The current fragmentation of insolvency law principles across various pieces of legislation leaves ample room for confusion and uncertainty, especially in instances where multiple Acts could potentially apply to the same insolvency, or where it is unclear which legislation applies. This issue is nowhere more apparent than in the case of insolvency of companies that operate in partnership. This article identifies some of the complexities and potential confusion that arise as a result, particularly in relation to the relationship between insolvency and the dissolution of the partnership, the distribution rules that will apply where corporate partners become insolvent, and the way in which the insolvent trading prohibition applies in respect of directors of insolvent companies operating in partnership. Ultimately, it advocates for legislative reform to provide greater clarity and certainty in this context.
Central to the conflict of environmental and insolvency law is the question of who pays when the polluter cannot. Environmental standards provide impractical accountability mechanisms for the liability of corporations in liquidation. Limited legislative guidance in Australia and other Commonwealth jurisdictions has resulted in unsettled judicial outcomes that appear to produce ad hoc decisions affecting company control and liquidator liability, challenges to disclaimers, and the priority ranking of creditors' claims in liquidation. These points to unresolved tensions between environmental law and insolvency law as areas with divergent public interest concerns.
This note summarises the recent New Zealand Court of Appeal decision in Francis v Gross1 which reversed a direction given by the High Court to the liquidators of Podular Housing Systems Ltd (in liq) (Podular) that purchasers of partly constructed modular residential pods had an equitable lien over the pod that was identifiable as the subject of their contract to the extent of purchase price each had paid prior to commencement of Podular's liquidation.2 The Court of Appeal's decision overturns a line of High Court authorities3 and has the consequence that New Zealand law on this issue now deviates from the majority decision of the High Court of Australia in Hewitt v Court.4 The Court of Appeal also reversed a subsequent direction made by the High Court that the liquidators' costs and disbursements were not to be deducted from the sale proceeds of the pods before the remaining balance was paid to the purchasers.5
Pursuant to Div 45 of the Insolvency Practice Schedule, both Corporate and Bankruptcy, the court is given oversight of trustees and liquidators. To date there have been only two cases which have considered s 45-1, one in relation to a registered liquidator and one in relation to a trustee in bankruptcy; Australian Securities and Investments Commission v Bettles and Pekar v Holden (No 2), respectively. This article aims to examine the relevant provisions and case law noted above and will consider the approach the courts will take when delivering this oversight. Moreover, it will consider the relevance of the prior case law dealing with the former s 536 of the Corporations Act 2001 (Cth) and s 178 of the Bankruptcy Act 1966 (Cth). The conclusion reached in this article is that when considering the new provisions, the Courts will need to consider the old cases.
This article considers special purpose vehicles and their treatment in insolvency. In doing so, it examines the basis of court determinations of insolvency and the difficulties between a seemingly simple test as against commercial reality. It argues that notwithstanding the temptation to provide cookie-cutter application of a complex human concept, it is fundamental that the basal principles do not get out of hand on the other, for example by overly complex analysis or judicial categorisation. These considerations underly the concerns in two important respects, namely the means and nature of related party financial support given to these entities and refinancing issues around the future ability to pay.
When the debt agreement framework was introduced in 1996, it was intended to offer an alternative to bankruptcy for debtors with low debts and few assets. This framework now faces the prospect of fundamental change. In 2024, the Commonwealth Government proposed to introduce a new Minimal Asset Procedure (MAP), a shorter, less onerous form of bankruptcy for low-income, low-asset debtors. If implemented, the MAP will divert some debtors away from the debt agreement system, potentially reducing the risk of harm from unaffordable agreements. Even so, debt agreements might continue to play an important role as an alternative to bankruptcy for higher income earners with valuable assets to protect, particularly a family home. This article outlines ways in which the debt agreement system could be improved, drawing on submissions to the Government's 2024 consultation on the MAP.
The restraints on the powers of company liquidators under s 477(2A) and (2B) of the Corporations Act 2001 (Cth) have produced a number of challenges in practice. Uncertainty surrounding when the restraints are engaged, anomalous outcomes in their arbitrary application to particular transactions and the significant cost they impose on insolvent liquidations produce what one judge has described as "unfavourable circumstances" for both liquidators and courts. A critical analysis of these fetters on liquidators' powers informs a debate as to whether Australia should follow the lead of the United Kingdom (in 2015) and repeal these restraints so that liquidators enjoy the same unfettered powers as company administrators.
