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S433(3) & 556 ?

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S433(3) & 556 ??

Note on where the priority of payment regime in s 556 of the Corporations Act 2001 (Cth) did not apply in the winding up of a Company. In Amerind, 1 the Company in liquidation had traded solely as a trustee.

Upon an application by the liquidator concerning how a receivership surplus should be dealt with the Court found that the receivership surplus was property of the Trust but not property of the Company and that the priority of payment provisions in sections 433(3) and 556 of the Corporations Act did not apply.

THE COMPANY.

The business of the Company was found to have been solely conducted pursuant to a trust and the Court made the point that the significance between legal ownership and beneficial ownership of property should be preserved.

The Court was dealing with a receivership surplus of approximately $1,620,000. In the conduct of its business the Company had not always been described as a trustee, for example with respect to some insurance policies, a shareholders agreement and two asset sale agreements, one where the Company was a seller and one where the Company was a purchaser and a number of hire purchase and lease agreements only the Company name was used.

The Company did however produce annual special purpose reports and annual reports for the trust. And the ATO recorded the Company as “the trustee for X trust” and the branch code issued by the ATO to the receivers for the purpose of lodging the Company’s BAS was with respect to the ABN of the trust.

The Court found that liabilities of the Company were trust liabilities and there was no competition between Company creditors and trust creditors as all the liabilities to creditors were incurred by the trustee acting as such.

S 556?

Here the Court followed the reasoning in Re Independent 2 that s 556 is concerned only with the distribution of assets beneficially owned by a Company. It found here that all of the assets were trust assets that the statutory priority in s 556 did not apply and the creditors had no claim against the property of the Company but only against the property of the trust. And the creditors were to be paid equally and without preference if they had a right to be subrogated to an indemnity owed by the trust to the Company as trustee.

The basis of the claims by creditors against a trust. Here to establish a claim the creditors would need to show that they had a right to be subrogated to an indemnity owed by the trust to the Company, with respect to financial obligations entered into by the Company as trustee of the trust. Such right of indemnity is property held by the trust, it is not a personal asset of the trustee Company. The judgment in Re Frith3 is important here.

In that case it was said that “the creditor … has a right to sue the trustee who has incurred the debt” and “the creditor is subrogated” to that right of indemnity and “may claim the benefit of the indemnity to which the trustee is entitled”.4 The trustee must be sued in the first instance. However Re Frith is also authority that if the right of indemnity does not exist then there is no right of the creditor to be subrogated against anything.

Neil Hope. HOPE LEGAL PTY LTD: 0432 530 231

1 Re Amerind Pty Ltd (recs and mngrs apptd) (in liq) [2017] VSC 127.

2 Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) (2016) 305 FLR 222.

3 Re Frith; Newton v Rolfe [1902] 1 Ch 342.

4 Re Frith; Newton v Rolfe [1902] 1 Ch 342, 345-346 (Kekewich J).

Lenders Take Care When Registering Security Interests

Posted By admin In Trusts Comments 0

Lenders take care when registering security interests with trading trusts!

There are many instances where lenders and financiers registered security interests on the Personal Property Securities Register (the “PPSR”) granted to those entities by a corporate trustee in its capacity as trustee of a trust (the “Trust”).

Each of the financing statements registered by the lenders/financiers on the PPSR included the ACN of the corporate trustee rather than the ABN of the Trust.

Based on the relevant provisions of the Personal Property Securities Act 2009 (Cth) (the “PPSA”), the Personal Property Securities Regulations 2010 (Cth) (the “Regulations”) and the Corporations Act 2001 (Cth) (the “Act”) and in accordance with the prevailing case authorities in this area, we advised that each of the security interests were defective and as such, they vested in the Trust and became part of the property of the Trust for the benefit of the Trust’s creditors upon the Trust’s entry into liquidation.

Pursuant to section 164(1) of the PPSA, a registration on the PPSR with respect to a security interest that describes particular collateral will be ineffective because of a defect if and only if there is a:

(a) seriously misleading defect in the registration; or
(b) defect of the kind mentioned in section 165.

Section 165(b) of the PPSA in particular, mentions circumstances, in a case in which the collateral is not required to be registered by serial number, where no search of the PPSR by reference only to the grantor’s details required under section 153 of the PPSA is capable of disclosing the registration.

The combined effect of section 153 of the PPSA and section 1.5(3)(b) of Schedule 1 of the Regulations is that where the grantor is a trustee of a trading trust, as was the case in our matter, the grantor’s details required to be included in the financing statement registered on the PPSR is the ABN of the trust.

Where the grantor’s details required by section 153 of the PPSA are its ABN, if the financing statement does not include the ABN, as was the case in our matter, a search of the PPSR by reference only to the grantor’s ABN would not disclose the registration. In those circumstances, the Courts have held that such registrations are ineffective pursuant to sections 164(1)(a), 164(1)(b) and 165(b) of the PPSA and that the defective security interests will, pursuant to section 267 of the PPSA and section 588FL of the Act, all vest in the Trust, and thus become part of the property of the Trust for the benefit of the Trust’s creditors upon the Trust’s entry into liquidation.

