New ASIC requirement that winding up application notices be lodged online

From 1 July 2012, most insolvency and other notices won't require print media advertisement. Rather, they must be lodged with ASIC for publication on ASIC's new website for insolvency and other notices.

The types of notices that will be lodged with ASIC are:

1. notices of winding up applications;
2. notices relating to appointments;
3. notices of meetings of creditors;
4. notices of intention to disclaim property;
5. notices calling for proofs of debt and intention to declare dividends; and
6. company deregistration (ASIC publishes these notices).

For a guide on how to lodge the notices on the new website and for more general information on this topic, visit the ASIC website.

When is a creditor not a creditor? Special leave refused

On 15 February 2012 we wrote a blog post entitled 'Unadjudicated claims not admissible to proof under DOCA' on a New South Wales Court of Appeal case - BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414.

We can now report that the respondent's application for special leave to appeal to the High Court of Australia has been refused.

Effect of intermixed property on location of a company's COMI

A recent decision of the European Court of Justice has provided further clarification on the notion of a debtor's centre of main interests. In Rastelli Davide e C. Snc v Jean-Charles Hidoux [2011] EUECJ C-191/10, the court dealt with the effect that intermixing various companies' property has on the location of a company's Centre of Main Interests (COMI).

The court held that the mere finding that the property (bank accounts) of various companies within a multi-national group were intermixed is not sufficient to rebut the presumption that a company's COMI is in the same geographic location where the company has its registered office.

This case is important because it highlights that a company's COMI will be determined once an overall assessment of all the relevant factors is undertaken. Additionally, various factors may be deemed too difficult to ascertain by third parties. Although it deals with European law, it is conceivable that this decision would be considered by an Australian court dealing with the same issues.

April 2012 insolvency appointments: worst April on record, but better than February 2012

April 2012 proved to be another tough month for Australian corporations, with 869 insolvency appointments across Australia, according to data recently released by ASIC.

Although this figure falls short of February's 1532 insolvency appointments, it represents a 7 per cent increase from the number in April 2011 (812).

Restraining recovery of assessed amounts of tax

The New South Wales Supreme Court has delivered an important decision which looked at an application to restrain recovery of tax assessments. Justice White, in Print National Australia Pty Ltd v Chief Commissioner of State Revenue [2012] NSWSC 297, dealt with when a court will exercise its inherent power to issue an order restraining recovery of assessed taxes.

His Honour held that the application be dismissed and the plaintiffs pay the defendant's costs.

This case considers the circumstances in which a company near insolvency, which has been assessed for tax, might obtain an order restraining the Office of State Revenue from recovering the assessed amount.

Cross-border insolvency: German administrator granted recognition under English law

The England and Wales High Court of Justice (Chancery Division) has delivered an important decision on cross-border insolvency recognition and assistance. In Schmitt v Deichmann & Ors [2012] EWHC 62 (Ch), Justice Proudman dealt with an application by a German administrator for recognition under the English common law and authority to exercise powers afforded to licensed insolvency practitioners under the Insolvency Act 1986 (the Act).

Her Honour held that the court has inherent common law jurisdiction to grant recognition to a foreign administrator, and to permit the statutory power under section 423 of the Act (to set aside transactions entered into at an undervalue for the purpose of defrauding creditors) to be applied where a foreign administrator does not fall within the express scope of the Act.

This case demonstrates that an administrator may need to consider provisions beyond its home jurisdiction in insolvency claims of a cross-border nature. The case also acknowledges that Australia is a 'relevant country or territory' for the purposes of section 426 of the Insolvency Act. This means that Australian administrators should be able to rely on the statutory provisions in the Act, rather than on the court's inherent common law jurisdiction.

Examining 'the Body' of set-off law

On 8 June 2012 we wrote a blog post entitled 'Equitable set off in circumstances of beneficial entitlement and beneficial liability' on the Simpson and Spratt and Kaupthing Singer & Friedlander (Isle of Man) Ltd v Light House Living Limited and Elle Macpherson (High Court of Justice, Isle of Man, Staff of Government Division, 31 October 2011) case.

Partner Michael Quinlan and Lawyer Shae Roberts have now prepared a more detailed article on the case.

Intellectual property and insolvency in an international context

On 28 October 2011, the the United States Bankruptcy Court delivered an important decision which dealt with the application by a foreign company in respect of Section 365 of the United States Bankruptcy Code (the Code). German company Qimonda AG sought to remove the applicability of s365 in order to retain its power of assumption and disclaimer rights under German law for the US patents held by it and licensed to US entities.

Bankruptcy Judge Stephen S Mitchell held that it was of great public importance for US patent licensees to have continued rights to the patents despite a licensor's insolvency. This is because without the protection afforded by s365, technological development in the US would be hampered.

