Peter Keenan

Resident of Australia. Former Chartered Accountant. Fellow CPA. Former Registered Liquidator (25 years). Experienced in corporate and personal insolvency law and practice; forensic accounting; writing; research; taxation law and practice; accounting and bookeeping.

“Australian Insolvency Decisions” October 2011 edition

 Case Reports, Corporate Insolvency, court decisions, Insolvency Law, law reports, Personal Bankruptcy  Comments Off on “Australian Insolvency Decisions” October 2011 edition
Nov 142011
 

by Michael Ennis.  Michael developed an interest in insolvency case law, while a Deputy Registrar in Bankruptcy at the Federal Court of Australia and while undertaking various roles at the  Insolvency Trustee Service Australia (ITSA).  He has maintained this interest since retiring.  If you would like to receive the Insolvency Decisions schedule direct, advise Michael of additional decisions, or share your observations, you may contact  Michael direct on rmci53mje@spin.net.au.

Bankruptcy Act – Prior to Date of Bankruptcy 

Lewis v Lamru Pty Ltd; In the Matter of Lewis (No 3) [2011] FCA 1177 (19 October 2011) BANKRUPTCY – whether monies paid into Court by a judgment debtor in satisfaction of a condition voluntarily offered by the judgment debtor as the price for obtaining an extension of the time for compliance with a bankruptcy notice should be paid out to the judgment creditor http://www.austlii.edu.au/au/cases/cth/FCA/2011/1177.html

 Interesting new way to lose a bankruptcy notice-  Rookharp Pty Limited v Webb & Anor [2011] FMCA 801 (14 October 2011) BANKRUPTCY – Creditor’s petition – whether bankruptcy notice must be issued in the names of all joint creditors – whether all joint creditors must be named as petitioners – scope of s.40(3)(d) of the Bankruptcy Act – whether respondents solvent – whether overstatement in bankruptcy notices or creditor’s petition – whether bankruptcy notices invalid as imposing interest on professional costs http://www.austlii.edu.au/au/cases/cth/FMCA/2011/801.html

 Bankruptcy Act – following Date of Bankruptcy

 Another instance where action / inaction of bankrupt may have given rise to significant costs to estate – debt to petitioning creditor not large – trustees remuneration, at one taxation, substantiallially reduced –  Maxwell-Smith v Donnelly (No 3) [2011] FCA 1226 (31 October 2011) BANKRUPTCY – application under s 179 of the Bankruptcy Act 1966 (Cth) – consideration of trustee’s refusals to reconvey property to former bankrupts in circumstances where trustee’s costs, charges and expenses of administration remain unpaid – application dismissed  http://www.austlii.edu.au/au/cases/cth/FCA/2011/1226.html

 Singh v Khatri & Griffin [2011] FMCA 804 (27 October 2011) BANKRUPTCY – Proof of debt – application for an extension of time within which to file an application seeking review of Trustee’s decision to reject proof of debt – whether debt was legally enforceable – whether sufficient evidence of legally enforceable contract – allegation of sham contract – whether transaction represented gifts – indebtedness was contingent and remained a provable debt and is provable in the bankrupt’s bankruptcy http://www.austlii.edu.au/au/cases/cth/FMCA/2011/804.html

 Lasm v Body Corporate For La Porte D’Or CTS 12681 [2011] FMCA 800 (20 October 2011) BANKRUPTCY – Sequestration order – application for review of decision of Registrar – fresh proceeding – requirement on petitioning creditor to file fresh affidavits – where failure to file fresh affidavits http://www.austlii.edu.au/au/cases/cth/FMCA/2011/800.html

 Chubb v Dunlop [2011] FMCA 813 (14 October 2011) BANKRUPTCY – Trustee’s application for writ of possession – orders made in absence of bankrupt – application to set aside or stay – whether discretionary power – stay sought in support of Federal Court appeal from sequestration order – stay refused – interim application dismissed http://www.austlii.edu.au/au/cases/cth/FMCA/2011/813.html

 Goodridge v Robinson [2011] FCA 1213 (21 October 2011) PRACTICE AND PROCEDURE – Bankruptcy – urgent interim application – where judgment reserved in New South Wales Supreme Court – whether direction should be made that an application be withdrawn in the New South Wales Supreme Court – application dismissed http://www.austlii.edu.au/au/cases/cth/FCA/2011/1213.html

 Watts, in the matter of Watts [2011] FCA 1185 (21 October 2011) CORPORATIONS – leave to manage corporations generally – leave to manage specific classes of corporations – where no evidence of the business, activities or affairs of the corporations – where no evidence of plaintiff’s past or intended role in corporations http://www.austlii.edu.au/au/cases/cth/FCA/2011/1185.html

 Mortgage!! –  Menzies v Paccar Financial Pty Ltd [2011] FCA 1161 (21 October 2011) COSTS – indemnity costs orders sought – arising out of bankruptcy proceedings – stay of sequestration order – appeal from sequestration order allowed – contempt charges – motions for removal of trustees – brought for ulterior purpose http://www.austlii.edu.au/au/cases/cth/FCA/2011/1161.html

 Liprini v Liprini (No 2) [2011] FCA 1150 (7 October 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1150.html

 Barlaw Pty Ltd v Crouch (Trustee) [2011] FCA 1149 (4 October 2011) PRACTICE AND PROCEDURE – appeal – whether security for the respondent’s costs of an appeal from a Federal Magistrate should be ordered http://www.austlii.edu.au/au/cases/cth/FCA/2011/1149.html

 Debrossard & Official Trustee in Bankruptcy [2011] FamCA 648 (19 August 2011) FAMILY LAW – PROPERTY – Where consent orders provided for the former matrimonial home to be transferred into the wife’s name following the husband being declared bankrupt – Where Official Trustee sought orders that consent orders be set aside – Where consent orders were subsequently set aside – Where wife seeks orders that the consent orders be reinstated – Contributions – Division of property between the wife and the Official Trustee – Whether Official Trustee should be empowered to act as trustee for the sale of the property http://www.austlii.edu.au/au/cases/cth/FamCA/2011/648.html

 Cleary Bros (Parramatta) Pty Limited & Ors v Commonwealth Bank of Australia & Ors (No 3) [2011] ACTSC 139 (9 August 2011) PROCEDURE – costs – impecuniosity of corporate plaintiffs – absence of presumptions in relation to discretion to order corporate plaintiffs to provide security for costs – whether order for security for costs would stultify progress of plaintiffs’ action – absence of evidence about means of current officers and shareholders of corporate plaintiffs – application for security for costs granted http://www.austlii.edu.au/au/cases/act/ACTSC/2011/139.html

 Cleary Bros (Parramatta) Pty Limited and Ors v Commonwealth Bank of Australia and Ors (No 2) [2011] ACTSC 130 (8 August 2011) LEGAL PROCEEDINGS – dismissal of fourth plaintiff’s action – action of fourth plaintiff abandoned by trustee in bankruptcy – action that cannot be continued in any form should be dismissed – action of fourth plaintiff against all four defendants dismissed. LEGAL PROCEEDINGS – application by plaintiffs for adjournment of hearing of application for security for costs – new solicitor instructed two working days before hearing date – plaintiffs failed to take steps to be ready to hear the application for security for costs – application for adjournment refused http://www.austlii.edu.au/au/cases/act/ACTSC/2011/130.html

 Bankruptcy Act – Other Schemes under the Act

 Corporations – pre-appointment

 Deputy Commissioner of Taxation v Property Builders (Constructions) Pty Limited [2011] FCA 1221 (20 October 2011) DISCOVERY – application for general discovery – where plaintiff allegedly gave implied undertaking not to commence proceedings – where documents specifically sought to be discovered not relevant to substantive application for winding up of defendant company http://www.austlii.edu.au/au/cases/cth/FCA/2011/1221.html

 Deputy Commissioner of Taxation v Caporale Group Pty Ltd [2011] FCA 1189 (18 October 2011) CORPORATIONS – application to adjourn hearing of winding up proceedings – where no evidence of solvency http://www.austlii.edu.au/au/cases/cth/FCA/2011/1189.html

 Deputy Commissioner of Taxation v Interactive Community Planning Pty Ltd [2011] FCA 1173 (14 October 2011) CORPORATIONS – winding up in insolvency under s 459A Corporations Act – whether company is solvent – whether Court should exercise discretion to refuse order under s 459A http://www.austlii.edu.au/au/cases/cth/FCA/2011/1173.html

 In the matter of 7 Steel Building Solutions Limited [2011] NSWSC 1191 (11 October 2011) CORPORATIONS – winding up – statutory demand – application for order setting aside – no appearance for plaintiff when matter called on for hearing – counsel sought leave to appear for plaintiff’s directors – refused – defendant in liquidation when proceedings commenced and remains in liquidation – no attempt by plaintiff to seek leave to proceed – proceedings therefore doomed to fail – costs to be assessed on the indemnity basis http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/1191.html

