Insolvency report + court liq (only) = s588FJ orders access

The absurdity of poor legislative drafting was on show on Thursday, as a creditor-appointed Liquidator was made to seek orders appointing himself as a court-appointed Liquidator for the purposes of setting aside voidable security agreements.

Let me explain … [the case is Hayes v Spyrou]

Pursuant to s588FJ Corporations Act, if a security agreement in circulating assets is entered into within 6 months of an external administrators appointment, then (generally) the Liquidator may apply to court to set aside that security agreement.

For example, this could be where a director grants themselves security over the company’s assets just prior to appointing a liquidator.

The problem here though is that where the wording of 588FJ says “a company is being wound up in insolvency”, courts are interpreting that to mean only court-appointed liquidators may apply.

Maybe I can understand this from the old days where there was a clear difference between a registered liquidator and an official liquidator, but there is no such distinction any more.

This needs to be changed!

The facts go even further to suggest that an independent expert insolvency report should be tendered to court to prove the company is insolvent.

For most liquidations this would be cost-prohibitive. 

SVVoidables

1 comment

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  1. Garry Hamilton

    This issue has been around since 1993.,The reported cases demonstrate that the courts make the appropriate order almost as of right. Problem is the cost of applying.

    Liked by 1 person

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