░░░ INSOLVENCY INTERFACE – Page 10 – An open forum for news and views on Australian insolvency laws, best practice and policy.

Relationship problems for insolvency practitioners

ASIC, Checklists and guides, Corporate Insolvency, Ethics, Insolvency practices, Regulation Comments Off

Oct 162013

Before accepting an appointment as liquidator or administrator of an insolvent company the insolvency practitioner (IP) must evaluate his or her relationships with the company and with those who are involved or have an interest in its affairs. In the following decision chart and accompanying notes I suggest that there are three main steps in the evaluation process.

Step 1 is fairly simple: the task is to ensure that the IP is not prohibited or disqualified from acting by the express laws on disqualification for reason of a specific connection that are contained in the Corporations Act 2001 (the Act), i.e., sections 448C and 532.

Step 2 may be far more difficult. It involves looking out for other relationships which the Act deems to be, prima facie, of interest to creditors of the company (sections 60, 436DA, 449CA and 506A). If such a relationship exists, the IP must evaluate whether the relationship is “relevant”. Unless such a relationship is “trivial”, it will be “relevant”.

If the IP is of the view that there are no relevant relationship, he or she may accept appointment. (His or her view that there are no relevant relationships must be declared in writing in the Declaration of Relevant Relationships presented to creditors (section 60)).

Step 3 in the evaluation process is required if the IP considers that there is a relevant relationship. Relevant relationships need to be evaluated to see whether they give rise to, or are likely to give rise to, a conflict of interest or a conflict of duty for the IP in the performance of his or her obligations. This is a complex issue, which is expanded upon in Note 3.

If the IP forms the view that because of a relevant relationship he or she has or is likely to have a conflict of interest or a conflict of duty, he or she must decline to take the appointment.

On the other hand, if the IP’s view is that there is no such conflict, the IP must – in the written Declaration of Relevant Relationships – give details of the relationship and explain why he or she believes that it does not and will not give rise to a conflict of interest or a conflict of duty.

Changes to code of conduct for liquidators and trustees

Checklists and guides, Corporate Insolvency, Ethics, Insolvency practices, Personal Bankruptcy, Regulation, Standards Comments Off

Sep 182013

In continuing to develop its Code of Professional Practice, the Insolvency Practitioners Association of Australia (IPAA) released a draft third edition on 6 September 2013.

The Code sets guidelines for the behaviour and practices of trustees appointed under the Bankruptcy Act and liquidators and other types of external administrators appointed under the Corporations Act.

The draft is open for comment until 27 September 2013, and the IPAA hopes that the new version will take effect from 1 January 2014.

Those invited by the IPAA to comment are “members, regulators, government agencies and other stakeholders” – which presumably includes financiers, creditors, insolvent debtors, company directors and shareholders. In fact, the IPAA’s announcement is headed “public consultation“.

The full text of the IPAA’s Explanatory Memorandum – which provides “an explanation of the major changes that have been made to the Code in the development of the third edition” – is reproduced below.

From: Kim Arnold (IPAA)
Date: 6 September 2013
Subject: Explanatory Memorandum Draft Third edition of the Code

Introduction

This document summarises the more significant changes to the Code and discusses the reasons for the changes. It also addresses some of the concerns arising out of the first round of consultation with the IPA’s Insolvency Specialist Working Group (ISWG), National Board and State Committees.

Disclosure of referrers (6.6)

A requirement has been added to the Code requiring a Practitioner to disclose the source of a referral in the DIRRI where the appointment follows a specific referral.

During the first round of consultation, concerns were raised about this new requirement, specifically around commercial sensitivity of this information and the impact this may have on the reputation of the referral source.

It is our view that the disclosure of the referral source of an appointment is important for the following reasons:

• Creditors have a right to know how the appointment came about and part of that process is who referred the appointment maker (directors, debtor) to the practitioner;

• It may be relevant to creditors if the referral source is subsequently engaged to provide services in the administration and subsequently paid by the administration;

• We have received numerous complaints about the practices of a number of referral agencies, however as their personnel are not members of the IPA (nor registered liquidators or registered trustees) we are unable to take any action in respect of these complaints. The disclosure of the referral source may assist the IPA in managing this industry issue.

Disclosure of remuneration pre-appointment (6.13)

A section has been added to the Code requiring Practitioners to provide certain information about remuneration to directors/debtor prior to a director/debtor appointment (not court or controller appointments). This is not a requirement to provide a quote or estimate, but if a quote or estimate is provided, it will need to be in writing.