 Deputy Commissioner of Taxation v Interactive Community Planning Pty Ltd [2011] FCA 1173 (14 October 2011) CORPORATIONS – winding up in insolvency under s 459A Corporations Act – whether company is solvent – whether Court should exercise discretion to refuse order under s 459A http://www.austlii.edu.au/au/cases/cth/FCA/2011/1173.html

 Cristovao v Forensic Documents Examiners Pty Ltd [2011] FCA 1131 (30 September 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1131.html

 Deputy Commissioner of Taxation v Polcarp Pty Ltd [2011] FCA 1142 (29 September 2011) CORPORATIONS – Winding Up – Application to adjourn winding up – Corporations Act 2001 (Cth) s440A http://www.austlii.edu.au/au/cases/cth/FCA/2011/1142.html

 Corporations – post appointment

 Velissaris v Fitzgerald [2011] FCAFC 120 (9 September 2011) CORPORATIONS – appeal against primary judge’s order dismissing application to terminate winding up of corporation – primary judge’s exercise of discretion not shown to have miscarried – appeal dismissed with costs http://www.austlii.edu.au/au/cases/cth/FCAFC/2011/120.html

 Receivers & Managers caught up in a complex ‘barney’ – Transpacific Pty Ltd v Prudential Retirement Insurance and Annuity Company No 2 [2011] FCA 1215 (26 October 2011) PRACTICE AND PROCEDURE – application to vacate hearing date filed five days before commencement of hearing – applicant’s case not ready for trial – applicant yet to obtain expert evidence on issue of New York law in substantive proceeding – delays in filing evidence despite extensions of time – change of solicitor – consideration of respective prejudice to parties – applicant unable to make its case if hearing not adjourned – order for costs without more would not remedy prejudice to respondents if application allowed – consideration of principles relevant to exercise of Court’s discretion – objectives in s 37M Federal Court of Australia Act expressed at high level of generality – each case to be decided on its unique facts – in the circumstances, vacating the hearing and dissolving the injunction restraining the first respondent from dealing with the aircraft, coupled with indemnity costs and strict orders for preparation of hearing a fair resolution  COSTS – indemnity costs – application for applicant to pay respondents’ costs thrown away by vacation of hearing date on indemnity basis – Court has pre-eminent discretion – in the circumstances, such costs not unreasonable http://www.austlii.edu.au/au/cases/cth/FCA/2011/1215.html

 Binetter v Commissioner of Taxation (No 2) [2011] FCA 1214 (24 October 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1214.html

 Binetter v Commissioner of Taxation [2011] FCA 1195 (21 October 2011) CORPORATIONS – winding up – application for approval for director of companies in liquidation to bring proceedings in name of companies – whether companies were necessary parties to any winding up order made in relation to them – whether winding up order can take effect at the same time as order for reinstatement of deregistered company – principles relevant to exercise of discretion to grant approval under s 471A(1A)(d).  http://www.austlii.edu.au/au/cases/cth/FCA/2011/1195.html

 Saker, in the matter of Great Southern Managers Australia Ltd (Receivers and Managers Appointed) (in liquidation) (No 3) [2011] FCA 1192 (21 October 2011) CORPORATIONS – managed investment scheme – liquidation of responsible entity – amendment to constitution – whether entitled to management fees – whether entitled to set-off for mismanagement – whether orders should be made under s 511(2) of the Corporations Act 2001 (Cth) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1192.html

 Walker and Moloney, in the matter of ZYX Developmental Learning Centres Pty Limited (in liq) (Receivers and Managers Appointed) [2011] FCA 1110 (20 October 2011) CORPORATIONS – application for Court’s approval for liquidators to enter into litigation funding agreement on behalf of company http://www.austlii.edu.au/au/cases/cth/FCA/2011/1110.html

 Includes an interesting order that the Liquidator not make further investigations    In the matter of JTS Property & Investments No. 1 Pty Ltd ACN 113 271 426 (In Liquidation) and JTS Property & Investments No. 2 Pty Ltd ACN 113 271 408 (In Liquidation) [2011] NSWSC 1210 (13 October 2011) CORPORATIONS – winding up by the court – application by liquidator under s 479(3) for directions from the court – directions made regarding shareholding and creditors of company in liquidation http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/1210.html

 Australian Securities and Investments Commission v Letten (No 14) [2011] FCA 1174 (18 October 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1174.html

 Australian Securities and Investments Commission v Letten (No 13) [2011] FCA 1151 (7 October 2011) CORPORATIONS – court appointed receiver – expenses incurred in receivership – expense of receivership – priority of payment – contract entered into before receiver appointed – whether payment accruing after appointment of receiver has priority http://www.austlii.edu.au/au/cases/cth/FCA/2011/1151.html

 Lion Energy Limited v Tulloch Lodge Limited (in liq), in the matter of Tulloch Lodge Limited (in liq) [2011] FCA 1139 (5 October 2011) CORPORATIONS – power of liquidator to compromise claim – time limit on power to enter into agreement – Corporations Act 2001 (Cth) s 477(2A), s 477(2B) – Confidentiality of litigation funding agreement – no prejudice to administration of justice – Federal Court of Australia Act 1976 (Cth) s 40(1).  http://www.austlii.edu.au/au/cases/cth/FCA/2011/1139.html

 Genworth Financial Mortgage Insurance Pty Ltd v KCRAM Pty Ltd (in Liquidation) (No 2) [2011] FCA 1124 (4 October 2011) PRACTICE AND PROCEDURE – Parties – Joinder – application to join insurer as respondent – claims made policy – availability of statutory charge under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) – application for declaratory relief PRACTICE AND PROCEDURE – Parties – Joinder – Dispute between insurer and insured about cover – whether party suing insured entitled to declaration that insurer is liable to insured where insured in liquidation INSURANCE – Professional indemnity insurance – claims made policy – application to join insurer as respondent – statutory charge – discussion of availability of charge under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) – where event giving rise to claim by third party occurred before policy period – application for declaratory relief – where insurer denies indemnity – insured in liquidation – where third party claims priority under Corporations Act 2001 (Cth) s 562  http://www.austlii.edu.au/au/cases/cth/FCA/2011/1124.html

 Yeo v Damos Earthmoving Pty Ltd, in the matter of Beachwood Developments Pty Ltd (in liq) [2011] FCA 1129 (30 September 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1129.html

 Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123 (30 September 2011) EQUITY – contested beneficial ownership of convertible bonds issued to a company – where liquidators sought declaratory relief against a defendant who was in possession of bond certificates and executed transfers, and who sought to become the registered holder of the bonds – whether an alleged series of undocumented assignments of equitable interest in the bonds was effective – whether the alleged assignments were made for valuable consideration EQUITY – effect of the Conveyancing Act 1919 (NSW) on alleged assignments of the equitable interest in the bonds – whether s 23C(1)(c) was required to be complied with in order for the alleged assignments to be effective – whether s 23C(1)(c) applies to equitable dispositions of personalty EVIDENCE – onus of proof – whether plaintiffs, as parties seeking declaratory relief and as the only parties seeking relief at all, bore the onus of disproving the chain of alleged assignments contended for by the defendants – whether defendants’ allegations constituted denials of essential ingredient in the plaintiffs’ cause of action or a defence of a prima facie claim – whether company’s registration as bondholder gave rise to a presumption of equitable ownership – whether possession of bond certificates and transfers gave rise to competing presumption of equitable ownership CORPORATIONS – whether company’s alleged equitable assignment of the bonds was an insolvent, uncommercial or unreasonable director-related transaction within the meaning of the Corporations Act 2001 (Cth) – whether transaction voidable – whether s 588FG available as a defence – degree to which the chain of alleged assignments could be regarded as a single transaction of the company – whether alleged equitable assignment of the bonds involved breach of directorial and fiduciary duties http://www.austlii.edu.au/au/cases/cth/FCA/2011/1123.html

 Higgins v Hancock as Liquidator of 246 Arabella Investments Pty Limited (in liq) [2011] FCA 1119 (30 September 2011) JUDICIAL REVIEW – s 39B(1A)(c) of the Judiciary Act 1903 (Cth) – application for judicial review of decision of Administrative Appeals Tribunal to refuse an application to adjourn proceedings part heard in the Tribunal – Commissioner of Taxation sought to cross-examine the applicant on documents not included in T-documents – tender of those documents by the Commissioner ultimately rejected by Tribunal – Tribunal ruled it would not give consideration to applicant’s answers in cross-examination and ruled parts of the transcript be expunged or restricted – review on grounds of denial of natural justice and failure to take into account relevant considerationHeld: application dismissed, neither ground made out  http://www.austlii.edu.au/au/cases/cth/FCA/2011/1119.html