Given the severe consequences that can flow from incorrectly registering security interests on the PPSR, lenders and financiers need to take care when registering financing statements on the PPSR. This is particularly the case where the security interest has been granted by a corporate trustee in its capacity as trustee of a trust.

Marino Law has extensive experience acting for liquidators, lenders and financiers in the administration of all corporate insolvency appointments. Our highly experienced lawyers regularly advise clients in the following areas of corporate insolvency:

(a) voluntary administrations;
(b) liquidations;
(c) enforcement of securities; and
(d) statutory demands.

We also regularly provide advice to liquidators, lenders and financiers regarding the registration of security interests on the PPSR, the validity of those registrations and their enforceability.
Should you require assistance in any of the above areas, please contact one of our highly experienced lawyers.

Filed Under: News Tagged With: grantor’s details, PPSR defective, PPSR registration, PPSR registration against trust, registration defective, section 164 PPSA, security interest, seriously misleading defect in PPSR

http://www.marinolaw.com.au/lenders-take-care-registering-security-interests-trading-trusts/

This article was prepared and contributed by Marino Law.

Office: Suite 2, Level 1, 2485 Gold Coast Highway, Mermaid Beach, QLD 4218
Mail: PO Box 1898, Broadbeach QLD 4218
Phone: (07) 5526 0157
Fax: (07) 5526 5441
Email: info@marinolaw.com.au
Web: www.marinolaw.com.au

Equitable Compensation

Posted By admin In Debt Comments 0

Payment Of Another Debt – The Entitlement By Payer To Equitable Compensation

Introduction

Where a person, “A” the Debtor, owes a financial obligation to “B” the Creditor and “P” satisfies that financial obligation, either at the request of “A”; or where “P” has guaranteed “A”’s debt and the creditor calls upon “P” to satisfy the financial obligation; or where “P” is compelled at law to satisfy the financial obligation the law is that the debtor remains ultimately responsible for the financial obligation, although the creditor has been paid out.

After satisfaction of the debt a financial obligation of another type is now owed by “A” but to “P” and not to the creditor. “A” owes an indemnity to “P” on the basis that it would be unconscionable for “A’ not to compensate “P”. Intent has no part to play, the principle is entirely based in Equity.

In one case a Judgment Debtor asked her brother in law to satisfy the Judgement Debt which he did with any agreement and he was entitled to an award of Equitable Compensation.

The guarantee situation

The case law here establishes the equitable principle of “Indemnification”. The Debtor owes an indemnity to the guarantor from the time the guarantee is entered into although that entitlement may not manifest it’s self until the guarantor has paid out under the guarantee and the creditors rights against the debtor have been wholly satisfied.

Satisfaction by legal compulsion

One example is where a receiver appointed by a security holder pays employee entitlements pursuant to S433 of the Corporations Act 2001(Cth), the affect being that the value of the security holder’s interest is reduced by the amount paid by the receiver to the employees.

Employees are entitled to be paid in priority to unsecured creditors and the receiver is compelled to make the payment. If the security holder was not able to compensation for the amount paid this would advantage the unsecured creditors as the amount available to them would not be reduced by the amount paid by the receiver. Under the principle the secured interest holder is entitled to recoup the amount paid to employees out of the amount available to the unsecured creditors (the free assets).

Another example is where a purchaser of real estate has paid a deposit and the administrator of a Fidelity Fund is compelled to pay compensation where the deposit has been stolen or misappropriated. Here there is a financial obligation owed by the holder of the deposit to the purchaser which is satisfied by the administrator of the fund.

The position of the Creditor

Where any of the circumstances above arise the rights of the Creditor are paramount and “P” may not call on the indemnity until the financial obligation owed by “A” to the Creditor has been wholly satisfied. “B” takes action in it’s own name and there is no question of the Creditor being a party to the application.

The topic is said to be confusing and there has been a lot of talk in case law and in commentary of “P” stepping into the shoes of the creditor so that “P” somehow succeeds to the rights of the Creditor, notwithstanding the rights of the Creditor have been extinguished. This is a misconception and fuel for the confusion.

Common law Principles do not apply

Here Equity is a powerful legal tool and any bias toward common law principles of intent or assignment of rights have no part to play.

https://www.hopelegal.com.au/single-post/2017/02/15/Payment-of-Another%E2%80%99s-Debt-%E2%80%93-The-entitlement-by-payer-to-Equitable-Compensation

This article was prepared and contributed by:

Hope Legal Pty Ltd

T: +61 7 3059 6001 | F: +61 7 3059 6002

Address: 1e/24 Macquarie Street, Teneriffe QLD 4005

W: www.hopelegal.com.au

Reforms from 1 March 2017 for Corporate Insolvencies

Posted By admin In Reforms Comments 0

Reforms from 1 March 2017 for Corporate Insolvencies

Below is a summary of changes that will come into effect from 1 March 2017:

