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To Extend, or Not to Extend: That is the Question

By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

Part 5.7B of the Corporations Act 2001 (Cth)(“the Act”) contains provisions that allow a liquidator to seek orders that void certain transactions undertaken by a company whilst it is insolvent, or that are not in the company’s interests. The kinds of transactions that will be investigated by a liquidator include:

  • Preferential payment – see section 588FA of the Act;
  • Uncommercial transactions – see section 588FB of the Act;
  • Insolvent transactions – see section 588FC of the Act;
  • Insolvent transactions – see section 588FD of the Act;
  • Unreasonable director-related transactions – see section 588FDA of the Act; and
  • Creditor-defeating dispositions – see section 588FDB of the Act.

The period of scrutiny of the company’s transactions prior to liquidation for each category of voidable transaction is set out in section 588FE of the Act.

Section 588FF(3) of the Act stipulates that a voidable transaction action by a liquidator must be commenced within:
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Danger – COVID-19 Safe Harbour STILL Requires Early External Administrator Appointment

The Government has recently extended COVID-19 business protection measures introduced in March, including the temporary safe harbour protection from director liability for insolvent trading. These protections will now expire on 31 December 2020. However the Government has not corrected a critical timing issue which exists in the COVD-19 safe harbour legislation. This means directors must appoint an external administrator to their company on or before 31 December 2020, if they wish to take advantage of the COVID-19 safe harbour protection from insolvent trading.

In March Parliament passed a raft of legislative reforms in an attempt to provide protections for businesses an ameliorate the economic effects of the coronavirus in Australia. One of these amendments was temporary legislation to protect directors from liability for insolvent trading during the global COVID-19 pandemic. This temporary protection is found in section 588GAAA of the Corporations Act 2001 (Cth). This safe harbour protection from insolvent trading will mean that directors will not be personally liable for debts incurred in the ‘ordinary course of business’, provided those debts were incurred during the operation of the temporary legislation, presently which will now expire at the end of 31 December 2020.
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Fighting Fund Frustrated

By Stephen Mullette a Principal of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.

In a not unsurprising decision, a liquidator has been unable to protect the balance of the funds available to him in winding up (described as the “Litigation Fund”) from potentially being made available as security for the defendants’ costs.

In Nucros (WA) Pty Ltd (In Liquidation) v Ultra Plast Pty Ltd (2017) WASC 1, the liquidator was not personally a party to the proceeding, which meant the company was susceptible to a security for costs application, pursuant to section 1335 of the Corporations Act 2001. The liquidator had recovered a preference claim from the ATO and established a Litigation Fund for the purpose of continuing certain proceedings commenced prior to his appointment. The balance of the litigation fund at the time of the security for costs application was approximately $135,000. The defendants sought an order for the provision of $90,000 security.
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