In Hussain v CSR Building Products Limited; In the matter of FPJ Group Pty Ltd (in liquidation) the Federal Court held that a retention of title (ROT) clause secures the purchase price of the goods it covers, and that payment of that price will not be an unfair preference since the creditor has not received payment of an “unsecured debt” within the meaning of section 588FA of the Corporations Act 2001 (Cth).
Edgeworth Capital Luxembourg Sarl (2) Aabar Block Sarl V Glenn Maud [2015] EWHC 3464 (Comm)
The High Court in England has ruled on whether Spanish Law has the effect of extinguishing third party guarantees when the beneficiary of the guaranteed liabilities enters into insolvency proceedings in Spain.
With continuing market volatility a number of companies remain under financial pressure. Businesses or individuals receiving payments from companies that might be financially distressed should be aware of the ability of a liquidator to apply to a court under the Corporations Act 2001 (Cth) (Corporations Act) to recover payments made to creditors in the six months prior to the appointment of a liquidator/administrator on the grounds the payment constituted an “unfair preference”.
Quick Recap on the Relevant Provisions
The Corporations Act (the Act) permits a liquidator to claw back preferential payments made to an unsecured creditor within the six (6) month period prior to the winding up: section 588FA of the Act.
Introduction
Early in his or her appointment a liquidator in a creditors' voluntary liquidation (CVL) should consider applying to the Court to convert the CVL to a Court ordered winding up in insolvency. Conversion may benefit the unsecured creditors, in whose interests the liquidator acts, by enabling the liquidator to pursue claims and make recoveries not available in a CVL.
The reasons liquidators have applied for conversion include:
When a company is placed into liquidation, the company’s available funds are paid to general unsecured creditors on a pro rata basis by way of a dividend payment. However, certain classes of creditors are given priority in the payment of dividends, including employees who are owed wages and other employment entitlements by the company.
What is the position if a person advances money to a company, after it has been placed into external administration, to allow the company to pay wages or other entitlements to employees?
The recent decision of the Federal Court in Carter in the matter of Damilock Pty Ltd (Damilock) highlights the need for liquidators to review current practices when paying priority creditors (e.g. employee entitlements).
Facts
The plaintiffs were appointed as administrators of Damilock on 26 June 2007 and subsequently appointed as liquidators by creditors’ resolution at a meeting on 7 September 2007.
Summary
The joint administrators of Lehman Brothers International (Europe) (“LBIE”) have released their second statutory six month progress report for the period 15 March 2008 to 14 September 2009 (the “Report”).
A full copy of the Report is attached, which includes detail about the positions realised and expenses to date. Key points of interest are as follows:
The value and operation of floating charges as securities for creditors in restructurings have been the subject of several Supreme Court rulings. However, the question remains as to the value that the receivable of a floating charge creditor must have in order to be considered a secured debt in a restructuring and therefore spared from the restructuring measures that apply to unsecured debts – in particular, the cut on debt capital.
Liquidators’ ability to recover funds for unsecured creditors has been strengthened in one context and weakened in another by two recent court judgments.
The Court of Appeal in Farrell v Fences & Kerbs Limited1 has overturned previous decisions from the High Court, which had considerably widened the availability of the “good faith” defence for creditors. But the finding is interim only, subject to a further hearing on a closely related issue.