 Oswal v Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) [2011] FCAFC 117 (1 September 2011) PRACTICE AND PROCEDURE – applications for leave to appeal a decision to refuse stay of Federal Court proceeding where Supreme Court proceeding on foot – proceeding in Federal Court issued shortly after Supreme Court proceeding instituted, raising overlapping issues – some parties to proceedings different – different relief sought – stay applications refused – whether the primary judge’s decision is attended by sufficient doubt to warrant its reconsideration by the Full Court – where it be desirable that all issues be heard and determined in one proceeding, while the other is stayed, or that by cross-vesting the two actions they be heard together – where the parties have made no attempt to resolve which action should proceed or the most desirable course – where the interests of justice do not simply demand that the proceeding which was commenced first in time be pursued http://www.austlii.edu.au/au/cases/cth/FCAFC/2011/117.html

 Miscellaneous

 Peters v Lithgow Forge Pty Ltd [2011] NSWSC 1185 (10 October 2011) EQUITY – solicitor claims charge over real property in name of corporation to secure payment of a judgment for costs against a former client – shares in corporation transferred by client to his wife – real property of corporation mortgaged – solicitor seeks to set aside both the transfer and mortgage under Conveyancing Act, s 37A – client funds acquisition of property by corporation – HELD – solicitor has equitable interest by way of charge over the real property – mortgage but not transfer voidable under Conveyancing Act, s 37A – corporation holds property on resulting trust for client http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/1185.html

 A Bank & Coleiro and Anor [2011] FamCAFC 157 (2 August 2011) FAMILY LAW – APPEAL – where the Federal Magistrate made an order joining the bank to the property settlement proceedings between the husband and wife – where there was no application before the Federal Magistrate seeking that the bank be joined as a party to the proceedings – where the bank was not given notice of the proposed joinder order, or the opportunity to make submissions in relation to the proposed joinder order – appealable error found – appeal allowed – order set aside.  FAMILY LAW – APPEAL – where the Federal Magistrate made an order which purported to relieve the husband and wife from compliance with the provisions of s 121 of the Family Law Act 1975 (Cth) – where there was no application before the Federal Magistrate seeking such an order – where the Federal Magistrate did not provide the opportunity for the bank to be heard prior to the making of the order – where the Federal Magistrate failed to give reasons for the making of the order – appealable error found – appeal allowed – order set aside.  FAMILY LAW – APPEAL – where the Federal Magistrate made an order that the bank provide further material to the Court – where it was argued that the bank should not have to disclose further material to the Court until the determination of the bank’s application for summary dismissal of the wife’s amended application was determined – appeal allowed – order set aside.  FAMILY LAW – CONTEMPT – in face of the Court – observations made concerning the Federal Magistrate’s use of the contempt procedure against the husband http://www.austlii.edu.au/au/cases/cth/FamCAFC/2011/157.html

 END

Parliament sees new tax laws to protect superannuation and deter phoenix companies

 Insolvency Laws, Regulation, Tax liabilities, Taxation Issues  Comments Off on Parliament sees new tax laws to protect superannuation and deter phoenix companies
Oct 182011
 

On 13 October 2011 the Australian Government presented a bill which the Minister says “amends the tax law to better protect workers’ entitlements to superannuation, strengthen the obligations of company directors and enhance deterrence of fraudulent phoenix activity”.

Schedule 3 of the Tax Laws Amendment (2011 Measures No.8) Bill 2011 is described in the Second Reading speech by the Minister, Mr Bill Shorten, as follows:

“These amendments will provide disincentives for directors to allow their companies to fail to meet their existing obligations, particularly obligations to employees. They do not introduce new obligations on the company but, rather, penalise company directors who are failing to ensure that their companies meet their obligations.

These outcomes are achieved by extending the director penalty regime to superannuation guarantee. This will make directors personally liable for their company’s failure to meet its obligations to pay employee superannuation.

Secondly, this will allow the commissioner to commence recovery against company directors under the director penalty regime without issuing a director penalty notice. This power is limited to situations where the company’s unpaid pay-as-you-go (or PAYG) withholding or superannuation liability remains unpaid and unreported, three months after becoming due.

Thirdly, it is making company directors and, in some limited cases, their associates liable to a tax which, in effect, reverses the economic benefit of a PAYG withholding credit. This tax only applies if directors or their associates are entitled to a credit for amounts that have been withheld from payments made to them by the company and the company has failed to meet its obligation to pay PAYG withholding amounts to the commissioner. Further criteria must be satisfied before associates are liable.

Together, this package of amendments will improve the likelihood that employees will receive the superannuation they are entitled to. It will reduce the ability of directors to avoid paying director penalties for their company’s superannuation guarantee and PAYG withholding debts. Further, it will increase the disincentives for directors to allow their company to fail to meet its existing obligations.”

Introduced with the Pay As You Go Withholding Non-compliance Tax Bill 2011, the bill amends, inter alia, the Taxation Administration Act 1953 to allow the Commissioner of Taxation to commence proceedings to recover director penalties in certain circumstances without issuing a director penalty notice; the Income Tax Assessment Act 1997, Taxation Administration Act 1953 and Taxation (Interest on Overpayments and Early Payments) Act 1983 to make directors and their associates liable to pay as you go withholding non-compliance tax in certain circumstances; and the Corporations Act 2001, Superannuation Guarantee (Administration) Act 1992 and Taxation Administration Act 1953 to make directors personally liable for their company’s unpaid superannuation guarantee amount.

LINKS: 

 Minister’s Second Reading speech on 13/10/2011.

Text of Bill  (See Schedule 3)

Explanatory memoranda  (See Chapter 3)  For a concise comparison of key features of the new law and the current law, see the chart at pages 30 & 31 of the Explanatory Memorandum.

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On 18 October 2011 the Treasury published the thirteen submissions it received in response to the consultation on an earlier exposure draft of this legislation. To view these click HERE.

Government says no to single regulator of insolvency laws

 ASIC, Official Inquiries, Personal Bankruptcy, Productivity Commission 2010, Regulation  Comments Off on Government says no to single regulator of insolvency laws
Oct 142011
 

The Government has examined the case for making one regulator responsible for both personal insolvency laws and corporate insolvency laws and decided to retain the status quo. 

Hence, it will be business as usual for the Insolvency Trustee Service Australia (personal insolvency) and the Australian Securities and Investments Commission (corporate insolvency).

The Australian Productivity Commission (APC) recommended in its report on the Annual Review of Regulatory Burdens on Business: Business and Consumer Services (the Report) that the Government consider the option of having a single regulator of what are, in many respects, similar laws. 

In response to this recommendation (part of number 4.3), the Government says:

“The Government is not proposing to establish a new single regulator of personal and corporate insolvency regimes. There would be major upfront costs of merging the regulators, which may not necessarily be offset by long-term savings.  The extent to which simply unifying the regulators would result in an improved regulatory environment is not clear.  Separate policy considerations apply to many aspects of personal and corporate insolvencies and there is not currently sufficient evidence that a one-size-fits-all approach for all issues would necessarily optimise outcomes for stakeholders.  The removal of the responsibility for regulation of corporate insolvency from the corporate regulator would result in corporate insolvency losing its important connection with other parts of ASIC, for example in relation to major corporate administrations, regulation of insolvent trading and of director and corporate misconduct that may have occurred in the lead up to, or during, an insolvency event.”

  The Government’s formal response to the Report was released by the APC on 13 October 2011 and may be found HERE.

Government says taskforce to align insolvency laws is unnecessary

 Official Inquiries, Productivity Commission 2010, Regulation  Comments Off on Government says taskforce to align insolvency laws is unnecessary
Oct 142011
 

The Australian Productivity Commission (APC) recommendation that a taskforce  be established to identify personal and corporate insolvency provisions and processes that could be aligned has been formally rejected by the Government.

The APC recommendations were made in its report in October 2010 on the Annual Review of Regulatory Burdens on Business: Business and Consumer Services (the Report). The Government’s formal response to the Report was released by the APC on 13 October 2011 and may be found HERE.

 In response to the APC’s recommendation (number 4.3) for a taskforce, the Government says that it:

” agrees that there should be greater consistency between the personal and corporate insolvency systems. Significant work is already being progressed by relevant government agencies to identify areas for greater harmonisation, and therefore the Government believes that establishing a taskforce is unnecessary and may duplicate work already being undertaken.  The Government will facilitate the closer alignment of the personal and corporate insolvency laws through its options paper, A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia, which was released on 2 June 2011.  This paper canvasses options for the registration, regulation and remuneration of participants in the corporate and personal insolvency industries.”

 

 

Claim that UK insolvency practice was wrongly valued.