The case illustrates that foreign entities must exercise care when applying for recognition of and assistance with foreign proceedings in US Bankruptcy Courts, as there is a substantial financial impact on the earning capacity of an insolvent company, if its ability to cancel and re-sell US executory contracts is extinguished.

Furthermore as the relevant provisions in the Code are based on the United Nations Commission on International Trade Law's 'Model Law on Cross-Border Insolvency', the case's application may extend to other jurisdictions which have adopted the model law (save for different public policy considerations).

On 6 June 2012, Partner Andrew Wiseman and Lawyer Jonathan Adamopoulos presented at an Allens' monthly Corporate Insolvency and Restructuring forum in our Sydney office on the topic Insolvency and Intellectual Property. To view their slides from the presentation, click here.

Company's place of central administration important factor in determining its centre of main interests

A recent decision of the European Court of Justice (the ECJ) has clarified some important issues surrounding jurisdiction of EU Member States in relation to insolvency proceedings. In Interedil Srl (in liquidation) v Fallimento Interedil Srl and Intesa Gestione Crediti SpA [2011] EUECJ C-396/09, the ECJ provided guidance on the relevant criteria for determining the location of a debtor company's Centre of Main Interests (COMI), for the purpose of identifying which jurisdiction the relevant insolvency proceedings should be commenced.

The court held that Article 3(1) of Council Regulation No 1346/2000 must be interpreted in such a way that a debtor company’s COMI will be determined by attaching greater importance to the place of the company’s central administration, which may be established by objective factors which are ascertainable by third parties.

Despite being a European case, it is conceivable that this decision would be considered by an Australian court examining the same issues and Australian businesses dealing with international partners may also need to be aware of the EU position on the issue. Therefore, it is important for both practitioners and clients to have an understanding of where a company's central administration - that is, its centre of management and supervision - is located, as this will form the basis of the rebuttable presumption that the company's COMI and registered office are in the same location. Additionally, where a debtor company's registered office is transferred prior to the originating process of the insolvency proceedings being filed, its COMI will be presumed to be the place of the new registered office.

Administrator's sale of equipment subject to retention of title and the defence of justification

The England and Wales High Court (Chancery Division) has delivered a decision which looked at the sale of company equipment in administration and the defence of justification. In Lictor Anstalt (A Company) v MIR Steel UK Ltd & Ors [2011] EWHC 3310 (Ch), Mr Justice David Richards dealt with whether steel-making equipment subject to a retention of title held by Lictor Anstalt, was sold unlawfully by the administrators of Alphasteel Limited (in liquidation) to Libala Limited. The purchaser of the equipment argued the defence of justification should be available in such circumstances.

This case confirms that no claim in tort may be brought against an administrator, as an agent, for procuring their principal to act in breach of contract, provided they have acted in good faith. The defence of justification arguably should extend to circumstances where an administrator performs an action which is incidental to discharging its statutory obligations, however is novel and has wide reaching implications. Without in depth analysis and prior findings of fact, it was not appropriate for determination.

Competing priorities: fixed charge versus administrator's statutory and/or equitable lien

The New South Wales Supreme Court has considered the competing priorities between a 'fruits of the action' lien and an administrator's statutory or equitable lien. The decision of Ward J, in Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) & ors [2012] NSWSC 170, dealt with a claim by a former solicitor of a company (later subject to a deed of company arrangement) to a lien or charge over funds paid into court from a controlled moneys account, for unpaid legal fees for pre-administration litigation work.

Her Honour held that:

• an equitable 'fruits of the actions' lien arose in favour of the solicitor over the funds held in court;
• the equitable 'fruits of the action' lien was one that arose by operation of law and thus was not registrable as a charge and is not void against the administrator; and
• the lien prevails over the statutory or equitable lien of Tekitu's administrator and it would not be unconscionable for the solicitor to assert the lien.

This case demonstrates circumstances where a 'fruits of the action' lien will have priority over an administrator's statutory or equitable lien. In particular, the decision highlights the need for administrators to investigate the status of any unresolved litigation and to identify whether there are any unpaid fees owing to current or former legal representatives of the company.

'The rule in Cherry v Boultbee' in an insolvency context

In late 2011, the United Kingdom Supreme Court delivered a judgment which explored the application of the 'rule in Cherry v Boultbee' in relation to insolvent companies. In Re Kaupthing Singer and Friedlander Ltd, [2011] UKSC 48, the Court dealt with the question of whether the 'rule in Cherry v Boultbee', which prevents a party proving against a company for a debt until they have first repaid any debts that they owe the company, applies to insolvent companies or whether the rule is excluded by the rule against double proof.


The Court held that the 'rule in Cherry v Boultbee' did not apply in the context of insolvent companies because it was excluded by the rule against double proof.
This decision clarifies the scope of a party's right to set off a debt owed to them by a third party against another debt which they owe to that party. The Court's exclusion of the rule in Cherry v Boultbee provides greater certainty in relation to the debts that are provable in the insolvency of a company.

