Insolvency set-off and its application to post-liquidation debts

The Victorian Supreme Court has delivered an important decision which clarifies the application of certain set-off provisions for insolvent companies. In Grapecorp Management Pty Ltd (in liq) v Grape Exchange Management Euston Pty Ltd [2012] VSC 112, Sifris J considered whether monies claimed to be owed by Grape Exchange Management Euston Pty Ltd (Grape Exchange) to Grapecorp Management Pty Ltd (in liq) (Grapecorp), an insolvent company, could be set-off against all of the direct costs and expenses, and management fees Grapecorp allegedly owed to Grape Exchange, in accordance with section 553C of the Corporations Act 2001 (Cth).

In relation to set-off under s553C of the Act, His Honour held that post-liquidation receipts, payments and debts are capable of set-off provided they existed as contingent claims at the commencement of the winding up of the company, and are of a kind that ultimately mature into pecuniary demands capable of set-off. Grape Exchange had an existing or vested right or obligation as at the date of the winding up, so it was proper and just that Grapecorp be brought to account, and be entitled to set off amounts that subsequently matured and crystallised.

This case confirms that through set-off, liquidators can be brought to account for post-liquidation debts which were existing or vested as at the date of winding up. It also provides guidance on the scope of liquidation 'expenses' under s566(1)(a) which will entitle certain creditors to priority.