 Insolvency practices  Comments Off on Claim that UK insolvency practice was wrongly valued.
Oct 112011
 

In 2006 Primary Capital, a UK private equity firm, acquired (for £27 million) the  UK company Credere Limited, the vehicle formed to acquire the Haines Watts Business Recovery & Insolvency (HWBRI) practice. 

In 2008 the HWBRI practice entered into a pre-pack administration and was sold to Tenon Limited, as part of  Tenon Plc, an AIM listed accountancy firm.

Now (7 October 2011) The Times of London reports that the accounting firm Ernst & Young is being sued for £8.5 million by Primary Capital, claiming that the accountants incorrectly valued its investment into HWBRI. Primary Capital claims it lost its investment when the insolvency firm (HWBRI) was sold to Tenon Limited.

Apparently Primary Capital has so far been unavailable for comment.

Hopefully there is plenty more news to come.

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 SOURCES:  1. Accountancy Age http://www.accountancyage.com/aa/news/2115496/-sued-pe-firms-lost-insolvency-business-investment#ixzz1aRE1dbTB  2. Unquote  http://www.unquote.com/unquote/news/1574751/uk-primary-capital-acquires-haines-watts-business-recovery-insolvency  3. Jones Day http://www.jonesday.com/experiencepractices/ExperienceDetail.aspx?experienceid=15002

“Australian Insolvency Decisions” September 2011 edition

 Industry People, Insolvency practices, Personal Bankruptcy  Comments Off on “Australian Insolvency Decisions” September 2011 edition
Oct 032011
 

by Michael Ennis.  Michael developed an interest in insolvency case law, while a Deputy Registrar in Bankruptcy at the Federal Court of Australia and while undertaking various roles at the  Insolvency Trustee Service Australia (ITSA).  He has maintained this interest since retiring.  If you would like to receive the Insolvency Decisions schedule direct, advise Michael of additional decisions, or share your observations, you may contact  Michael direct on rmci53mje@spin.net.au.

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Bankruptcy Act – Prior to Date of Bankruptcy

Four judgments attached to BN –   Dowd v Garde [2011] FMCA 713 (14 September 2011) BANKRUPTCY – Opposed Creditor’s Petition on the basis of an error in the Bankruptcy Notice where the stated sum does not equate to the amount contained in the four judgments attached – whether defect or irregularity curable under s.306 of the Bankruptcy Act 1966 – Bankruptcy Notice invalid – Creditor’s Petition dismissed http://www.austlii.edu.au/au/cases/cth/FMCA/2011/713.html

Applications to Stay Sequestration Orders always seemed to come in clumps after reasonable intervals of not seeing any, so we will have to keep an eye out  for some more – Trustees can take the normal precautionary actions, these are not the actions contemplated by the Stay Order – Favell v Mbuzi [2011] FMCA 710 (5 September 2011) BANKRUPTCY – Creditor’s Petition – service of Bankruptcy Notice – deemed service – delivery in ordinary course of post – no receipt because of no mailbox – cl. 24.1.3 of Australia Post Terms and Conditions – no proved non-delivery. BANKRUPTCY – Stay of Sequestration Order – refused http://www.austlii.edu.au/au/cases/cth/FMCA/2011/710.html

Parnell Corporate Services Pty Ltd v Lieurance [2011] FMCA 709 (31 August 2011) BANKRUPTCY – Creditor’s petition – no appearance by debtor – sequestration order made http://www.austlii.edu.au/au/cases/cth/FMCA/2011/709.html

Trkulja v Gibsons Solicitors Pty Ltd [2011] FMCA 655 (26 August 2011) BANKRUPTCY – Application to review – application to set aside bankruptcy notice out of time – leave opposed – extension of time for compliance – adjournment of proceedings http://www.austlii.edu.au/au/cases/cth/FMCA/2011/655.html

Thomas & Anor v Nash [2011] FMCA 661 (24 August 2011) BANKRUPTCY – Petition – sequestration order granted http://www.austlii.edu.au/au/cases/cth/FMCA/2011/661.html

Demandem Holdings Pty Ltd & Anor v Christou [2011] FMCA 489 (24 August 2011) BANKRUPTCY – Contested creditor’s petition – whether the debtor is solvent and whether the debtor has an off-setting claim that provides a reason for the Court to refrain from making a sequestration order considered. http://www.austlii.edu.au/au/cases/cth/FMCA/2011/489.html

A most curious matter – I’ve never heard of an application to rescind a Set Aside order, let alone such an application being successful  – also, I had thought only a Judge could set aside a Seq Order, but Registrar Luxton is very experienced in the jurisdiction = a comment from a member of this email group: ‘yes, a very interesting case concerning the rescission of a setting aside of a sequestration order. I have not heard of that happening before.

 I wonder when the bankruptcy starts from?

It appears that there was some “creative accounting “going on concerning the debtor’s financial status which just a bit too creative and bore little resemblance to his actual state of insolvency. I did note that in the setting aside proceedings, the RT was able to get an order that he be paid $12,000 for his remuneration which was well done when you look at how Mr Pattison failed to receive remuneration in a number of his matters where the SO s were set aside. – Barro Group Pty Ltd v Poljakovic & Jacaranda Cooperative Housing Society Ltd [2011] FMCA 706 (23 August 2011) BANKRUPTCY – Application to rescind setting aside of sequestration order – application successful http://www.austlii.edu.au/au/cases/cth/FMCA/2011/706.html

Novel matter in relation to a Bankruptcy Notoce  –  Lewis v Lamru Pty Ltd; In the Matter of Lewis (No 2) [2011] FCA 1025 (31 August 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1025.html

 

Bankruptcy Act – following Date of Bankruptcy

David Lombe as trustee of the bankrupt estate of Salah Eddine Dib v Mohamed Dib & Anor [2011] NSWSC 1062 (9 September 2011) CONTRACT – general contractual principles – offer and acceptance – first party alleges he provides advance to assist in funding purchase of property by others – whether agreement to repay the funds advanced to first party or whether first party agreed to receive other benefits for advance – HELD: no agreement to repay funds advanced – TRUSTS AND TRUSTEES – resulting trust – constructive trust – allegations of resulting trust and constructive trust arising from first party’s advance of funds to purchase property in the names of others – whether contrary agreement – HELD: no resulting or constructive trust http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/1062.html

Very interesting decision – thanks to Bob for alerting me to it – note use of s. 77c transcript – note ‘heavies’ appearing –  Nelson v Mathai & Ors [2011] FMCA 686 (2 September 2011) BANKRUPTCY – Trustee Application pursuant to s.121 of the Bankruptcy Act 1966 – meaning of ‘creditor’ http://www.austlii.edu.au/au/cases/cth/FMCA/2011/686.html

A Section 139ZQ matter –  Combis (Trustee) v Spottiswood [2011] FCA 1082 (16 September 2011) PRACTICE AND PROCEDURE – substituted and deemed service – whether service can be deemed after multiple unsuccessful attempts – where no evidence that documents came to the attention of respondent – where impracticable to personally serve respondent – substituted service ordered in lieu of deeming service  http://www.austlii.edu.au/au/cases/cth/FCA/2011/1082.html

Singh v Official Trustee In Bankruptcy & Anor [2011] FMCA 677 (6 September 2011) BANKRUPTCY – Leave to commence, continue and take fresh steps in proceeding – whether leave to be granted – where failure to comply with undertaking – costs – payment by solicitor personally http://www.austlii.edu.au/au/cases/cth/FMCA/2011/677.html

Harrison v Ponting & Anor [2011] FMCA 680 (2 September 2011) BANKRUPTCY – Application by the Trustee for possession of the property http://www.austlii.edu.au/au/cases/cth/FMCA/2011/680.html

A Ferrari is a nice bankruptcy asset, if it can be located!! –  BMW Australia Finance Limited v Cheihk [2011] FMCA 720 (26 August 2011) BANKRUPTCY – Application to declare for or against trustees title – claim for declarations against the bankrupt, her trustees and another in respect of the ownership and right to possession of a chattel – no dispute – no proper claim under the Bankruptcy Act 1966 – no proper claim under the Court’s associated jurisdiction http://www.austlii.edu.au/au/cases/cth/FMCA/2011/720.html

Sheikholeslami v Tolcher [2011] FCA 1050 (9 September 2011) BANKRUPTCY AND INSOLVENCY – whether certain real property part of bankrupt’s divisible property – whether bankrupt held property on trust for another at the commencement of her bankruptcy TRUSTS AND TRUSTEES – whether an express trust exists – informal family arrangement between siblings in respect of the ownership of real property EQUITY – defence of unclean hands – whether applicant should be denied equitable relief in circumstances where notice under s 26A of the Foreign Acquisitions and Takeovers Act required but not given http://www.austlii.edu.au/au/cases/cth/FCA/2011/1050.html

