incurred.

Research and development expenditure not incurred

In Commissioner of Taxation v Desalination Technology Pty Limited [2015] FCAFC 96, the Full Federal Court upheld the Commissioner’s appeal from the earlier decision of Justice Perram in the Federal Court. That earlier decision was the result of an appeal by the Commissioner, on a question of law, from the decision of the Administrative Appeals Tribunal (AAT) in favour of the taxpayer (DST).