The equitable doctrine of marshalling can protect the security interests of subordinate secured creditors when a debtor becomes insolvent.

Marshalling is a neglected tool in the insolvency toolbox, but it can play an important role in protecting the security interests of subordinate secured creditors.

ASIC’s record with land banking schemes has been the story of shutting the stable door after the horse has bolted. It has wound up insolvent schemes long after the investor’s cash has well and truly dissipated.

For example:

In December 2018, NSW building certifier Watson Oldco entered into voluntary administration. The AFR reports that administrators have attributed the move largely to the result of uninsured exposure to potential claims arising from buildings with combustible cladding. Although there were no known claims against Watson Oldco, it was reported that there was uninsured exposure which led to the decision to place the company into voluntary administration.

Can the Trustee in Bankruptcy claim an interest in the family home because the bankrupt is living there, even if the bankrupt is not registered on the title as an owner?

The short answer is yes: if the Trustee can prove a common intention constructive trust.

Background Facts

It is fair to say that my initial reading of the Building Industry Fairness (Security of Payment) Act 2017 (BIFA) a little over 12 months ago left me shocked in terms of the sheer scale and magnitude of the reforms and changes proposed to be imposed on the industry.

Section 37A can be used by future, contingent and prospective creditors to recover assets, meaning the transferor need not be indebted at the time of the transfer.

Recovering assets from a debtor is usually done via the recovery provisions in the Corporations Act 2001 (Cth) or theBankruptcy Act 1966 (Cth), but there is another option, at least in New South Wales, which offers creditors, insolvency practitioners and any prejudiced parties a useful alternative. A recent case demonstrates its advantages (Lardis v Lakis [2018] NSWCA 113; Clayton Utz acted for the successful creditor).

Several decisions handed down in the Personal Property Securities Act 2009 (Cth) (PPSA) space have emphasised the importance of registering security interests within the legislative timeframes and also examined the discretionary factors courts will consider in their deliberations over whether extensions of time for registration of security interests should be granted.

The operation of section 133 

The law currently provides an easy out for trustees of a bankrupt, specifically in respect of real property  

Section 133 of the Bankruptcy Act 1966 (Cth) (the Act) provides an option for the trustee in bankruptcy to disclaim real property where it is burdened by onerous covenants. This disclaimer is often exercised where the amount owed in the form of a mortgage and further caveats or covenants registered on title of the real property exceeds the value of the property.  

In this newsletter, we will explore how the new impending ipso facto reforms, which come into effect on 1 July 2018, could affect landlords under commercial leases or parties under other contractual arrangements.

What are the Ipso Facto Reforms?

The ipso facto reforms seek to prevent certain termination and other ipso facto rights under a contract from being enforced against a counterparty: