Some recent developments
There has been some insolvency ‘action’ in the Parliament and in the Courts recently with the release of two long awaited reports, and the handing down of a High Court decision clarifying some previously ‘cloudy’ timing issues.
High Court Rules!
The High Court last month made a ruling in relation to a liquidator’s powers to “claw back” certain transactions of the company, in the period before liquidation, as insolvent transactions. Under s.588FF(3) of the Corporations Act, a liquidator has 3 years after appointment to institute such recovery proceedings – but in certain jurisdictions, Court rules and procedures have been utilized by liquidators to extend this 3 year period.
The High Court has effectively now outlawed this practice – ruling that the time frames imposed by the Corporations Act cannot be extended except as provided under the specific legislative provision. The Courts have no discretion to override this provision by the use of Court rules.
The ruling not only establishes uniformity in all Australian jurisdictions, but forces practitioners to identify and institute potential “claw back” actions within a finite time – thus speeding up the liquidation process in most instances.
Corporate Rescues & Financial Systems Inquiry
We have seen some effective restructures and corporate rescues in recent times but mainly in big cases involving large companies supported by similarly large banks and financial institutions. Some examples are Billabong, Centro and Channel Nine. The business community has identified a need to broaden the restructuring tools, laws and culture for wider use in Australia to help save businesses facing financial difficulty wherever it is possible.
Late last year, the Government released the final report of the Financial Systems Inquiry. The Inquiry had been commissioned in December 2013 and was charged with examining how Australia’s financial system could be positioned to best meet Australia’s evolving needs and support its business growth. Tucked away at Recommendation 36 of the final report are the Inquiry’s findings in relation to corporate administration and bankruptcy. The Inquiry formed the view that Australia’s external administration provisions are generally working well but recommended further consultation on “possible amendments to the external administration regime to provide additional flexibility for businesses in financial difficulty”.
The recommendation leaves the door open for further discussion on the implementation of a restructuring “safe harbour” which will enable companies to undertake restructuring efforts without directors and advisers being exposed to litigation – for example in relation to insolvent trading.
The insolvency industry body, ARITA, issued a Discussion Paper in October, calling for submissions on the same proposal – watch this space for developments! Click here to read the discussion paper.
Statutory Review of the PPS Act
The first statutory review of the Personal Property Securities Act (PPS Act) was announced in April, 2014 and the final report was tabled in the Senate last month. The final report contains 394 recommendations, including on the PPS Act’s interaction with other laws.
Recommendation 365 addresses an issue that commonly faces insolvency practitioners on appointment. A practitioner is tasked with identifying and securing the company’s assets. In many instances the process is complicated by a large number and variety of assets and a significant number of competing security interests, some of which purport to secure assets that are not readily identifiable from the entity’s records. Some were migrated when the PPSR established and contain incorrect or incomplete contact details for the secured parties.
The recommendation of the PPS Act review, if implemented, will prevent the need for an insolvency practitioner to seek Court orders or directions in order to realise these “secured” assets in reasonable time. The recommendation from the final report is to amend the PPS Act to allow an insolvency practitioner to give notice to claimants with registered security interests to verify their claims within a set period (eg., 21 days). If a claimant were unwilling or unable to verify its claim within this period, the claim would be treated as unsecured and the insolvency practitioner would sell the assets in the administration without regard to any security interest.
The implementation of this recommendation would allow for a speedier realisation process – to the ultimate benefit of creditors.
PKF will continue to keep clients up to date with the latest legislative amendments and developments in insolvency regulation.