Jones Lang Lasalle (NSW) Pty Ltd v Simpson; In the Matter of Simpson (Bankrupt) [2011] FCA 1006 (26 August 2011) BANKRUPTCY – whether the applicant should have leave to proceed pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth) against the first and second respondents in a proceeding in the Supreme Court of New South Wales in which the applicant (as plaintiff) alleges that the first and second respondents were knowing participants in a breach of trust by a corporation of which they were directors and executives http://www.austlii.edu.au/au/cases/cth/FCA/2011/1006.html

 

Bankruptcy Act – Other Schemes under the Act

Nil

 

Corporations – pre-appointment

Statewide Secured Investments Pty Ltd v Tarrant [2011] FCA 1067 (15 September 2011) CORPORATIONS – application to set aside statutory demand – interlocutory application for substituted service http://www.austlii.edu.au/au/cases/cth/FCA/2011/1067.html

Deputy Commissioner of Taxation v Marro (SA) Pty Ltd, in the matter of Deputy Commissioner of Taxation [2011] FCA 1024 (1 September 2011) CORPORATIONS – winding up – setting aside winding-up order made in the absence of a party – procedural irregularity – agreement to seek adjournment departed from without notice – irregularity cured by subsequent giving of notice before making of winding-up order http://www.austlii.edu.au/au/cases/cth/FCA/2011/1024.html

 

Corporations – post appointment

Ann Street Mezzanine Pty Ltd v Beck [2011] FCA 1047 (8 September 2011) PRACTICE AND PROCEDURE – order for interrogatories sought – interrogatories seeking identity of ASIC delegates who, on behalf of ASIC, made decisions to wind up relevant companies – relevant principles – claim of misfeasance in public office – order made http://www.austlii.edu.au/au/cases/cth/FCA/2011/1047.html

S & V Nominees Pty Ltd (in liquidation) v Rabobank Australia Limited (Formerly known as Primary Industry Bank of Australia Limited) (No 2) [2011] FCA 1039 (6 September 2011) PRACTICE AND PROCEDURE — Application by plaintiffs to amend their statement of claim in a manner which includes claim for declarations that defendant had breached s 427 and s 432 of the Corporations Act 2001 (Cth) (‘Corporations Act’) without any further claim with respect to alleged breaches — where defendant said claim for declarations was untenable — where plaintiffs had no real interest in determination of the question and where declaration served no practical purpose Held: Leave to file a statement of claim incorporating a claim for declarations of breaches of the Corporations Act refused http://www.austlii.edu.au/au/cases/cth/FCA/2011/1039.html

Singleton, in the matter of Lehman Brothers Australia Limited (in Liq) [2011] FCA 1068 (2 September 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1068.html

Vickers, in the matter of York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028 (1 September 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/1028.html

 

Miscellaneous

A Bank & Coleiro and Anor [2011] FamCAFC 157 (2 August 2011) FAMILY LAW – APPEAL – where the Federal Magistrate made an order joining the bank to the property settlement proceedings between the husband and wife – where there was no application before the Federal Magistrate seeking that the bank be joined as a party to the proceedings – where the bank was not given notice of the proposed joinder order, or the opportunity to make submissions in relation to the proposed joinder order – appealable error found – appeal allowed – order set aside. FAMILY LAW – APPEAL – where the Federal Magistrate made an order which purported to relieve the husband and wife from compliance with the provisions of s 121 of the Family Law Act 1975 (Cth) – where there was no application before the Federal Magistrate seeking such an order – where the Federal Magistrate did not provide the opportunity for the bank to be heard prior to the making of the order – where the Federal Magistrate failed to give reasons for the making of the order – appealable error found – appeal allowed – order set aside. FAMILY LAW – APPEAL – where the Federal Magistrate made an order that the bank provide further material to the Court – where it was argued that the bank should not have to disclose further material to the Court until the determination of the bank’s application for summary dismissal of the wife’s amended application was determined – appeal allowed – order set aside.  FAMILY LAW – CONTEMPT – in face of the Court – observations made concerning the Federal Magistrate’s use of the contempt procedure against the husband http://www.austlii.edu.au/au/cases/cth/FamCAFC/2011/157.html

Ariff case prompts calls for Royal Commission into white collar crime

 ASIC, Australian Senate 2009-2010, Insolvency practices, Offences, Official Inquiries, Prosecution of Liquidators, Regulation, White collar crime  Comments Off on Ariff case prompts calls for Royal Commission into white collar crime
Sep 292011
 

The Senator who instigated the Senate Economics References committee inquiry into the role of administrators and liquidators has called for a Royal Commission into white collar crime. 

Senator John Williams, the Nationals Senator for New South Wales, has congratulated the Armidale Dumaresq Council for supporting his call.  Senator Williams said yesterday (28/9/2011) that Armidale Dumaresq Council has first-hand knowledge of the damage that can be done to community assets through unscrupulous practices of some in the insolvency industry.  The YCW Leagues Club in Armidale was the victim of the administration of Newcastle liquidator Stuart Ariff who this week was found guilty on 19 criminal charges relating to a separate matter.

Senator Williams said the Council’s submission to the 2009 Senate inquiry was damning of the Australian Securities and Investments Commission (ASIC) for a lack of action. Since then, Armidale Dumaresq Council Deputy Mayor Jim Maher has been keen to see reform in the insolvency industry, and successfully moved two motions.

On 21 September 2011 Senator Williams called for a Royal Commission into white collar crime in Australia, and handed a file of statutory declarations alleging wrongdoing to the Australian Federal Police and the NSW Fraud Squad.

“Unfortunately there is no confidence in the industry regulators like ASIC anymore. Mr. Ariff is a case in point. I hope the Federal government acts on white collar crime because it is destroying peoples’ lives. To do nothing would be a green light for the illegal activities to continue”, Senator Williams said.

SOURCE: MEDIA RELEASE BY SENATOR JOHN WILLIAMS, 28 September 2011. Click here for  Senator William’s Website.

Jury finds liquidator guilty of white collar crimes

 Industry People, Insolvency practices, Offences, Prosecution of Liquidators, Regulation, White collar crime  Comments Off on Jury finds liquidator guilty of white collar crimes
Sep 272011
 

On 26 September 2011 former liquidator Stuart Ariff was  found guilty of various charges brought under the NSW Crimes Act and the Corporations Act. The Australian Securities and Investments Commission has  issued the following media release.  (The photo of Mr Ariff is from The Australian.)

“Former liquidator Stuart Ariff was today found guilty by a jury in the New South Wales District Court on all 19 criminal charges brought by ASIC. The offences relate to Mr Ariff’s conduct while he was the liquidator of HR Cook Investments Pty Ltd (in liquidation) (“HR Cook Investments”) during the period 9 June 2006 to 29 March 2009. Mr Ariff was found guilty on 13 charges under section 176A of the NSW Crimes Actconcerning the transfer of funds totalling $1.18 million with intent to defraud HR Cook Investments. Mr Ariff was also found guilty on six charges under section 1308(2) of the Corporations Act 2001of making false statements in documents lodged with ASIC recording receipts and payments relating to HR Cook Investments. The NSW Crimes Act charges each carry a maximum penalty of 10 years imprisonment. The Corporations Act 2001 charges each carry a maximum fine of $22,000 or imprisonment for five years or both.

Mr Ariff’s conditional bail was revoked and he was remanded into custody. The matter will return to Parramatta District Court on 25 November 2011 for sentencing.

The matter was prosecuted by the Commonwealth Director of Public Prosecutions.”

When should liquidators apply to court for approval and directions?

 Checklists and guides, Industry People, Insolvency practices, Legal opinion, Regulation  Comments Off on When should liquidators apply to court for approval and directions?
Sep 212011
 

 Michael J Galvin, barrister and insolvency law expert from Melbourne, has kindly contributed the following article for insolvency practitioners on applications for Court approval and directions, and the powers of administrators and liquidators.

 

 Applications for Court approval and directions

In addition to cases where liquidators and administrators are obliged to seek directions (see later in this paper), there are many circumstances where it may be thought desirable to apply for Court approval.  

This will be so where the liquidator or the administrator is uncertain as to the course he or she should adopt in relation to a matter (e.g. Re Mento Developments (2009) 73 ACSR 622).  It is particularly so where it is anticipated that a decision is likely to be controversial or where there is likely to be a complaint about a transaction which a liquidator or administrator proposes entering into, or has entered into (e.g. see Handberg (in his capacity as liquidator of S & D International Pty Ltd) (in liq) v MIG Property Services Pty Ltd (2010) 79 ACSR 373; Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111).

Section 479(4) of the Corporations Act 2001 provides that a liquidator may apply to the Court for directions regarding any matter arising in the winding up.  Section 511 makes similar provision for liquidators in creditors’ voluntary windings up, including liquidations which have ensued from a voluntary administration. Whilst they are expressed in different terms, it has been held that there is no material difference between the provisions.