In cases where there is a high risk of asset dissipation or evidence destruction by directors, freezing orders under s 1323 of the Corporations Act 2001 (Cth) may prove inadequate as they rely on the directors' compliance to provide complete and accurate disclosure of assets. To address this evidentiary risk, the authors question whether adding a search order provision within s 1323 assists. The section is currently limited to freezing orders which secure assets in liquidation and protect creditors by preventing the dissipation of resources. Ancillary search order provisions might provide a reliable method to preserve evidence and support investigations by allowing applicants to seize documents and assets directly. This article examines the limitations of s 1323 and advocates for the inclusion of an ancillary search order provision. It further discusses how this addition might enhance the section's effectiveness by addressing financial and evidentiary risks in liquidation proceedings.
The possibility of a Minimal Asset Procedure (MAP) for consumer debtors with few or no assets was recently mooted in Australia. Introduction of such a procedure is justified on the basis that it would allow this category of debtors an enhanced opportunity for a "fresh start", and also for reasons of reducing the administrative and cost burden on the Australian Financial Security Authority. The MAP Discussion Paper provides an indication of some of the elements of such a procedure. This article assesses the preliminary framework of the proposed MAP, relying on the information provided in the MAP Discussion Paper, against the backdrop of relevant policy rationales, and attempts to suggest answers to some of the uncertainties that exist by way of a comparison with the New Zealand No Asset Procedure, which has been mentioned as an option for Australia to consider.
The fall of cryptocurrency exchange, FTX, has sent shockwaves throughout the cryptocurrency industry. Catalysed by dishonest and poor corporate governance by its Chief Executive Officer, Sam Bankman-Fried, FTX's bankruptcy has undermined investor and institutional trust in the cryptocurrency industry. However, as Bankman-Fried currently faces several charges for fraudulent trading in the United States, does an examination of the fall of FTX through the lens of Australia's director's duty to prevent insolvent trading under s 588G of its Corporations Act 2001 (Cth) hold the key to ensuring that such conduct is detected earlier and mitigated? This article focuses on s 588G(1)(c) and the key indicators of insolvency outlined in Australian Securities & Investments Commission v Plymin and ASIC's 217 Regulatory Guide - analysing their ability to provide key lessons for policy reform within the cryptocurrency industry.
This article examines the Enterprise Bankruptcy Law of the People's Republic of China (EBL), from its establishment in 2007 through 2022. It builds on the framework of Judge Zhang Hengzhu, segmenting the development into three stages: Exploration, Promotion, and Reform. The analysis commences with the Exploration Stage (2007-2011), highlighting initial challenges in establishing a corporate bankruptcy regime. It then transitions to the Promotion Stage (2011-2015), marked by the Wenzhou financial crisis and subsequent efforts to streamline and publicise bankruptcy procedures. The final phase, Reform, is broken into two periods. The early period (2015-2018), observed significant legal reforms leading to a surge in bankruptcy filings. The next period, (2019-2022) witnessed global reforms with China placing a revised EBL on the legislative agenda. The article underscores the EBL's pivotal role in China's economic transformation, detailing its influence on corporate restructuring, creditor rights, and the handling of "zombie companies".
The equity of exoneration is an age-old doctrine, originally available to married women, who without recognised legal status, were accorded an equity in circumstances where they charged their own interest in an asset, usually the family home, for the purposes of promoting a business or venture conducted and owned by their husband and where their husband later became bankrupt. This article examines the equity in its current form and the ways that it is typically used today. Whether there is a need for such an equity in most circumstances is a moot point, given the considerable advancement of the legal status of women, and the development of the conduct and financing of business since the 17th century. Recent decisions, nonetheless, support the continued operation of the equity.
This article considers the scenario of liquidators giving pre-insolvency advice to a company and then being called upon for appointment to that company in the event of insolvency. It is the first article in a series looking at simplification in the context of the Australian Securities and Investments Commission's limited resources and response times, to test interest in whether there are other regulatory options that improve an aspect of the operation of the insolvency regime and reduce the pressure on the regulator. This article is confined to a general discussion on the idea of drawing a distinction between pre-insolvency and post-insolvency activity and recommending different appointees for practical reasons, including those arising around conflicts of interest. A subsequent article will consider particular aspects of that idea and make recommendations.
This article assesses two judge-made tests, namely, the necessity test and the sufficient nexus test, on the court's jurisdiction to sanction creditors' schemes of arrangement ('the scheme') involving a release of third-party liabilities. The scheme is a court-controlled statutory procedure enabling a company to restructure its relationship with shareholders or creditors. The success of a scheme often requires rightsholders to release their claims against both the company and third parties. The legislation is silent on the court's jurisdiction to sanction the type of schemes just mentioned. To close this gap, courts have developed tests mentioned above. The courts, in a number of recent cases, expressed a preference to the nexus test with insufficient explanation on their reasonings. This article evaluates the tests according to their doctrinal pedigrees, replicability, and ability to maximise the flexibility of the scheme. It concludes that the sufficient nexus test is preferable by all three standards.