We have received a number of complaints from directors stating that they were told one thing by a Practitioner prior to the appointment and the actual fees sought/drawn in the administration were completely different. As there is usually no documentary evidence regarding what was told to the director prior to the appointment, it is difficult for the Practitioner to be able to verify what information was provided. By providing information about remuneration in writing to the directors/debtor, the Practitioner will receive protection from misinterpretation and will be able to provide evidence of the information provided in the event of a subsequent complaint.

We have also received colloquial evidence from a practitioner that some practitioners are providing directors/debtors will very low fixed fee estimates in order to obtain appointments and subsequently charging remuneration at hourly rates and having that approved by creditors.

Practitioners will also be required to disclose any estimates or quotes provided to directors/debtors prior to appointment in the initial remuneration advice sent to creditors.

We have developed a template for use by Practitioners at 23.2.3

Disclosure of basis of and actual disbursements (15.3.2)

Although creditors do not have the right to approve disbursements, they do have the right to understand on what basis disbursements are recovered and the quantum of disbursements paid to the Practitioner’s firm.

To provide greater clarity to creditors on the basis on which internal disbursements (eg internal non-professional fee expenses) are recovered , Practitioners will be required to disclose the basis in the initial advice to creditors regarding remuneration. This requirement has been built into the template at 23.2.1.

To assist creditors with understanding what disbursements have actually been paid to the Practitioner, the following information must now be included in the remuneration approval report:

• general information on the different classes of disbursements;

• a declaration that the disbursements were necessary and proper;

• in relation to disbursements paid to the Firm, whether directly or in reimbursement of a payment to a third party:

– who the disbursement was paid to;

– what the disbursement was for;

– the quantity and rate (only for internal disbursements); and

– the amount paid; and

• details of the basis of any internal disbursements that will be charged to the Administration in the future (e.g. Page rate for photocopying done internally).

Note that payments direct to third parties by the Administration only need to be clearly included in the receipts and payments.

These requirements have been built into the report template at 23.2.2.

Payment of remuneration by secured creditors in non-controller appointments (15.5.5)

The Code now makes clear that any payments by secured creditors for the realisation of secured assets, in any appointments other than controller appointments, must be disclosed to the approving body and approved in the same way as other remuneration.

In our view, this is a codification of the law.

Section 449E in respect of VA is clear that an administrator is only entitled to remuneration as is determined by agreement with the COI, resolution of creditors or the Court.

Similarly, section 473 for liquidators states that the liquidator is entitled to receive such remuneration as is determined by agreement between the liquidator and COI, resolution of creditors or the Court.

In a bankruptcy, remuneration is fixed under section 162 by resolution of creditors or by the COI. A trustee may also make an application to the Inspector General. Under s 165, a trustee is not able to make an arrangement for receiving from any person any remuneration beyond the remuneration fixed in accordance with the Act.

In our view, it is clear that there is a statutory requirement for proper approval to be obtained to draw any remuneration in any such appointments.

There was resistance to this change to the Code in the first round of consultation. It has been suggested that the Practitioner would be acting as the agent of the secured creditor and thus acting outside the VA/liquidation/bankruptcy. In our view, acting as agent of the secured creditor would be a conflict that would prevent the continuation of the underlying insolvency appointment. ASIC has similar concerns regarding conflict issues.

Furthermore, we envisage that the administrator/liquidator/trustee would be using the ABN, GST registration and insurance coverage of the underlying administration.

The proper view, in our opinion, is that the VA/liquidator/trustee is selling those assets in their role as VA/liquidator/trustee and remitting the proceeds to the secured creditor (subject to any prior ranking creditor, for example section 561 in a liquidation). The VA/liquidator/trustee may withhold sufficient funds to meet the cost of selling those assets, but that money cannot actually be drawn as remuneration until approval is obtained from the approving body.

Identity of directors (20.2)

There is a new requirement in the Code for Practitioners to take appropriate steps to satisfy themselves of the identity of directors or a debtor prior to accepting an appointment where the appointment is being made by the directors or a debtor.

The requirement is to take appropriate steps, which means that the Practitioner should use professional judgement to determine what is appropriate in the circumstances.

This requirement is consistent with AFSA’s (previously ITSA) requirement to verify identity when lodging a debtor’s petition.