Section 447D gives the Court power to give directions to administrators, and deed administrators, about matters arising in connection with the performance or exercise of their functions and powers.

Sections 479(4), 511 and 447D have a common pedigree.  The history of s 479(4) and its relationship to applications by trustees (particularly of deceased estates) for judicial advice were considered in detail by McClelland J. in GB Nathan & Co Pty Ltd (in liq) (1991) 24674 (see also Macedonian Orthodox Community Church St Petka Inc (2008) 249 ALR 250; see also Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111 (Mansfield, Besanko and Flick JJ).

The primary purpose of the court’s power to give judicial advice is the protection of those appointed by the Court to administer estates from allegations that they have acted improperly (Southern Cross Airlines Holdings Ltd (1998) 1 Qd R 84 at 93).  It is also aimed at protecting the interests of trusts (Macedonian Orthodox Community Church St Petka Inc at [71] & [72]).

That is not to say that the court will grant a direction or approval whenever sought (Southern Cross Airlines Holdings Ltd at 92).  It is important that the proposed direction:

  • relates to the manner in which the liquidator should act in carrying out the liquidator’s functions; and
  • will not adversely affect the legal rights or interests of other persons (or allow the liquidator to do so with impunity) (Southern Cross Airlines Holdings Ltd at 92).

However, an application for directions may be readily converted to an adversarial proceeding where the circumstances warrant it (Re Mento Developments (2009) 73 ACSR 622).

The power to give judicial advice extends to whether or not a liquidator is justified in prosecuting or defending proceedings (particularly having regard to the associated costs of doing so) (Macedonian Orthodox Community Church St Petka Inc at [71] & [72]).

The court may exercise its power to give judicial advice even with respect to and the liquidator’s proposal to enter into a commercial arrangement (Re Timbercorp Securities Ltd (in liq) (2009) 74 ACSR 626).

Further:

A liquidator is entitled to seek directions on the administration of the winding up even though the issue about which he seeks a direction may be or become an adversarial issue in other proceedings;

The direction or advice is to be directed to advising the liquidator on whether or not he or she is justified in conduct and winding up in a certain way and not deciding disputes between competing parties;

The direction or advice should not seek to resolve an issue between competing parties, but the fact that the advice may tend to foreclose an issue in other disputed proceedings is not of special significance in the court exercising its discretion to give private advice to the liquidator; and

Where a liquidator seeks advice on an issue which may be contested between competing parties, the court should be alert to not going further than is necessary to give the advice sought (Re Mento Developments (2009) 73 ACSR 622 at [49]).

It is common, for the applicant liquidator to nominate willing parties to act as contradictors in the proceeding. These are usually persons, such as creditors or classes of creditors, who have an interest in the outcome of the application. The identification of such persons is helpful because they are usually able to promote counter arguments that assist the Court in resolving the relevant issue or issues. The costs of such persons are usually agreed in advance to be met out of the assets of the liquidation.

Opinions differ as to the appropriate wording of a direction. Some judges prefer to give a direction that a liquidator is “justified” in taking a particular action. Others prefer to direct that the liquidator would be acting “reasonable” were he or she to adopt a particular course.

As to the equivalent law governing trustees in bankruptcy, see Bufalo v Official Trustee in Bankruptcy [2011] FCAFC 111.

 When is Court/creditor approval required

A. Liquidators

As to liquidators’ powers generally, see s 477 Corporations Act 2001.

Liquidators are prohibited from doing any of the following unless they have the approval of the Court (Federal or Supreme), the approval of the committee of inspection (if there is one) or a resolution of creditors:

  • compromise a debt due to the company which is greater than $100,000 (s 477(2A));
  • enter into an agreement on the company’s behalf (such as a lease or a charge) which may remain on foot or involve the performance of obligations beyond three months from the date of the agreement (s 477(2B)).

Quaere whether settlement of a claim against a director for insolvent trading, which according to the terms of s 459M is a debt due to the company, requires Court or creditor approval.

A liquidator in a creditors’ voluntary winding up is prohibited from doing any of the following without the leave of the Court, unless and until the initial meeting of creditors under s 497 has been held:

  • pay any class of creditors in full (subjection to s 556) (ss 477(4) and 477(l)(b);
  • compromise or make any arrangement with creditors, or persons claiming to be creditors, of the company, or whereby the company may be rendered liable (s 477(4) and s 477(l)(c)); and
  • do anything necessary for the winding up of the company and distributing its property (ss 477(4) and 477(2)(m)).

The exercise by a liquidator of the powers conferred by s 477 is always subject to the control of the Court. Any creditor or contributory, or ASIC, may apply to the Court with respect to any exercise, or proposed exercise, of any of those powers (s 477(6); note also the power of the Court to review the actions, decisions and omissions of liquidators under s 1321).

A liquidator must have regard to any directions given by resolution of the creditors or by the committee of inspection. A direction by the former will override a direction by the latter (s 479(1)). The liquidator may convene meetings of creditors to ascertain their wishes, and is obliged to convene a meeting if required to do so by creditors having one tenth of the company’s debt (s 479(4)).

B. Administrators

While a company is under administration, the administrator:

  • has control of the company’s business, property and affairs;
  • may carryon the company’s business and manage its property and affairs;
  • may terminate or dispose of all or part of the business, and may dispose of any of the property; and
  • may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration (s 437A(l)).

The administrator has additional powers:

  • to remove a director from office;
  • to appoint a director;
  • to execute a document, bring or defend proceedings, or do anything else, in the company’s name and on its behalf; and
  • whatever else is necessary to the purposes of part 5.3A (s 442A).

A transfer of shares in a company during administration is void, unless:

  • the administrator has given written and unconditional consent to the transfer;
  • the administrator gives written consent and any conditions have been satisfied; or
  • the Court authorises the transfer (s 437F(1)).

An administrator’s consent to a transfer of shares is subject to review by the Court (s 437F(5) and (6). The Court will only authorise the transfer under s 437F(l)(c) if it is satisfied the transfer is in the best interests of the company’s creditors as a whole.

An administrator is prohibited from disposing of property subject to a charge, or property used by the company but owned by someone else (e.g. property leased by the company), unless:

  • the disposal is in the ordinary course of business;
  • the charge or owner consents; or
  • the administrator obtains the leave of the Court (s 442C).

The Court will only grant leave if it is satisfied that the chargee’s or owner’s rights are adequately protected (s 442C(3».

As in the case of liquidators, the actions, decisions and omissions of administrators, and deed administrators, are subjection to review by the Court (s 1321).

Author: Michael J Galvin 5 September 2011

Michael’s Profile

 From the date of his admission in 1989 until commencing the Readers’ Course earlier in 1999, Michael worked with Gadens Lawyers, formerly J M Smith & Emmerton.  He became an associate in 1991 and then a partner in 1994.  He conducted an extensive insolvency practice as a solicitor for ten years advising liquidators, receivers, voluntary administrators, company directors, debtors, creditors, trustees and the Insolvency and Trustee Service Australia.  He appeared in a variety of proceedings as a solicitor advocate including commercial hearings and trials in the Magistrates’, County, Supreme and Federal Courts and public examinations under the Corporations Law and Bankruptcy Act. Michael is co-author of the recently published Butterworth’s loose-leaf service “Bankruptcy Law and Practice”.

Telephone: (03) 9225 8235 Secretary: (03) 9225 6059 Chambers: Lonsdale Chambers, Level 5, 530 Lonsdale Street, Melbourne Vic 3000.  Clerk: Michael Green (03) 9225 7222.

“Australian Insolvency Decisions” August 2011 edition

 Industry People, Insolvency practices, Personal Bankruptcy  Comments Off on “Australian Insolvency Decisions” August 2011 edition
Sep 012011
 
Compiled by Michael Ennis.   Michael developed an interest in insolvency case law, while a Deputy Registrar in Bankruptcy at the Federal Court of Australia and while undertaking various roles at the  Insolvency Trustee Service Australia (ITSA).  He has maintained this interest since retiring.  If you would like to receive the Insolvency Decisions schedule direct, advise Michael of additional decisions, or share your observations, you may contact Michael direct on rmci53mje@spin.net.au.

