UPDATE 160 APRIL 2014 COMPANY RECEIVERS AND ADMINISTRATORS. J O'Donovan. Highlights

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1 Highlights UPDATE 160 APRIL 2014 COMPANY RECEIVERS AND ADMINISTRATORS J O'Donovan New commentary has been added and updated throughout chapters 2, 5, 6, 7, 8, 9, 10, 12, 40, 43 and 58. Material Code: Print Post Approved PP255003/00395

2 Chapter 2: Who can appoint receivers and managers out of court? [2.100] Prior legal charge versus equitable charge New commentary has been included addressing the competing priority situation arising between two equitable interests in the same property. After noting that the earlier in time is entitled to priority unless the circumstances are such as to make it inequitable as between the holders that the earlier should have priority, the author goes on to consider the effect of failure to lodge a caveat. In this regard, it is asserted that the mere lodgement of a caveat does not always displace the general rule that where equities are equal the first in time shall prevail: Papalia v Romeo (No 2) [2013] FCCA Chapter 5: The scope of the appointment [5.20] Secured property It is noted that a company usually charges all of its assets and this will include work-in-progress recorded in the company s books and records, even if the work was performed by an external administrator who successfully claimed remuneration for the work: ACN Pty Ltd v Pattison [2012] VSC 445. [5.50] Secured moneys and secured obligations New commentary addresses the situation where an all moneys mortgage did not, in terms, incorporate by reference a subsequent letter of offer, and whether or not that constituted a bar to the mortgagee enforcing the mortgage in respect of the debt: ANZ Banking Group Ltd v Kavia Holdings Pty Ltd [2013] NSWSC [5.1425] Contractual choses in action, bare choses and assignees with proprietary interests The author considers the question of the classification of a claim for damages for the premature determination of a lease and consequently whether it will be subject to the Trendtex principle. [5.1430] Assignees with a commercial interest in the contract What constitutes a commercial interest going beyond a mere personal interest in profiting from the outcome of proceedings is discussed in terms of case law. Company Receivers & Administrators 2

3 In this regard the author notes that the genuine commercial interest referred to in the Trendtex principle is not a nebulous notion of the general commercial advantage of the assignee but something more specific and limited. It must be a commercial interest that exists already or by reason of other matters, and receives ancillary support from the assignment. He goes on to conclude that the assignee will not have a sufficient commercial interest where its interest only arises under and by virtue of the assignment: Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) 188 FLR 278; 220 ALR 267; [2004] NSWSC [5.1445] Forms of prohibition on assignment of contractual rights Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296 is cited as recent authority as to whether the obligor or the obligee bears the onus of proving that the obligor has unreasonably withheld its consent to an assignment of a contractual right. Chapter 6: Method of appointment [6.210] Demand for secured moneys It is noted that a valid demand can be made on a company even if it is addressed to the company and each other company in the same group: ANZ Banking Group Ltd v Kavia Holdings Pty Ltd [2013] NSWSC [6.260] Service of the demand New commentary has been inserted addressing what will constitute service of a demand. In this regard, the effect of cl of the Memorandum of Common Provisions for a mortgage is analysed and the author concludes that the giving or making of a notice of demand in accordance with any of the paragraphs of cl will be effective and be deemed to have been given or made whether it in fact comes to the notice of the mortgagor: Re Art Pacific Pty Ltd [2013] VSC 330. Chapter 7: Validity of the appointment [7.1410] Breach of fiduciary duty After noting that the fiduciary duties of directors under the common law are not relevantly different from the duties imposed by Corp Act, ss , the author maintains that breach of fiduciary duty must be conduct that can, as a matter of ordinary language, be described as morally reprehensible. He maintains that an example of such conduct would be a director s deliberate plan to deprive a company of a corporate opportunity and obtain it for himself: BigTinCan Pty Ltd v Ramsay [2013] NSWSC He then goes on to discuss Company Receivers & Administrators 3

4 the fact that the principles applicable to the recovery of damages for loss of a chance or opportunity apply to a claim for equitable compensation for breach of fiduciary duty: Spotless Group Ltd v Blanco Catering Pty Ltd (2011) 212 IR 396; [2011] FCA 979. [7.2550] Section 588FL largely replicates Corp Act, s 267 After noting that s 588FL of the Corp Act applies to the registration time for the collateral, the author speculates that a security interest in any collateral over which registration was extended outside the 20 business day period may be unperfected: See May R, PPSA Priority rules: Minding the gaps (2012) 24(4) Australian Insolvency Journal 4 at 5. Chapter 10: The Powers of Receivers and Managers Appointed out of court The following paragraphs in this chapter have been updated by the author: [10.370] Right to inspect books; [10.670] Effect of power to collect; [10.810] Costs order against non-parties, including receivers; [10.850] Justification for costs against receivers as non-parties; and [ ] Conduct of the examination. Chapter 40: Voluntary Administration under Part 5.3A of the Corporations Act 2001 [40.10] Voluntary administration the general scheme New commentary has been inserted to explain the interaction between Corp Act, ss 51F and 435B and the application of the voluntary administration provisions to PPSA ROT property. Chapter 58: Cross-Border Insolvency [58.315] Public policy exception The author has included new commentary addressing the potential situation where orders are made under the Model Law to recognise a foreign main proceeding to prevent the pari passu payment of local taxation debts and penalties. After concluding that: Company Receivers & Administrators 4

5 There is nothing in the Model Law to suggest that domestic legislation should be construed so as to deny or diminish the rights of the local sovereign power, such as the Commissioner of Taxation, to collect its taxation claims from an insolvent foreign company s estate before that estate is remitted to the company s centre of main interests for distribution to creditors under that jurisdiction s laws. He then goes on to consider the recent decision of Rares J in Akers v Saad Investments Company Ltd (2013) 11 ABC(NS) 249, 31 ACLC ; [2013] FCA 738. [58.750] Local administrators acting abroad Also relying on the decision of Rares J in Akers v Saad Investments Company Ltd (2013) 11 ABC(NS) 249, 31 ACLC ; [2013] FCA 738, it is noted that the Commissioner of Taxation does not submit to the jurisdiction of a foreign court where he or she merely lodges a proof of debt in the foreign jurisdiction in respect of taxation debts and penalties which are not provable debts under the law of the foreign jurisdiction. Index The index has been updated, consolidated and reissued with this update. Company Receivers & Administrators 5