Joint appointments (20.3)

General guidance has been added to the Code stating that joint and several appointments:

• should be taken with the knowledge that all Appointees are equally responsible for all decisions made on joint and several appointments, and

• the firm should have in place policies and procedures to ensure that all appointees are knowledgeable about the conduct of the administration, even if one appointee is leading the conduct of the administration.

This is general guidance following a spate of disciplinary action against co-appointees that were not the lead appointee on the administration.

For the purpose of facilitating comment the IPAA has made this Explanatory Memorandum and the following documents publicly available free of charge from its website:

Draft third edition with all edits marked up
A comprehensive Edits List of all changes “made to the Code between the second and third editions”.
Draft “clean” third edition assuming all edits are accepted

To see the notice issued by the IPAA click HERE.

Liquidator likely to be banned for 5 years after Court inquiry

ASIC, Case Reports, Corporate Insolvency, court decisions, Ethics, Forms, Insolvency Law, Insolvency Laws, Insolvency practices, law reports, Records Management, Regulation, Standards Comments Off

Sep 032013

Melbourne liquidator Andrew Leonard Dunner is likely to be prohibited from being registered as a liquidator for 5 years, following a decision by the Federal Court in an action brought against him by the Australian Securities and Investments Commission (ASIC).

In a media release on 30 August 2013 ASIC said that:

“In handing down his reasons for judgment today, Justice Middleton found that Mr Dunner had failed to adequately investigate the circumstances and affairs of companies to which he was appointed and had inaccurately reported to ASIC and creditors.

“The Court also found that he had drawn remuneration in excess of $600,000 without appropriate approval or adequate supporting documentation. The Court considered it appropriate that he should repay that remuneration and have leave to apply to the Court for justification of an entitlement to recoup remuneration where appropriate. Justice Middleton found that Mr Dunner’s conduct indicated ‘…a systemic failure of administration and internal protocols, as well as (in a number of instances) extremely poor professional judgment. In this way, Mr Dunner has failed to satisfy the high standards of conduct required of his offices’.

“In finding that a banning period of 5 years was appropriate, Justice Middleton said:

‘Withdrawing a liquidator’s registration operates directly to protect the public from the work of the person. It also operates generally by deterring other liquidators from acting in a similar fashion. ASIC submitted – and I accept – that there is a compelling public interest in the maintenance of a system which recognises that registration as a liquidator is a privilege, the continuance of which is conditional upon diligent performance of its attendant duties.’

To see the ASIC media release, CLICK HERE.

To see Justice Middleton’s important 67 page report and judgment, CLICK HERE .

Case citation:

Australian Securities and Investments Commission v Dunner [2013] FCA 872.

Case catchwords:

CORPORATIONS – Corporations Act 2001 (Cth), ss 423, 499, 536 – Duties of liquidator – Duties of receiver – Court inquiry into defendant’s conduct as liquidator and receiver – Failure by defendant to investigate circumstances of companies to which he was appointed – Drawing remuneration without approval or adequate supporting documentation – Inaccurate reporting to ASIC and creditors regarding external administrations – Repayment of remuneration drawn without approval – Unfitness to remain registered as liquidator – Duration of prohibition order.

What do ASIC’s Enforcement Outcomes reports mean?

ASIC, Corporate Insolvency, Insolvency Statistics, Offences, Regulation, White collar crime Comments Off

Jul 262013

An Enforcement Outcomes report has been issued by the Australian Securities and Investments Commission (ASIC) for the six months from January to June 2013 (Report 360).

It is the fourth of its type since ASIC abandoned its Prosecution Reports. But unlike those reports – upon which I based my paper, “Convictions for summary insolvency offences committed by company directors” , a detailed comparison of prosecution outcomes over the years 2006 to 2010, including the sections of the Corporations Act under which enforcement action was taken and the fines imposed – the new Enforcement Outcomes reports provide far less information.

In the part of the latest Enforcement Outcomes report that mentions summary insolvency offences, the reader is simply told that:

“As part of our liquidator assistance program, 249 directors were successfully prosecuted for summary offences concerning a failure to assist an external administrator.” (paragraph 86)

Similar brief references are made in the three previous reports.

So what, if anything, do these limited figures say?

About all we can do is compare the latest figure with those from the previous 18 month period.

In the six months from July to December 2012 the comparative number of directors successfully prosecuted under the liquidator assistance program was 275. (Report 336, paragraph 91.)