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Bankruptcy Act  – Prior to Date of Bankruptcy

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Goodman v Zhao [2011] FMCA 578 (26 July 2011) BANKRUPTCY – Creditors petition – debtor disputing the judgment debt – issues in relation to the judgment debt already litigated as far as the High Court – previous judgment of this Court dismissing a challenge to the bankruptcy notice subject to appeal in the Federal Court – no reason to defer a sequestration order http://www.austlii.edu.au/au/cases/cth/FMCA/2011/578.html

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Kwok v Bank of Western Australia Limited [2011] FMCA 559 (22 July 2011) BANKRUPTCY – Application to set aside a Bankruptcy Notice brought pursuant to s.41(7) – requirements of section not make out – application dismissed http://www.austlii.edu.au/au/cases/cth/FMCA/2011/559.html

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 “A question resolved – I had thought that there was a decision on point the other way” – M Ennis –  Autron Pty Ltd v Benk [2011] FCAFC 93 (28 July 2011) BANKRUPTCY AND INSOLVENCY – bankruptcy notice – validity – whether post-judgment interest included in a bankruptcy notice can be a component of the prescribed statutory minimum for which a bankruptcy notice can be issued – consideration of the meaning of “final judgment” and “final order” http://www.austlii.edu.au/au/cases/cth/FCAFC/2011/93.html

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Bankruptcy Act – following Date of Bankruptcy

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Mango Boulevard Pty Ltd v Whitton; In the matter of Spencer (Bankrupt) (No 2) [2011] FCA 845 (28 July 2011) COSTS – bankruptcy – application for directions by trustee – whether trustee ought to have his costs paid out of funds held by him for the calling of a meeting of creditors – where trustee’s application to the court was reasonable – where need for directions arose from instruction of principal proceeding – order for costs reserved to the discretion of the trial judge COSTS – costs of interlocutory proceeding – application that costs be paid forthwith – circumstances in which order for costs to be paid forthwith may be made – where applicant had costs awarded against it in respect of transfer application – where bankruptcy jurisdiction is exercised in national court – order would cause injustice – order not made http://www.austlii.edu.au/au/cases/cth/FCA/2011/845.html

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 “Note service of Bankruptcy Notice by email” – M Ennis  – Topalides v Edey [2011] FMCA 556 (22 July 2011) BANKRUPTCY – Application for Review – suggestions of procedural faults and of misleading conduct – allegations of improper service or no service at all – consideration of statutory requirements – determination of no fault or error arising from service or otherwise http://www.austlii.edu.au/au/cases/cth/FMCA/2011/556.html

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 “How rare is this, a S. 50; so it follows the subsequent decision is going to be of interest” – M Ennis – Tang & Anor v Bassili & Ors [2011] FMCA 544 (20 July 2011) BANKRUPTCY – ATO delivery of s.260-5 ITAA notices upon third party – questions of whether money “due” by third party to taxpayer debtor – third party purchaser due to pay money to taxpayer pursuant to contract for sale of land – land subject to registered mortgages securing debt due – money not due to taxpayer – money due to mortgagee – arrangements between parties to secure disputed fund pending trial – such arrangement did not disturb legal rights of parties – arrangement not render disputed fund due by party subject to s.260-5 notice http://www.austlii.edu.au/au/cases/cth/FMCA/2011/544.html

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CostaExchange Limited & Ors v Shephard (No.2) [2011] FMCA 545 (12 July 2011) BANKRUPTCY – Creditor’s petition – application to set aside sequestration order – operation of sequestration order stayed for 21 days on condition of payment by debtor to trustee – mistake affecting ability of debtor to comply – no grounds for setting aside sequestration order – no evidence of ‘fraud’ – sequestration order did reflect intentions of court – delay in applying for remedy – application refused http://www.austlii.edu.au/au/cases/cth/FMCA/2011/545.html

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CostaExchange Limited & Ors v Shephard [2010] FMCA 804 (12 October 2010) BANKRUPTCY – Creditor’s petition – costs in protracted litigation with debtor – debtor’s evidence did not show ability to pay debt – sequestration order made http://www.austlii.edu.au/au/cases/cth/FMCA/2010/804.html

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Bankruptcy Act – Other Schemes under the Act

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“As the year goes on the most complex of matters seem to be occurring – looking forward to decisions in these bankruptcies” – M Ennis –  Robertson & Anor v Moran & Ors [2011] FMCA 496 (20 July 2011) BANKRUPTCY – Personal insolvency agreement – application to set aside – agreement not calculated to benefit creditors generally – large unsecured indebtedness – token contribution under agreement – dominant related creditors benefiting from continuing business activities of debtor – controlling trustee recommended against acceptance of agreement – further investigation of debtor’s business affairs warranted – application set aside – sequestration order made http://www.austlii.edu.au/au/cases/cth/FMCA/2011/496.html

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Corporations – pre-appointment

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Time Of My Life Pty Limited -v- Windsor Turf Supplies Pty Limited (In Liquidation) [2011] NSWSC 916 (16 August 2011) CORPORATIONS – Corporations Act 2001 (Cth) s 459G(1), 459H(1) – application to set aside a statutory demand – genuine dispute as to existence of debt – statutory demand set aside http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/916.html

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Forensic Document Examiners Pty Ltd v Cristavao [2011] FCA 843 (28 July 2011) http://www.austlii.edu.au/au/cases/cth/FCA/2011/843.html

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Refund Property Fees Pty Ltd v Prime Project Development (Cairns) Pty Ltd [2011] FCA 851 (21 July 2011) PRACTICE AND PROCEDURE – interim receiver – whether to appoint an interim receiver of a secured loan under s 57 of the Federal Court of Australia Act 1976 (Cth) – where first respondent had purportedly assigned the loan to the applicant – where substantive proceeding claimed relief under the Trade Practices Act 1974 (Cth) and the Property Law Act 1974 (Qld) – where receiver would have powers to release security – where receiver would receive monies under loan and pay unsecured creditors instead of secured creditors – where security was effectively held separately – misunderstanding as to the nature of a receiver – necessary party not joined – receiver not appointed – applicant to file and serve statement of claim http://www.austlii.edu.au/au/cases/cth/FCA/2011/851.html

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Corporations  – post appointment

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S E Vineyard Finance Pty Ltd (recs & mgrs apptd) v Casey [2011] VSC 403 (26 August 2011) APPEAL – Magistrates’ Court – Whether numerous challenges to Magistrate’s findings raised a question of law. TRADE PRACTICES – Whether there were misleading and deceptive representations in prospectus for establishment of vineyard – Omission to mention round robin transaction involving monies borrowed from appellant to pay management fees for vineyard – Whether credit provider knowingly concerned – Whether linked credit provider liable for misrepresentation – Meaning of consumer – Whether claims outside limitation period – Unconscionable conduct – Trade Practices Act 1974 (Cth), ss 48, 51AC, 52, 73, 82. EQUITY – Whether fiduciary relationship existed – Whether there was a breach of fiduciary duty – Equitable damages – Constructive trust http://www.austlii.edu.au/au/cases/vic/VSC/2011/403.html

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Re Keldane Pty Ltd (in liq) [2011] VSC 385 (23 August 2011) CORPORATIONS – Termination of winding up – Sufficiency of material for the Court to order termination – Doubt about whether the creditors’ resolution would have been passed on the material before them – Validation of appointment of administrators – Whether approval by creditors is to be given before or at the time of administrator’s appointment – ss 436B(2) and 482(1) Corporations Act 2001 (Cth). http://www.austlii.edu.au/au/cases/vic/VSC/2011/385.html

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Re Timbercorp Limited (in liq) [2011] VSC 189 (23 August 2011) Corporations – Approval of compromise – Insurance claim – Allocation of proceeds – Confidentiality of terms of settlement and legal advice – Applications under ss 477(2A) and 511 of the Corporations Act 2001 (Cth) http://www.austlii.edu.au/au/cases/vic/VSC/2011/189.html

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CAREY -v- KORDA & WINTERBOTTOM [No 2] [2011] WASC 220 (26 August 2011) Catchwords:
Evidence – Privilege – Legal professional privilege – Receivers and managers – Whether solicitors engaged by receiver and manager are engaged to act for company – Whether sufficient basis to maintain claim for legal professional privilege over bills of costs and recharge schedules – Whether legal professional privilege waived – Whether privilege abrogated by statute http://www.austlii.edu.au/au/cases/wa/WASC/2011/220.html

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GREAT SOUTHERN MANAGERS AUSTRALIA LTD (IN LIQ) IN ITS CAPACITY AS RESPONSIBLE ENTITY OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1 -v- THACKRAY [No 3] [2011] WASC 195 (12 August 2011) Catchwords: Corporations – Managed Investment Scheme – Rights Proceeding – Withdrawal of defences and counterclaims in Rights Proceeding – Allocation of net proceeds of fund – Rights of respective claimants – Turns on own facts http://www.austlii.edu.au/au/cases/wa/WASC/2011/195.html

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MICHAEL OSCAR BASEDOW AS ADMINISTRATOR OF FIRST GROWTH FUNDS LTD (ADMINISTRATOR APPOINTED) [2011] SASC 132 (16 August 2011) Application for directions by Administrator – consideration of assets of company – whether approval should be given to dispose of certain assets prior to the second creditors meeting – difficulty of attributing value to assets – some assets consisted irrecoverable debts – agreements entered into by Administrator subject to the Court’s direction http://www.austlii.edu.au/au/cases/sa/SASC/2011/132.html

