A case which is currently before the Federal Court of Australia has highlighted a major difference in the Corporations Act and Bankruptcy Act when it comes to the assignment of debts and voting at creditor meetings.
The case is an interesting one, not only because ASIC has applied to the Court to have the liquidators of a company removed on the grounds of a perceived lack of independence, but that a debt of almost $19M was bought for $30,000 and the purchaser then voted at a creditors meeting using the full amount of the purchased debt.
The brief facts are that a loan of $18.9 million owed by Walton Construction Pty Limited to related company Walton Construction (Qld) Pty Limited was bought for $30,000 by QHT Investments Pty Ltd three weeks prior to the Walton Group going into voluntary administration. It is alleged that the purchasing company, QHT, was owned by senior executives of the Mawson Group, an entity which had been involved in restructuring the Group’s affairs and which had referred the insolvency appointment to the administrators. ASIC has concerns regarding whether adequate disclosures were made to creditors by the liquidators.
At the first creditors meeting held in the voluntary administration there was a proposal to replace the administrators and QHT voted against the incumbent administrators being replaced. The value of their vote when a poll was requested was the amount of the purchased debt, being $18.9M.
This situation regarding the assignment of debts and voting can be contrasted with the Bankruptcy Act where pursuant to section 64ZB(8), the value that a creditor can vote for is the purchase consideration, rather than the face value of the debt.
Accordingly, if the same facts above existed in relation to a meeting being held under the Bankruptcy Act, the creditor who had purchased the $18.9M debt would only have been entitled to vote for $30,000.
Further, if the relevant provisions of the Corporations Act were the same as the Bankruptcy Act then the administrators would have been replaced at the first meeting of creditors and the application to Court by ASIC may not have been required.
The above case raises an argument for changes to the Corporations Act to bring consistency to the voting rights of creditors at meetings convened in corporate and bankruptcy matters.
The Court has reserved its decision regarding the removal of the liquidators.