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Defences to Creditor-Defeating Dispositions: Illegal Phoenixing Amendments 2020 #5

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In our last two blogs we discussed the liability on directors and third party facilitators for failing to prevent creditor-defeating dispositions. We now discuss the defences that may be available to directors and third party facilitators who would otherwise be liable.

Extension of market value

As mentioned in our previous blogs, the definition of ‘market value’ is extended to include the concept of the ‘best price reasonably obtainable’. The objective is to take into account circumstances where a company has an urgent need of cash-flow and may not be in a position to sell its assets at the market price, such as that deemed by a qualified valuer. If a company considers it is forced to sell off an asset which may be at a price less than real market value, due to time constraints in needing to realise cash, companies and advisers should consider making careful records evidencing the steps taken to attempt to realise it for as much of its market value as possible. This should include the circumstances the company was in requiring it to sell the asset potentially at under value.
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The “arid technicality” of Bankruptcy Notices?

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

At a high level the process for applying to make someone bankrupt may appear simple and straightforward. But, as the old adage goes, the devil is in the detail. At a granular level, the rules in bankruptcy proceedings are rather technical and procedures must be strictly adhered to. Often enough, a party will make a mistake where the consequence is they must start all over again, adding to lost time and increased costs.

The recent judgment of Metledge v Hopkins [2020] FCA 561 is one such case. The creditor, Ms Metledge, applied to the Federal Court of Australia for a sequestration order against the debtor, Mr Hopkins – that is, an order placing the debtor into bankruptcy and for a trustee to be appointed over his property. The creditor relied on the debtor’s failure to comply with a Bankruptcy Notice.
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COVID-19 and Corporate Insolvency: What does an increase in corporate insolvency mean to creditors?

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In these difficult times, recent legislative amendments provide assistance for debtors, but risk for creditors. Going forward, it will be important for creditors to carefully monitor their credit policies. Creditors are likely see more spikes in default rates over the next months while government restrictions and businesses’ staff isolation plans remain in place. Where a debtor is placed into external administration, they should be aware of their rights (and duties) during the insolvency process.

Creditors should take note of the changes to the bankruptcy and insolvency regimes designed to protect debtors during the coronavirus period. The changes will limit options to creditors in respect of certain enforcement action. They include:

  1. An increase in the threshold for issuing statutory demands from $2,000 to $20,000;
  2. An increase in the threshold for issuing bankruptcy notices from $5,000 to $20,000;
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DEBT COLLECTION IN A SAFE HARBOUR

Debt collection commentary by Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group.

Credit Managers should be aware of the reforms made to the Corporations Act 2001 (“the Act”) that attempt to create a shield for directors of companies that believe their company is in financial stress and how it affects their debt collection strategies.

Changes in September 2017 to the Act created section 588GA and deal with specific actions taken by directors in relation to debts incurred after 19 September 2017. These reforms are commonly referred to as the “Safe Harbour Reforms”.

It idea behind the reforms is to assist directors by not penalising them should they recognise their company is in financial distress and seek professional advice from an “appropriately qualified entity” to get out of that situation.

If when a debt has been incurred the director has a suspicion that their company is, or may become, insolvent, and they are attempting to trade out of that position with advice from the appropriately qualified entity, then the director may be protected from the insolvent trading provisions under the Act.
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CREDITORS AND THE INSOLVENCY LAW REFORM ACT 2016

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

As the 2017 year draws to a close, creditors would be aware that both instalments of the Insolvency Law Reform Act 2016 (“the ILRA”) have come to pass.

What should creditors be aware of under the new regime?

The ILRA is an attempt to reform the insolvency law but also to provide an improvement in the confidence of the public in the overall performance of the trustees and liquidators appointed to the various estates and administrations that are commenced every day.

Under the Corporations Act 2001 only the liquidator of the company can commence an action for preference payments or voidable transactions. The ILRA allows a liquidator to assign a voidable transaction to a third party (including creditors!). This may result in claims being commenced which the liquidator thought were not commercial to pursue.

Under the ILRA creditors are given significant additional powers to call meetings, request information, and documentation regarding the administration of a bankrupt or corporate insolvency administration. This gives control, upon the passing of a resolution, to give certain directions to the trustee or liquidator and in addition, to remove the trustee or liquidator, although the practitioner has a right to apply to the Court to avert removal.
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