Further comparisons with the two earlier Enforcement Outcomes reports might not be all that meaningful, because those reports give figures on summary “proceedings against” directors rather than the current classification of “successful prosecutions” against directors. That said, the reports for the six months to June 2012 and for the first six months (to December 2011), put the figures at 196 and 208 respectively (see Report 299, paragraph 48 and Report 281, paragraph 39 )

But according to ASIC, readers need to be cautious when making comparisons of such data. The Enforcement Outcomes report 360 states (at paragraph 18):

“Comparisons between individual enforcement reports have some limitations. This is because no two enforcement actions are the same. For example, there may be differences in the complexity or seriousness of the allegations. However, over a two-year period, it is possible to identify the types of conduct or sectors that are the focus of ASIC’s enforcement activity in the longer term.”

This statement – minus the final sentence – was also used in the Media Release that accompanied the report.

Too many liquidators failing to provide adequate disclosure to creditors on relationships

ASIC, Corporate Insolvency, Insolvency Laws, Insolvency practices, Offences, Regulation, Standards Comments Off

Jul 242013

When the Australian Securities and Investments Commission (ASIC) released its report on supervision of registered liquidators it bemoaned the fact that its compliance checks had found a 10% increase in inadequate declarations, up from 46.9% in 2011 to 56.3% in 2012.

In the accompanying Media Release ASIC Commissioner John Price was fairly blunt:

“The increase in inadequate declarations concerns ASIC. Liquidators must make full disclosure to creditors when it comes to their independence. Given our guidance, and education programs through the Insolvency Practitioners Association of Australia (IPA), there is no good reason for such a failure rate.”

Under the Corporations Act 2001 liquidators and administrators (other than those appointed by the Court) are required to make written declarations to creditors concerning indemnities they have received and relationships they have, or have had, with certain defined “persons” within the preceding 24 months. Both declarations are to be made and sent to creditors before the first meeting of creditors is held. The Declaration of Relevant Relationships and Declaration of Indemnities are referred to collectively in the insolvency profession as a DIRRI.

An “inadequate” DIRRI is described in ASIC’s report (para 56) as one which:

(a) fails to disclose a relevant relationship in pre-appointment dealings and/or, where such a relevant relationship has been identified, adequately explain why it does not create a conflict of interest;

(b) fails to disclose all companies involved in appointments to a group of companies, and whether or not circumstances existed between the group entities that may give rise to a conflict and, if so, how the appointees would manage those issues; and/or

More detailed guidance on how to make sure a DIRRI is adequate was given to registered liquidators in an email sent to them on 28 June 2013 by Adrian Brown, leader of ASIC’s Insolvency Practitioners Team.

The email extract below is Mr Brown’s description of “seven key areas for improving the likelihood that your DIRRIs do comply with the law, relevant professional standards and the IPA’s Code of Professional Practice.”

“1. Disclose pre appointment dealings/advice

Provide meaningful information about the nature and extent of pre-appointment meetings (regardless of the nature of the meeting or dealing, be it face to face meetings, telephone discussions or email/ other electronic communications) with the company’s directors and any of their advisors.

2. Disclose relationships

Disclose all relevant relationships in accordance with the Act, professional standards and the IPA Code to ensure full disclosure and transparency. We suggest you consider:

· how the relevant relationship might impact your ability to act in the best interests of creditors; and

· whether there is a reasonable chance that creditors might consider that independence is, or appears to be, compromised by that relationship if it were to subsequently come to light.

3. Provide a reason why a relationship does not result in a conflict

Give a reason why you believe each relevant relationship does not result in a conflict of interest or duty. The reasons provided must be specific to the appointment and should not simply be a restatement of example reasons provided in the IPA Code.

Merely stating that a relationship will not affect your independence, or that you received no payment for pre-appointment advice or meetings, is NOT a “reason”.

4. Disclose when appointed to a group of companies

Where the appointment is to a number of companies in a group, the DIRRI should specifically refer to each company and cite a reason why you believe that multiple appointments will not result in a conflict of interest or duty.

You should also consider what steps you must take should you become aware of an actual or potential conflict after the appointment.

5. Disclose external administrations with common directors

Documented conflict checks undertaken pre-appointment should show if you or your firm acted, or continue to act, as external administrator of another company with the same or a common director where the appointment occurred within two years before the new appointment.

