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.

Genuine steps statement needed in Federal Court to set aside statutory demand

The Federal Court of Australia has recently held that an applicant seeking to set aside a statutory demand issued against it was obligated to file a genuine steps statement before commencing proceedings. This places the onus on a party attempting to set aside the statutory demand to take genuine steps to resolve the dispute prior to taking action in the Federal Court. Consequently, practical difficulties arise due to the short timeframe of 21 days in which a party is required to respond to a statutory demand.

A challenge to a statutory demand is able to be commence in the Federal Court or in a State Supreme Court. The requirement to file a genuine steps statement before commencing proceedings only applies in the Federal Court because at this stage there is no equivalent of the Federal genuine steps statement in State Courts. Commencement of similar legislation in NSW (the only state where such legislation is or still is on the books) is currently suspended for 18 months from 13 September 2011. This means that applicants seeking to set aside a statutory demand may prefer to do so in a State Supreme Court.

The decision of Reeves J in Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 is an important decision which clarifies the obligations of lawyers in complying with the requirement to file a genuine steps statement in the Federal Court pursuant to the new Civil Dispute Resolution Act 2011 (Cth).

Reeves J held that the failure of either party to file a genuine steps statement should be taken into consideration in determining the question of costs in the proceedings, and adjourned the matter to allow the parties to make submissions on the issue. His Honour ordered that the parties' lawyers be joined as parties to the proceeding for the determination of costs, and that they advise their clients to obtain independent legal advice for that issue.

This case confirms that, in the Federal Court, the failure to provide a genuine steps statement will be a relevant consideration in determining the question of costs in a proceeding, and that where a lawyer has failed to comply with their obligation to assist their client in filing a genuine steps statement, they may be joined as parties to the proceedings for the limited purpose of determining costs. From an insolvency law perspective, it is important to note that applications to set aside a statutory demand do not constitute an 'excluded proceeding' for the purpose of the Act. Accordingly, in the Federal Court, the obligation to file a genuine steps statement remains.

Linklaters and Allens form integrated alliance

Allens Arthur Robinson and Linklaters are pleased to announce the formation of a new integrated alliance that will result in the two firms working together closely for the benefit of clients around the world.

Whilst the two firms will remain independent, they have complementary practices that will enable them to provide a fully integrated service to clients.

Allens will become the alliance partner of Linklaters in Australia and Linklaters will become Allens alliance partner elsewhere in the world. In addition, the two firms will establish joint ventures in Asia.

More information is available at our website.

Flawed asset provision in English law ISDA Master Agreement clarified

The English Court of Appeal has provided clarity on the operation under English law of some clauses in the ISDA Master Agreement, including a key protection for Non-defaulting Parties – the flawed asset provision under Section 2(a)(iii).

For more information, see our Focus prepared by Partners Diccon Loxton and Tom Highnam and Senior Associate Caleb Chua.

Insolvency appointments in February 2012 highest since height of GFC

February 2012 represented the largest number of corporate insolvencies in Australia since the height of the global financial crisis in March 2009, according to data recently released by ASIC.

Across Australia there were 1532 insolvency appointments during the month, with 618 in NSW alone. The Australia-wide figure also demonstrates an 18 per cent increase on the equivalent number from February 2011 (1299 insolvency appointments).

Receivers' examination powers upheld as constitutionally valid

A recent WA Court of Appeal decision has affirmed the constitutional validity of a court's power to conduct public examinations of a corporation in receivership and where property of a corporation is in the possession of a mortgagee.

For more information, see our Focus prepared by Partner Philip Blaxill, Senior Associate Corey Steel and Law Graduate Miranda Cummings.