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:

BACKGROUND

In Re The Bell Group Ltd (in liquidation); Ex Parte Woodings [2015] WASC 88 (Bell) Pritchard J found that section 548 of the Corporations Act 2001 (Cth) required:

In brief: A Supreme Court of Queensland judgment handed down today has provided greater certainty for secured creditors of companies that earn profits following the appointment of a receiver. The judgment dispels suggestions that the law was uncertain and means that secured creditors can continue to fund receivers confident that any trading profits will be distributed to them as secured creditors and not to priority creditors.

Personal liability of members of management committees of incorporated associations for debts incurred by the association if it traded while insolvent has been an uncertain area of law in Queensland. Directors of companies that trade while insolvent have potentially been personally liable for debts incurred by the company, but there has always been a question mark over whether members of management committees of incorporated associations face the same personal liability. 

On 17 April 2015, the Commissioner of Taxation successfully sought special leave to appeal the decision in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133 to the High Court.

Directors of an insolvent company face a strict duty not to allow their company to trade whilst insolvent. Whilst there are exceptions and defences available for directors, the recent case of Smith v Bone [2015] FCA 319 demonstrates that:

a director will not easily be excused, especially where they fail to seek advice on the company’s solvency in circumstances which would warrant such an enquiry; and that directors should not assume that simply entering into certain arrangements with creditors is enough to prevent them being liable for insolvent trading.

Summary

Insolvency practitioners pursuing unfair preference claims should give consideration to a recent Queensland District Court judgment which has endorsed the application of section 553C of the Corporations Act 2001 (Cth) (Act) - which enables an insolvent company and a creditor to set-off their mutual debts against each other - to unfair preference claims.

In brief: The Victorian Supreme Court has provided guidance on set-off rights in the context of insolvency, particularly in relation to inconsistency between provisions of the Corporations Act and security of payment legislation. Partner Nick Rudge (view CV) and Lawyer James Waters report.

In this case, the High Court held that the proceeds of the sale of timber and land under a timber plantation scheme were not held on trust for investors by the scheme operators, with the result that they were available to secured creditors of the scheme in priority to the investors.  In particular, the High Court found that a trust will not arise without clear intention by the parties, and a court will not infer a trust simply because it thinks it is an appropriate means of protecting or creating an interest.  When establishing a managed investment scheme, parties shou