Where this occurs, the relationship should be disclosed together with the reason why you believe the new appointment will not result in a conflict of interest or duty.

6. Disclose indemnities and other up-front payments

Disclose full details of the nature and extent of all non-statutory indemnities and up-front payments. This should include stating whether there are any conditions governing the indemnity, including what the indemnity can be used for.

7. Review and sign the DIRRI

It is vital that you carefully review every DIRRI before signing it. All appointees must sign the DIRRI.”

ASIC’s message is taking a long time to get across to some liquidators …

Three years ago (May 2010) Mr Stefan Dopking, then ASIC’s leader of the Insolvency Practitioners & Liquidators Stakeholder Team, wrote to registered liquidators to reveal the findings of its compliance review of DIRRIs in 2009. What ASIC found then was strikingly similar to its findings in 2012, as this extract from Mr Dopking’s letter shows:

“The review identified a number of areas where we believe the adequacy of disclosure needs improvement. In particular, our general observations are that:

a large number of Declarations did not adequately disclose the nature of the relationships or provide adequate reasons to explain why the disclosed relationships did not result in a conflict of interest or duty;

Declarations did not clearly articulate whether the registered liquidator’s firm (i.e. partners or related bodies corporate) was included in the Declaration;

the majority of Declarations did not disclose the nature and extent of pre appointment meetings and advice;

prior or contemporaneous appointments as external administrators of other companies with common directors were not adequately disclosed in over 20 instances;

many Declarations did not provide sufficient information to adequately identify the party providing an indemnity or sufficiently disclose the nature and extent of the indemnity provided;

many Declarations were not signed by both joint and several appointees (ASIC is of the view that each appointee must consider whether any relevant relationships exist that require disclosure and the Corporations Act 2001 (‘the Act’) requires each appointee to sign the relevant Declarations); and

it was not evident from the minutes of the meeting of creditors in many cases that Declarations were tabled at the meeting of creditors as required by the Act3. Minutes of the meeting of creditors should evidence compliance with this statutory requirement.”

The law requiring liquidators to prepare DIRRIs for creditors came into effect in January 2008.

(End of post)

Are Official Liquidators funding the Court Liquidation scheme?

Assetless companies, Corporate Insolvency, Insolvency practices, Insolvency Statistics, Regulation Comments Off

May 142013

According to a recent study, the cost of being an official liquidator can be a bit rich.

“In respect of official liquidations generally, the survey showed that on an annual basis, insolvency practitioners are required to personally fund disbursements of $1.4 million and remuneration of $47.3 million in the conduct of their roles as Official Liquidators.”

This is one of findings in a research paper titled “An Analysis of Official Liquidations In Australia”, written by Amanda Phillips of Ferrier Hodgson, Sydney, and published on 13 May 2013 via the website of the Insolvency Practitioners Association of Australia (IPAA).

More detail of the estimates on annual remuneration and disbursements for official liquidations generally is shown in this table:

	Charge made/cost incurred (million dollars)	Recovered from company assets (million dollars)	Funded by Official Liquidators (million dollars)
Remuneration	55.6	8.3	47.3
Disbursements	1.9	.5	1.4

Another finding is that “based on the data provided by survey respondents, the average cost to administer an official liquidation is $17,475 over an average period of 7 to 12 months.”

Ms Phillips surveyed members of the IPAA. The survey covered official liquidations which commenced during the period 1 July 2011 to 30 September 2011. The paper says that “Sixteen Official Liquidators provided data in relation to 90 matters, which represented 10% of the total national official liquidations that commenced during the period 1 July 2011 to 30 September 2011.”

In addition to remuneration the paper reports on aspects of official liquidation including the nature of a typical official liquidation, the duration of appointments, an industry analysis, the turnover & size, the dividends to unsecured creditors and funding for Official Liquidators.

Ms Phillips was the 2012 winner of a scholarship from the Terry Taylor Scholarship fund administered by the IPAA. Her 33 page paper is available in pdf format from the IPAA site by clicking HERE.

A gift of new insolvency legislation

Corporate Insolvency, Insolvency Law, Personal Bankruptcy, Regulation Comments Off

Jan 212013

Proposals for significant changes to Australia’s insolvency laws slipped out of the Government pipeline and into the public arena for comment just prior to Christmas.