This decision also provides a clear example of the application of the rule against double proof where an insolvent company has provided a guarantee of another company's debt, which is also insolvent.

Equitable set off in circumstances of beneficial entitlement and beneficial liability

The Isle of Man High Court of Justice has delivered a judgment which dealt with whether an amount owed by a company acting as trustee and nominee of Elle Macpherson could be set off with money owed to her personally. In Simpson and Spratt and Kaupthing Singer & Friedlander (Isle of Man) Ltd v Light House Living Limited and Elle Macpherson (High Court of Justice, Isle of Man, Staff of Government Division, 31 October 2011), His Honour Tattersall and His Honour Deemster Doyle held that that Deemster Moran erred in concluding that the beneficial interest and liability of Miss Macpherson in respect of the loan funds, which was legally due to be repaid by her nominee and trustee on her behalf, was a debt due from Miss Macpherson to the Bank. As such, the sum due to Miss Macpherson from the Bank in respect of the deposits was not automatically set off against the sum due from LHL to the Bank in respect of the mortgage loan.


This decision overturns the earlier judgment of His Honour Deemster Moran where the court held that mutual set off under section 22 of the Bankruptcy Code 1892 was available where the beneficial entitlement and beneficial liability in respect of countervailing credits and debts correspond.

Court's discretion to adjourn insolvency proceedings in special circumstances

The Federal Court of Australia has delivered a decision which provides an example of situations in which it would be prepared to use its discretion to adjourn proceedings. In Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Limited [2012] FCA 363, Robertson J considered whether the Court would exercise its discretion under s459A of the Corporations Act 2001 (Cth) to adjourn proceedings in relation to an application to wind up a company on the ground of insolvency, where the company in question had pending proceedings under Part IVC proceedings under the Taxation Administration Act 1953 (Cth) (the Administration Act) in the Administrative Appeals Tribunal.

His Honour held that the application to wind up in insolvency be adjourned pending the outcome of the Part IVC proceedings under the Administration Act and extended the period to which the application for winding up is to be determined.

This case is important as it demonstrates special circumstances where the court will exercise its discretion to adjourn proceedings relating to winding up on the ground of insolvency.

For more detailed information, see our Focus article on this case prepared by Partner Michael Quinlan and Law Graduate Arlou Arteta.

Release of global bankruptcy and restructuring guide 2012

Partner Michael Quinlan, Lawyer Yu Zhang and Law Graduate Dana Beiglari have written an article about the Commonwealth government's recent phoenix reforms entitled 'Australian phoenix reforms re-rising'. The article has been published in Financier Worldwide's Global Reference Guide: Bankruptcy & Restructuring 2012.

For more information or to request a free download of the book, see the Release Sheet.

PLC releases 2012 'Restructuring and Insolvency' article

The Practical Law Company has released its 2012 multi-jurisdictional 'Restructuring and Insolvency' article. The Australian chapter was written by Partner Michael Quinlan, Senior Associate Przemek Kucharski and Lawyer Yu Zhang. It provides a good summary of the main aspects of the Australian insolvency system, including the different forms of external administration, directors' duties in relation to insolvent companies and when pre-insolvency transactions can be set aside.

Ability of future chose in action to be secured under charges

The Victorian Supreme Court has delivered a judgement which considered whether a future chose in action can be secured by a charge. Ferguson J, in Australian Property Custodian Holdings Ltd v Capital Finance Australia Ltd & Ors [2012] VSC 124, dealt with an application for declarations that a proposed proceeding did not involve property charged to a secured creditor and thus, required no consent from the creditor in order to prosecute the claim.

Her Honour held that the securities of the secured creditors encompassed all future chose in action relating to the property regardless of the fact that they did not exist at the time the charges were secured. The court would not intervene in this instance as that would interfere in the receiverships.

This case demonstrates that a future chose in action can be secured by a charge and that the court strictly will not permit a liquidator to deal with that asset if a receiver has been appointed. Also, an application under s588FF of the Corporations Act 2001 can be prosecuted by a liquidator regardless of a secured chose in action under power of a receiver.

National Business Names Register implemented by ASIC

ASIC has unveiled the Business Names Register - an online system to register, renew and search business names. It is anticipated by ASIC that this component of their 'Business names reform' will cut 'red tape' and compliance costs for Australian business. The Register offers a single national online service and replaces the former state and territory systems.

For more information, you can access the Business names reform update on the ASIC website.

Report: ASIC's supervision of registered liquidators in Australia

On 22 May 2012, ASIC released its first annual report of its activity surrounding the regulation of registered liquidators in Australia. According to ASIC, this is part of its recent focus on the insolvency industry and its attempt to promote confidence in the market.

For more information, you can access the full report.