The decision In the matter of CGH Engineering Pty Ltd [2014] NSWSC 1132 handed down by Justice Brereton early in 2014 required the Court to answer an interesting and novel question - is the statutory derivative action available during a voluntary administration?

The statutory derivative action

An often complicated and at times mysterious issue that arises for practitioners and their lawyers in the insolvency space is how one should approach trusts and trust assets. This year, there have been at least three Supreme Court of New South Wales decisions (all, incidentally, delivered by Justice Brereton) that may provide some much needed judicial guidance on the matter.

On 25 July 2014 and 17 September 2014 respectively, Justice Brereton of the Supreme Court of NSW delivered two related judgments in Re AAA Financial Intelligence Ltd (in liquidation) andRe AAA Financial Intelligence Ltd (in liquidation) (No 2). The decisions deal with the evergreen topic of Liquidator remuneration and expenses.

Importantly, in fixing the Liquidators' remuneration, Justice Brereton adopted a "value" focussed approach, and discussed the relevance of considering matters beyond simply time spent multiplied by fixed hourly rates. 

Key Points:

Courts will limit an administrator's liability where proposed funding is to be used directly to advance an agenda consistent with the objects of Part 5.3A of the Corporations Act.

A recent decision of the NSW Supreme Court highlights the flexibility of Part 5.3A of the Corporations Act and the ability of administrators to seek orders protecting their interests and facilitating restructures, and was the first stage of what promises to be a novel and challenging administration (In the matter of Nexus Energy Ltd [2014] NSWSC 1041).

On 11 September 2014, the Supreme Court of NSW handed down its decision in Allco Funds Management Limited (Receivers and Managers Appointed) (In Liquidation) v Trust Company (RE Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2014] NSWSC 1251.

The decision has highlighted the risks associated with the involvement of directors in transactions where they are in a position of conflict.

THE FACTS

On 11 September 2014, the Supreme Court of New South Wales delivered judgment in Allco Funds Management Limited (Receivers and Managers Appointed) (In Liquidation) v Trust Company (RE Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2014] NSWSC 1251.

The decision reminds directors of the risks associated with their involvement in transactions where they are in a position of conflict.

BACKGROUND

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

In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd, a decision seemingly inconsistent with established law, the Supreme Court of NSW earlier this year held that an omission in the affidavit supporting a statutory demand did not amount to “some other reason why the demand should be set aside”. The NSW Court of Appeal has now reversed the decision, restoring a degree of certainty in this much-litigated area of law.

The Law

In the matter ofMustang Marine Australia Services Pty Ltd [2014] NSWSC 1074, Brereton J of the New South Wales Supreme Court held that there is no principle that before instituting proceedings a liquidator must be satisfied of the material facts that constitute its cause of action, and that absent such satisfaction the proceedings are an abuse of process. As long as proceedings are instituted for bona fide relief claimed and are not doomed then there is no abuse of process.

FACTS

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.