According to the Government’s media release (19/12/2012):

the proposed laws aim at “reforming and modernising the way insolvency professionals are registered, disciplined and regulated”;
they will “improve regulatory oversight of the insolvency profession, improve value for money for recipients of insolvency services, and enhance creditor rights across all forms of insolvency administration (and in particular) provide greater powers for creditors to remove practitioners and curb excessive fees, and therefore deliver better outcomes for creditors, many of whom are small businesses”;
the laws are “an important element (in) the alignment of personal and corporate insolvency regulation in a number of key areas (and) seek to deliver greater consistency and less complexity for employees, creditors and practitioners, who all need to interact in the event of a personal or corporate insolvency”;
they show the Government is committed to “restoring the community’s confidence in the effective regulation, high professional standards, transparency and accountability of the insolvency profession following recent high profile cases of misconduct by corporate insolvency practitioners”.

The proposed laws are contained in the Insolvency Law Reform Bill 2012.

Interested parties have until 8 March 2013 to make a submission concerning the Bill.

The Exposure Draft of the Bill and the Explanatory Material are available for download from the webpage at http://www.treasury.gov.au/ConsultationsandReviews/Submissions/2012/Insolvency-Law-Reform-Bill

The address for submissions is also given at that webpage.

To see the full media release by the Government release click HERE.

A second tranche of the Bill – with consequential amendments to corporate and personal insolvency legislation as a result of the reforms, as well as transitional measures – is expected to be released soon.

………………………………………….. END ……………………………………..

Value of a penalty unit increased for first time in 15 years

ASIC, Corporate Insolvency, Insolvency Laws, Offences, Regulation, White collar crime Comments Off

Dec 202012

If you believe that the notional monetary value of fines should keep pace with inflation, then you’ll be pleased by recent amendments to the Crimes Act 1914.

The amendments, which take effect from 28 December 2012, will see the monetary value of a penalty unit increased for the first time in 15 years.

Also, the amendments require that in future the value of a penalty unit must be reviewed every three years to ensure that it is “amended to accommodate changes in the Consumer Price Index”.

The monetary value of a penalty unit will increase from $110 to $170. This is the first increase since 1997. On my calculations the $60 increase is the equivalent of a 2.2% increase each year over the past 15 years.

The change affects the value of a penalty unit in most Commonwealth laws, including the Corporations Act 2001. and, therefore, the sections dealing with liquidations and other forms of external administration.

I have written previously about penalties imposed under sections 475 and 530A of the Corporations Act. A section 475 penalty may be imposed if a director fails to submit a Report as to Affairs to the liquidator. A section 530A penalty may be imposed if a director fails to deliver books and records or fails to assist the liquidator. The old and new maximum fines for these summary offences are shown in the chart below.

Offence	Maximum Penalty Units	Old Maximum Fine to 27/12/2012	New Maximum Fine from 28/12/2012
Section 475	25	$2,750	$4,250
Section 530A(6)	50	$5,500	$8,500

Of course, it remains to be seen whether the increased maximums will result in greater penalties being imposed by the Courts.

____________________________________________________________________________________

Sources:

Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Bill 2012 received royal assent on 28 November 2012. See HERE

Crimes Act 1914, subsection 4AA

Section 1311 of the Corporations Act 2001

Schedule 3 of the Corporations Act 2001

“Australian Insolvency Decisions” August 2012 edition

Case Reports, Corporate Insolvency, court decisions, Insolvency Law, law reports, Personal Bankruptcy Comments Off

Sep 242012

Complied 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. Michael’s comments appear in red text.

Note: There is no July 2012 edition of Australian Insolvency Decisions.

Bankruptcy Act – following Date of Bankruptcy

Ambrose (Trustee) in the matter of Poumako (Bankrupt) v Poumako [2012] FCA 889 (21 August 2012) BANKRUPTCY – where transfer void against trustee in bankruptcy – property jointly owned by bankrupt and another person – appropriate orders in circumstances

BANKRUPTCY – where transfer void against trustee in bankruptcy – transferee paid part consideration – property subject to mortgage – mortgagee’s rights – mortgage funds used to pay part consideration – operation of s 120(4) regarding repayment of consideration paid by transferee

BANKRUPTCY – whether two transfers of property are void against the trustee in bankruptcy – undervalued transactions – transfer of residential properties by bankrupt to family members – whether the properties were held in trust – reliability of evidence – repayment of consideration paid http://www.austlii.edu.au/au/cases/cth/FCA/2012/889.html

