The Alita matter serves as a good illustration that if you intend to seek leave under section 444GA(1)(b) you should act swiftly and with regard to the potential regulatory risk.

A hotly anticipated decision in the ongoing saga of the Babcock & Brown liquidation was handed down last week, resulting in another win for the liquidator (represented by Johnson Winter & Slattery) and further highlighting the challenges facing liquidators when they are thrust into a quasi-judicial function when assessing proofs of debt.

Introduction

Introduction  

Current turbulent times and the onset of recession are likely to result in an increase in the number of distressed sales and ultimately insolvencies. For those who are fortunate to be in the market as buyers, there may be considerable opportunities but equally there are significant traps for the unwary. This briefing examines some of the key issues which should be considered by prospective buyers of businesses in financial difficulties which are not in formal insolvency proceedings.  

Amaca Pty Ltd v McGrath & Anor as liquidators of HIH Underwriting and Insurance (Australia) Pty Ltd [2011] NSWSC 90

Introduction

On 26 November 2010, the Federal Parliament passed the Corporations Amendment (Sons of Gwalia) Bill 2010 (“Bill”). The Bill amends section 563A of the Corporations Act 2001 (Cth) (“Act”) such that any claim brought by a person against a company that arises from the buying, selling, holding or other dealing with a shareholding will be postponed in an external administration until all other claims have been paid. The Bill has the effect of reversing the High Court decision of Sons of Gwalia v Margaretic [2007] HCA 1.

The Government has passed amendments to the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Regulations) to overturn the impact of the decision in Sons of Gwalia v Margaretic (2007) 231 CLR 160 (Sons of Gwalia) and reinstate the longheld convention that creditors’ rights take precedence over shareholders’ rights in the instance of a winding up.

What was the outcome of Sons of Gwalia?

Key Points: An administrator of a deed of company arrangement has been allowed to sell the company over a shareholder's objections.

The GFC has seen a significant rise in the number of corporate insolvencies.[1]

Many of those insolvencies have been the result of tighter credit, rather than a collapse of the company's business. It's no surprise, therefore, that there is a major appetite for the acquisition of distressed businesses and companies.

We have been sending Client Updates since 2007 concerning the decision of the Australian High (Supreme) Court in Sons of Gwalia Ltd v Margaretic. Specifically, the High Court held that the damages claims of shareholders of insolvent companies for fraud and misrepresentation should be treated pari passu with the claims of all other unsecured creditors, rather than being treated as subordinated to unsecured claims as is the case in the U.S.

As foreshadowed earlier this year, on 2 June 2010 the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP introduced the Corporations Amendment (Sons of Gwalia) Bill 2010. Associate, Justin Le Blond summarises the Bill.

The proposed amendments in the Bill will return the order of claims in a corporate winding-up to the situation that was commonly understood to exist prior to the Sons of Gwalia judgment. That is, priority will be given to creditors ahead of shareholders in granting access to the equity of an insolvent company.