Insolvency and PPSA-related court cases

An update on the latest decisions impacting stakeholders in the insolvency space.

It's been a busy few months in the Courts for insolvency and related Personal Property Securities Act 2009 (PPSA) matters, with some interesting and impactful decisions. 

Here's a quick roundup of the key Court cases and what they mean for stakeholders facing an insolvency situation. 

Re Amerind Pty Ltd (in liq) [2023] VSC 350

The liquidator approached the Court under section 477(2B) of the Corporations Act 2001 seeking approval for the terms of settlement he had entered into, and directions under section 90-15 of the Insolvency Practice Schedule that he was justified in complying with the settlement terms. 

This matter had been subject to extensive ongoing litigation regarding the proper allocation of the proceeds from the sale of a property. The liquidator and the other parties entered into a settlement agreement regarding the allocation of those proceeds to conclude the litigation. 

The Court made the orders sought, noting that: 

1. The liquidator had significant ongoing personal risk in continuing the litigation.

2. The costs of taking the matter to trial would be significant.

3. The settlement was negotiated at judicial mediation.

4. The liquidator obtained legal advice that supported the settlement.

5. It was likely that the liquidator would have a Universal Distributing lien over the settlement sum.

This is an important decision in support of a liquidator’s ability to make commercial decisions relating to their appointment. 

ACN 613 909 596 Pty Ltd (formerly Minle Wine Negociants of Australia Pty Ltd) (subject to Deed of Company Arrangement) [2023] NSWSC 753

In this matter, the company, which operated a liquor wholesale business ceased to trade some time prior to the appointment of administrators. The director subsequently proposed a Deed of Company Arrangement (DOCA) whereby he would contribute $100,000 to a deed fund and the director would not participate in a distribution. The administrator recommended the DOCA and at the second meeting, the DOCA was approved on the votes of the director and other related-party creditors. 

A substantial unrelated creditor, MGP, applied to the Court seeking Orders that the DOCA be set aside. The Court determined that the DOCA should be set aside under section 447A of the Corporations Act, finding that: 

1. the company’s creditors would only benefit minimally from the DOCA

2. only creditors related to the company’s director voted for the DOCA

3. the DOCA did not promote trading of the company’s business or the welfare of its employees

4. the DOCA was an abuse of Part 5.3A of the Corporations Act.

His Honour also held the DOCA should be set aside under sections 445D(1) (e) to (g) of the Corporations Act, finding that: 

1. The DOCA could not be effected without injustice because it would prevent a proper investigation of relevant transactions, including the company ceasing to trade.

2. The DOCA appeared oppressive and unfairly prejudicial to MGP and contrary to creditors interests as a whole, as it extinguished MGP’s claim and forestalled any pursuit of related-party claims by a liquidator.

3. There was a public interest in a liquidator investigating the company’s trading activity.

This decision helps clarify the framework around what the Courts will view as an acceptable use of a DOCA, and should assist both directors and administrators when crafting DOCAs in the future. 

Inspector-General in Bankruptcy v Rutherfurd (Bankrupt) [2023] FCAFC 99

In this matter, the trustee in bankruptcy had issued income assessment notices, requiring the bankrupt to pay income contributions for the first four years of his bankruptcy, in 2020. Shortly thereafter, the bankrupt requested that the Inspector General (IG) review the trustee's assessments. The IG decided not to review the bankruptcy trustee's assessments and the bankrupt then applied to the Administrative Appeals Tribunal (AAT) seeking to have the IG's decision set aside and an amended income contribution assessment made. The AAT determined that it did not have the power to review the IG's decision. 

The bankrupt appealed the AAT's decision to the Federal Court where, in the first instance, the Judge set aside the AAT's decision and sent the matter back to the AAT to determine the bankrupt's application. The IG then appealed the matter to the full Federal Court that held the primary judge’s decision should be set aside and affirmed the AAT's original decision.

This confirms the principle that, while the AAT can review an income assessment made by the IG, the AAT is unable to review a decision by the IG to not undertake a review and make an assessment.

Cathro, in the matter of Cubic Interiors NSW Pty Ltd (in liq) [2023] FCA 694 

In this matter, the liquidator was appointed to several companies that were subject to a AllPAAP[1] security interest held by the National Australia Bank (NAB). NAB appointed a receiver under its security interests.

The liquidator caused the companies to refinance the NAB facilities by entering into an agreement with a new financier, which retired the NAB's receivers. Under the agreement with the new financier, the companies would grant a new AllPAAP in its favour. 

However, an issue arose under section 588FL(7)(a) of the Corporations Act because the security interest was registered after the 'critical time' being the liquidator’s appointment. Accordingly, the liquidator sought directions that they were justified in seeking relief under section 588FM of the Corporations Act, a remedial section to extend the time for registration of a security interest. 

The Court found that section 588FL of the Corporations Act did not apply to scenarios where the security interest was granted after the critical time. The provision’s purpose is to prevent companies from fraudulently granting security interest with knowledge of an impending insolvency appointment. 

This decision will assist liquidators in obtaining secured finance after appointment, clarifying that the incoming financier will hold a perfected security interest. 

[1] All present and after-acquired property (AllPAAP) https://www.ppsr.gov.au/about-us/news-engagement/ppsr-statistics/registrations-collateral-class