Mulhern v Pearce [2012] FCA 884 (17 August 2012) http://www.austlii.edu.au/au/cases/cth/FCA/2012/884.html

Maxwell-Smith v Donnelly [2012] FCAFC 82 (16 May 2012) http://www.austlii.edu.au/au/cases/cth/FCAFC/2012/82.html

Seems to be an important matter, providing review of s.179 – clearly a lot going on– Liprini v Pascoe as Trustee of the Bankrupt Estate of Liprini [2012] FCA 886 (16 August 2012) BANKRUPTCY – application for inquiry pursuant to s 179 Bankruptcy Act 1966 – threshold requirements for inquiry http://www.austlii.edu.au/au/cases/cth/FCA/2012/886.html

Freeman v National Australia Bank Limited [2012] FCA 866 (16 August 2012) PRACTICE AND PROCEDURE – vexatious litigant – application for extension of time for leave to appeal – application for leave to appeal against decision dismissing application to rescind vexatious litigant orders – order declaring vexatious litigant interlocutory not final – relevant principles in considering application for extension of time and for leave to appeal – reopening previous decision because of alleged fresh evidence – merits of case – whether primary judge had proper regard to issues raised by applicant – indemnity costs http://www.austlii.edu.au/au/cases/cth/FCA/2012/866.html

Interesting reading – looking forward to future hearings – National Australia Bank Limited v Moore [2012] FCA 865 (15 August 2012) BANKRUPTCY AND INSOLVENCY – bank seeking leave pursuant to s 58(3)(b) of the Bankruptcy Act 1966 to take fresh steps in, and to continue with, proceedings in the Supreme Court of New South Wales http://www.austlii.edu.au/au/cases/cth/FCA/2012/865.html

Rose v Meriton Apartments Pty Limited [2012] FCA 844 (13 August 2012) BANKRUPTCY AND INSOLVENCY – discretion to make sequestration order – whether discretion miscarried – whether leave should be granted to amend notice of appeal http://www.austlii.edu.au/au/cases/cth/FCA/2012/844.html

Frost v Bovaird [2012] FCA 831 (10 August 2012) http://www.austlii.edu.au/au/cases/cth/FCA/2012/831.html

Rahman v Dubs [2012] FCA 849 (9 August 2012) http://www.austlii.edu.au/au/cases/cth/FCA/2012/849.html

Corporations – pre-appointment

Valuestream Investment Management Ltd v Richmond Management Pty Ltd [2012] FCA 898 (22 August 2012) CORPORATIONS – urgent ex parte interlocutory application for the appointment of an interim receiver and manager – managed investment scheme – whether circumstances justified appointment of a receiver and manager – prima facie evidence that the trustee company no longer had director resident in Australia or registered office – prima facie evidence that the trustee company had made improper investments, failed to keep accounting records, appoint an auditor and report to unit holders http://www.austlii.edu.au/au/cases/cth/FCA/2012/898.html

Valeba Pty Ltd v Deputy Commissioner of Taxation [2012] QSC 200 (2 August 2012) STATUTORY DEMAND – SETTING ASIDE – DEMAND SERVED BY DEPUTY COMMISSIONER OF TAXATION – CONCLUSIVITY PROVISIONS OF TAXATION LEGISLATION – GENUINE DISPUTE – OTHER REASON TO SET ASIDE http://www.austlii.edu.au/au/cases/qld/QSC/2012/200.html

Corporations – post appointment

Warner v Hung, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (In Liquidation) (No 3) [2012] FCA 819 (6 August 2012) http://www.austlii.edu.au/au/cases/cth/FCA/2012/819.html

Robinson, in the matter of Darrell Lea Chocolate Shops Pty Ltd (Administrators Appointed) [2012] FCA 833 (3 August 2012) period for holding meeting extended http://www.austlii.edu.au/au/cases/cth/FCA/2012/833.html

Shannon (in his capacity as receiver and manager of North East Wiradjuri Co Limited) v North East Wiradjuri Co Limited (No 4) [2012] FCA 836 (2 August 2012) Fees fixed http://www.austlii.edu.au/au/cases/cth/FCA/2012/836.html

WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) atf THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST -v- SILKCHIME PTY LTD (RECEIVERS AND MANAGERS APPOINTED) atf THE SILKCHIME UNIT TRUST [No 2] [2012] WASC 275 (1 August 2012) Companies – Payment by one company to another in group – Existence of debt – Evidence of Joint Venture Agreement – Interest payments
Evidence – Corporations Act s 1305 – Books kept – Admissible
Directors’ duties – Corporations Act s 181 – Breaches of statutory duties http://www.austlii.edu.au/au/cases/wa/WASC/2012/275.html

Gannell v Seaquest Pleasure Boats Pty Ltd (In Liquidation) [2012] VCC 893 (26 July 2012) CATCHWORDS – Personal injury claim – negligence of boat builder – breach of contract of sale of boat – assessment of damages for pain and suffering and pecuniary loss http://www.austlii.edu.au/au/cases/vic/VCC/2012/893.html

VCC & the QDC! – seldom, if ever see insolvency matters in this jurisdiction – Andrew Fielding as Liquidator of Lyngray Developments Pty Ltd v Dushas & Anor [2012] QDC 96 (11 May 2012) Corporations – external administration – voidable transactions – uncommercial transactions http://www.austlii.edu.au/au/cases/qld/QDC/2012/96.html

Vouris and Tonks as Deed Administrators Of Good Impressions Offset Printers Pty Limited (ACN 002 306 587) [2012] NSWSC 603 (30 May 2012) CORPORATIONS – Deed of company arrangement – Corporations Act 2001, 444DA – employees – employees not given priority by deed – employee creditors consent to deed – circumstances in which court will approve non-inclusion of provision under 444DA – whether approval can be given after execution of deed http://www.austlii.edu.au/au/cases/nsw/NSWSC/2012/603.html

Inglewood Farms Pty Ltd v AM No. 1 Pty Ltd (administrators appointed) (No 2) [2012] NSWSC 591 (29 May 2012) CORPORATIONS – Winding up – Corporations Act 2001 s 440A(2) – Application for the adjournment of winding up application – Relevant factors as to whether application should be adjourned – Whether requirements satisfied http://www.austlii.edu.au/au/cases/nsw/NSWSC/2012/591.html

Moodie, in the matter of Gowinta Farms Pty Ltd (administrators appointed) [2012] FCA 578 (31 May 2012) CORPORATIONS – extension of time to convene a second meeting of creditors of company in administration http://www.austlii.edu.au/au/cases/cth/FCA/2012/578.html

Miscellaneous

Lowe v Pascoe (No 2) [2012] NSWSC 885 (3 August 2012) Cash payments journals and expert report in relation to them admitted as evidence in fresh trial http://www.austlii.edu.au/au/cases/nsw/NSWSC/2012/885.html

Appoint of a Receiver and Manager of the partnership businesses – Lowe v Pascoe [2010] NSWSC 388 (7 May 2010) Existence of partnership Unusual signed partnership agreement Family patriarch conducting partnership business (or businesses) as if it (they) was (were) his own and controlling all aspects Numerous disputed questions of fact and law and subsidiary issues
Substantial cash businesses (grocery and butchery) Non-disclosure of full partnership income to ATO
Evasion of tax – plus – http://www.austlii.edu.au/au/cases/nsw/NSWSC/2010/388.html

END OF POST.

Liquidator wins: Court finds that third party payment is an unfair preference

court decisions, Insolvency Law, Insolvency practices, Payments to ATO, Tax debts, Taxation Issues, Voidable transactions Comments Off

Sep 062012

An insolvent company, Mortlake Hire Pty Ltd (Mortlake), owed a debt to the Australian Tax Office (ATO). A related company, Antqip Pty Ltd, paid $70,000 to the ATO in respect of Mortlake’s debt. The liquidator of Mortlake took legal action against the ATO to recover the $70,000 as an “unfair preference” under section 588FA of the Corporations Act. The ATO claimed the payment was not an “unfair preference” because it had come from Antqip and had resulted in one creditor (ATO) being substituted by another (Antqip). The Full Federal Court (on 31/8/2012) rejected the ATO’s argument and found in favour of the liquidator.

The case is Commissioner of Taxation v Kassem v Secatore [2012] FCAFC 124

For an excellent analysis of the case – which also addressed the ATO’s practice of unilaterally reallocating payments made by taxpayers of tax liabilities from one account (such as the integrated client account) to another (such as the superannuation guarantee account) – see this blogpost by Carrie Rome-Sievers, a commercial law barrister and insolvency specialist of Melbourne.

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