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Constantinidis & Anor v Landcorp (NSW) Pty Ltd (in liq) & Ors [2011] NSWSC 872 (16 August 2011) Costs – costs ordered against plaintiffs where application to extend caveat could not have succeeded http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/872.html

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In the matter of Tumut River Orchard Management Limited (in liq) ABN 003 501 611 [2011] NSWSC 915 (15 August 2011) CORPORATIONS – application for appointment of liquidator – s 502 of the Corporations Act 2001 (Cth) – where company in liquidation without liquidator — r 7.2 of the Supreme Court (Corporations) Rules 1999 (NSW) – whether plaintiff can bring the application where it is neither a creditor nor a contributory of the company – held r 7.2(2)(a) does not create a closed class – held s 502 of the Corporations Act 2001 (Cth) does not restrict who may properly make the application – s 14 of the Civil Procedure Act 2005 (NSW) – if it were otherwise the present case is an appropriate one in which to dispense with rule – r 1.8 of the Supreme Court (Corporations) Rules 1999 (NSW) – liquidator appointed http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/915.html

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 Chand v Azurra Pty Ltd (in liquidation) [2011] NSWCA 227 (5 August 2011) ADMINISTRATIVE LAW – judicial review – procedural fairness – whether Consumer, Trader and Tenancy Tribunal denied applicants procedural fairness in giving no weight to expert report on basis of non-compliance with Makita v Sprowles principles – whether Tribunal denied applicants procedural fairness in excluding one applicant from hearing room while her husband was being cross-examined – whether excluded applicant was denied a reasonable opportunity to be present and participate in the proceedings on second hearing day  ADMINISTRATIVE LAW – judicial review – relief sought in the nature of certiorari – whether Consumer, Trader and Tenancy Tribunal made factual findings in the absence of any evidence to support those findings  EVIDENCE – principle in Jones v Dunkel – whether failure to call available party eyewitness relevant to assessment of evidence of another party eyewitness who was called http://www.austlii.edu.au/au/cases/nsw/NSWCA/2011/227.html

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CHICAGO BOOT CO P/L v DAVIES & MCINTOSH AS JOINT & SEVERAL LIQUIDATORS OF HARRIS SCARFE LTD [2011] SASCFC 92 (23 August 2011) CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – EFFECT OF WINDING UP ON OTHER TRANSACTIONS – PREFERENCES http://www.austlii.edu.au/au/cases/sa/SASCFC/2011/92.html

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Bridgeport Pty Ltd v Yelyruss Pty Ltd (in liq) and Anor [2011] QSC 237 (2 August 2011) Procedure – Supreme Court procedure – Queensland – Procedure under Uniform Civil Procedure Rules and predecessors – Other matters – application for leave to add contributor to notice of claim – factors considered – significant delay – prejudice – contribution would not be significant – leave not granted http://www.austlii.edu.au/au/cases/qld/QSC/2011/237.html

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In the matter of Lawrence Waterhouse Pty Ltd (in liq) – Shaw v Minsden Pty Ltd [2011] NSWSC 964 (24 August 2011) CORPORATIONS – whether transfer of land and/or creation of charge over land is/are insolvent transaction(s) pursuant to s 588FC of the Corporations Act 2001 (Cth) or unreasonable director-related transaction(s) pursuant to s 588FDA (and, in either case, voidable pursuant to s 588FE) – in the alternative, whether transfer and/or creation of charge is/are alienation(s) of land with intent to defraud a creditor pursuant to s 37A of the Conveyancing Act 1919 (NSW) – CONTRACTS – whether rights and equitable interest arising under transfer have been abandoned – TRUSTS – whether transferee (Minsden) holds land and/or charge on constructive trust for transferor (Lawrence Waterhouse) – whether Lawrence Waterhouse held land as trustee for its director (Wayne Lawrence) and, if so, whether Lawrence Waterhouse is entitled to indemnification – whether, if transfer void or set aside, land is held on constructive trust for Wayne Lawrence and subject to an equitable charge in his favour – HELD – abandonment not established – Lawrence Waterhouse held land as trustee for Wayne Lawrence at time of transfer – Lawrence Waterhouse entitled to indemnification and to trace land into hands of Minsden for that purpose – charge set aside as unreasonable director-related transaction and alienation of property with intent to defraud creditor – CORPORATIONS – whether Lawrence Waterhouse has kept proper books and records for purposes of s 286 of the Corporations Act – if not, whether presumption of insolvency has been rebutted – whether Wayne Lawrence has breached any civil penalty provisions and exculpatory relief should be granted – HELD – failure to keep proper books and records – presumption of insolvency rebutted up to date of withdrawal of support by Wayne Lawrence – breach of statutory duty established – exculpatory relief not granted so as to absolve director from obligation to account for any loss sustained through breach of that duty http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/964.html

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 “Receivers & Managers” – M Ennis – Olde & Ors v Primary Compass Limited ACN 129 159 812 [2011] NSWSC 845 (8 August 2011) PROCEDURE – civil – interlocutory issues – injunction to restrain call on bank guarantee – whether implied term of guarantee that would only be used to meet certain liabilities – no serious question to be tried – interrelationship between “serious question to be tried” and “balance of convenience” http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/845.html

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Horley v Sector 7G Architecture Pty Ltd (in liquidation) [2011] NSWSC 827 (4 August 2011) APPEAL – appeal under s 39 of the Local Court Act 2007 – leave sought to carry on proceedings pursuant to s 500(2) of the Corporations Act 2001 (Cth) – leave under s 40 of the Local Court Act 2007 – adequate reasons for decision not given – architectural services provided for the reconstruction of a guest house – whether claim decided in contract or quantum meruit – credit findings – terms of agreement reached – whether agreement reached as to fixed fee on implied term that reasonable sum would be paid – appeal upheld – decision below set aside http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/827.html

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Roufeil v Gliderol International Pty Limited [2011] FCA 847 (29 July 2011) CORPORATIONS – voidable transactions – whether certain payments were voidable transactions within the meaning of s 588FE(2) of the Corporations Act 2001 (Cth) – whether payments were “unfair preferences” given by company to creditor – whether payments were made while company was insolvent – whether company presumed to be insolvent by virtue of s 588E of the Corporations Act 2001 (Cth) http://www.austlii.edu.au/au/cases/cth/FCA/2011/847.html

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 “Significant debts in this matter” – M Ennis – Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89 (25 July 2011) CORPORATIONS – powers of liquidator in winding up – whether company’s entry into agreement to fund litigation intended to be commenced by a creditor was expedient for the winding up of the company’s affairs and the distribution of its property – whether possible commercial return from sharing in proceeds of litigation adequate to attract s 477(2)(m) of the Corporations Act 2001 (Cth) PRACTICE AND PROCEDURE – application for leave to appeal by non-party – where prospective appellant held charge over the assets of the party to be funded in the litigation, which security would potentially be diminished according to the terms of the litigation funding agreement if that agreement were approved  http://www.austlii.edu.au/au/cases/cth/FCAFC/2011/89.html

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Miscellaneous

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COMMONWEALTH BANK OF AUSTRALIA -v- SHADDICK [2011] WASC 205 (22 August 2011) Catchwords: Property law – Service of default notice – Whether notice has to come to attention of mortgagor – Proper mode of service http://www.austlii.edu.au/au/cases/wa/WASC/2011/205.html

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YZERMAN -v- SCHOFIELD [2011] WASC 200 (15 August 2011) Catchwords: Conflict of laws – Leave to issue writ and serve out of jurisdiction – Application to revoke or set aside order granting leave to issue writ and serve out of jurisdiction – Related proceedings instituted in England – Dispute over beneficial ownership of land – Forum non conveniens – Relationship between remedies – Inappropriateness of local forum – Registered joint tenancy of land in Western Australia – Parties resident in England – Action for sale of land in Western Australia under s 126 of Property Law Act – Discretionary considerations http://www.austlii.edu.au/au/cases/wa/WASC/2011/200.html

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Break Fast Investments Pty Ltd v C & O Voukidis Pty Ltd [2011] NSWSC 871 (15 August 2011) Caveat – form of caveat – whether description of interest adequate – leave to lodge further caveat http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/871.html

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Gigi Entertainment Pty Limited v Basil John Macree (No. 2) [2011] NSWSC 869 (12 August 2011) SOLICITOR – COSTS – lien – delivery of former client’s papers to new solicitor – solicitor’s rules – whether solicitors undertaking satisfactorily secures payment of former solicitor’s costs and disbursements – Legal Profession Act 2004, s 728 – appropriate conditions http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/869.html

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