  • The term “Official Liquidator” will be removed. These were Liquidators that could accept appointments by the Court.
  • All Liquidators will be referred to “Registered Liquidators”.
  • A notice for Non Exercise of a Rights by an Administrator to a landlord will only need to list an address for the property.
  • A new provision requires a director to inform the Deed Administrator of a material contravention of the terms of a Deed and the Deed Administrator needs to inform creditors of the contravention.
  • A Liquidator will be appointed by the court if it declares a deed of company arrangement to be terminated.
  • An insolvency practitioner administering a corporate insolvency can ask the court for dispensation from setting out the company’s former name on public documents or negotiable instruments.
  • The definition of the relation back period is amended so that it commences from the date a winding up application is filed even for voluntary administrations. This will stop the situation where a director appoints an Administrator after a winding up application is filed to reduce the period that voidable transactions could be pursued as opposed to the longer period that such transactions could have been pursued if court liquidation proceeded.
  • The smaller preference claims against the Australian Taxation Office can be pursued by lower courts.
  • An insolvency practitioner administering a corporate appointment will required to lodge the Declaration of Independence and Relevant Relationships (DIRRI) and any replacement DIRRI with ASIC.
  • An insolvency practitioner will have the ability to assign a right to sue under the Corporations Act 2001, which includes preferences and other voidable transactions. Before an assignment is made, creditors must be given notice of it.

Peter Dinoris

Artemis Insolvency

m 0436 409 739

Subcontractors Charges

Posted By admin In Subcontractors Comments 0

Subcontractors Charges

When a subcontractor’s customer is placed into liquidation, voluntary administration, bankruptcy or any other form of insolvency appointment, the subcontractor needs to consider the available options to maximise the return on their outstanding debt. This includes exploring any alternatives to seek payment direct from the developer.

In Queensland, there is the Subcontractors’ Charges Act 1974 that allows for a subcontractor to obtain a statutory charge over the outstanding debt. The process in effect involves the subcontractor seeking payment of outstanding accounts from the developer.

The amount payable by the developer to the insolvent entity is determined and generally the funds are paid into court for directions as to the distribution where there the amount payable by the developer is insufficient to satisfy the total claims of all subcontractors with valid subcontractor charges.

Insolvency practitioners are required to administer an insolvency appointment in accordance with the provisions in the Corporations Act 2001 (or Bankruptcy Act 1966 if it is a personal insolvency appointment) and the Subcontractors’ Charges Act 1974.

We are left in a difficult and disappointing position when a subcontractor does not satisfy the provisions of the Subcontractors’ Charges Act 1974 and we have no option but to reject the claim.

A decision to reject a claim is not taken lightly as my goal in any insolvency appointment is to see that creditors receive the greatest possible return. However, I have no option but to reject the claim if the forms are defective or there are other grounds justifying the decision.

From my considerable experience with appointment involving the construction and building industry, I encourage subcontractors to consider the following when pursuing a claim under the Subcontractors’ Charges Act 1974:  Give due consideration to engaging a solicitor with experience in the building industry to prepare the relevant forms and provide any legal advice that may be required. The majority of the claims that I have had to reject involved forms prepared by the subcontractor personally.

 Weigh up the following to determine if it is commercially viable to pursue such a claim:

  • Attempt to estimate the potential number and dollar value of total subcontractor claims that may be submitted against the developer.
  • Conduct inquiries to attempt to estimate the potential amount that may be payable by the developer.
  • Consider communicating with other subcontractors to collectively pursue such a claim with the objective of adding efficiencies and cost reductions to the process.
  • Be aware that a subcontractor may be required to commence legal proceedings to pursue the claim.
  • Estimate the potential legal fees in proceeding with such a claim (e.g. initial advice, preparation of forms and any subsequent legal proceedings.

 There are strict time deadlines under this legislation and accordingly timely attention should be given to the above:

  • For debts due under a contract or subcontract – within three (3) months are completion of the works; and
  • For retention amounts – within three (3) months of the expiration of the maintenance period.

 A subcontractor cannot pursue such a claim at the same time as proceeding with a claim under the Building and Construction Industry Payments Act (“BCIPA”). Pursuing such a claim is not limited to instances where there is a liquidation or bankruptcy. In those circumstances, the subcontractor needs to ensure that his or her claim is not vexatious or without reasonable grounds otherwise there could be damages awarded.

Below are various points for a subcontractor to keep in mind when pursuing a claim under the Subcontractors’ Charges Act 1974:

 The legislation provides an avenue for a subcontractor to receive a form of security and priority to funds that would not ordinarily be made available to the subcontractor through the Corporations Act 2001 or Bankruptcy Act 1966.

 Care must be taken and advice should be sought when completing a Proof of Debt form to submit to the insolvency practitioner to not surrender any security that arises from pursuing such a claim.

 There are statutory forms that must be submitted and must be completed and certified correctly.

 To pursue such a claim the subcontractor needs to be licensed. If the developer does not agree it is liable for the debt, the subcontractor needs to commence court proceedings to enforce the charge.

If any subcontractor has any queries or requires assistance with any communications (e.g. the insolvency practitioner, other subcontractors, solicitors, QBCC, etc), assessment on whether it is commercially viable to pursue a claim for a charge or completing a Proof of Debt form, please do not hesitate to call.

Peter Dinoris

Liquidator, Trustee in Bankruptcy & Debt Agreement Administrator