Publications - Commercial litigation

Bankruptcy and Insolvency Update

Many business owners will be hoping that the end of the financial year will also spell the end of a difficult trading period. The recent difficult economic conditions have inevitably led to the laws of bankruptcy and insolvency being increasingly considered by the Courts. In this Bankruptcy and Insolvency Update, we highlight some recent Queensland decisions dealing with receivership profits, the powers of liquidators in the winding up of an incorporated association and costs.

Receivership Profits

In Re CMI Industrial Pty Ltd (In Liq); Byrnes & Ors v CMI Limited [2015] QSC 96 the Supreme Court of Queensland considered who was entitled to trading profits earned following the appointment of a receiver - the secured creditor who had appointed the receiver or other priority creditors (eg. employees) as part of their statutory entitlement?

In this case, the receivers had continued to trade a number of businesses using inventory purchased following their appointment to the company. The receivers generated what was described as “inventory trading profits”.

The Supreme Court of Queensland held that the priority creditors did not have any statutory entitlement to the “inventory trading profits” under the Corporations Act 2001 (Cth) as the profits were not an asset identifiable at the date of the appointment of the receivers.

Incorporated Associations and Unfair Preferences

In Queensland, the winding up of an incorporated association is conducted in accordance with Part 5.7 of the Corporations Act 2001 (Cth).

In the case of Robson & Ors v Commission of Taxation [2015] QSC 76, the liquidators sought to recover almost $120,000.00 from the Australian Taxation Office as an unfair preference pursuant to Part 5.7B of the Corporations Act 2001 (Cth). The question before the Supreme Court of Queensland was whether such provisions applied in the winding up of an incorporated association.

Following detailed consideration of the specific legislative provisions, the Supreme Court of Queensland held that liquidators do not have the power to recover unfair preference payments in the winding up of an incorporated association as it does when winding up a company. The Supreme Court of Queensland noted that this outcome may be an unintended consequence of the legislation and may lead to the amendment of the relevant provisions in the Associations Incorporation Act 1981 (Qld).

Costs

In the recent case of Juniper Property Holdings No. 15 Pty Ltd v Caltabiano [2015] QSC 95, the Supreme Court of Queensland considered an application for a conditional costs order that the receivers and managers of Juniper Property Holdings No. 15 Pty Ltd be liable for any costs order made in favour of the Defendant, Carmelo Caltabiano. In seeking the conditional costs order, the Defendant argued that there was inequity in a costs order being made in his favour in circumstances were Juniper Property Holdings No. 15 Pty Ltd was insolvent.

The Supreme Court of Queensland was not willing to make the declaration sought on the basis that there was still a discretionary power to be exercised as to whether to make a costs order or not. It was affirmed and reiterated in the decision, however, that secured creditors and receivers are not free from the risk of an adverse costs order.

Costs were also considered in the case of Consortium Holdings Pty Ltd v Maybell 1 Pty Ltd (No 2) [2015] QSC 97 where an application for winding up based on non-compliance with a statutory demand had been dismissed. As costs generally follow the event, the creditor ought to have been ordered to pay the debtor’s costs.

It was submitted by the creditor, however, that the debtor should be ordered to pay some costs as it had opposed the application to wind-up on the ground that it was an abuse of process. This ground was ultimately abandoned at trial but had, by this stage, already increased the parties’ costs.

The Supreme Court of Queensland found that the prospect of the abuse of process ground succeeding was unlikely. It was ordered that the creditor pay only 75% of debtor’s costs of the application for winding-up, despite having succeeded in the application being dismissed. It is a timely reminder that consideration ought to be given to the grounds raised and that a lack of prospects or the abandonment of a ground may result in a costs order.

About the Author…

Jane Young is a Senior Associate in our Property and Commercial Litigation department and heads our Rural Law Team. Jane has experience in advising business and rural clients on insolvency and bankruptcy matters and can be contacted by email at jane.young@kellylegal.com.au

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