Keay's Insolvency : personal and corporate law and practice PDF
Preview Keay's Insolvency : personal and corporate law and practice
Keay’s(cid:3)Insolvency Personal(cid:3)and(cid:3)Corporate(cid:3)Law(cid:3)and Practice ThomsonReuters(Professional)AustraliaLimited 19HarrisStreetPyrmontNSW2009 Tel:(02)85877000 [email protected] legal.thomsonreuters.com.au Forallcustomerinquiriespleasering1300304195 (forcallswithinAustraliaonly) INTERNATIONALAGENTS&DISTRIBUTORS NORTHAMERICA ASIAPACIFIC ThomsonReuters ThomsonReuters Eagan Sydney UnitedStatesofAmerica Australia LATINAMERICA EUROPE ThomsonReuters ThomsonReuters SãoPaulo London Brazil UnitedKingdom Keay’s(cid:3)Insolvency:(cid:3)Personal(cid:3) and(cid:3)Corporate(cid:3)Law(cid:3)and(cid:3) Practice MICHAEL MURRAY LLB,DipCrim(Syd),FAAL Visiting Fellow QUT Faculty of Law JASON HARRIS BALLB(UWS),LLM(ANU),FCIS Associate Professor UTS Faculty of Law TENTH EDITION LAWBOOK CO. 2018 PublishedinSydneyby ThomsonReuters(Professional)AustraliaLimited ABN64058914668 19HarrisStreet,Pyrmont,NSW Firstedition ......................... 1993 Sixthedition ......................... 2008 Secondedition ......................... 1994 Seventhedition ......................... 2011 Thirdedition ......................... 1998 Eighthedition ......................... 2014 Fourthedition ......................... 2002 Ninthedition ......................... 2016 Fifthedition ......................... 2005 ISBN9780455239811(pbk). ©2018ThomsonReuters(Professional)AustraliaLimited Thispublicationiscopyright.Otherthanforthepurposesofandsubjecttotheconditionsprescribedunderthe CopyrightAct,nopartofitmayinanyformorbyanymeans(electronic,mechanical,microcopying, photocopying,recordingorotherwise)bereproduced,storedinaretrievalsystemortransmittedwithoutprior writtenpermission.Inquiriesshouldbeaddressedtothepublishers. Alllegislativematerialhereinisreproducedbypermissionbutdoesnotpurporttobetheofficialorauthorised version.ItissubjecttoCommonwealthofAustraliacopyright.Forreproductionorpublicationbeyondthat permittedbytheCopyrightAct1968,permissionshouldbesoughtinwritingfromthecurrentCommonwealth Governmentagencywiththerelevantpolicyresponsibility. Editor:LaraWeeks ProductDeveloper:LucasFrederick PrintedbyLigarePtyLtd,Riverwood,NSW This book has been printed on paper certified by the Programme for the Endorsement of Forest Certification (PEFC). PEFC is committed to sustainable forest management PEFC/21-31-17 through third party forest certification of responsibly managed forests. Foreword Richard FisherAM Adjunct Professor, Faculty of Law, The University of Sydney Commissioner,Australian Law Reform Commission, 1986 – 1989 This year marks the 30th anniversary of the publication by the Australian Law Reform CommissionofitsreportontheGeneralInsolvencyInquiry;ALRC45,otherwisegenerally known as the “Harmer Report”. The reference to the Commission which led to the production of that Report provided, for the first time, the opportunity for a comprehensive review of the law of insolvency inAustralia. That was the case, notwithstanding, as the Commission recorded: “Asignificantpartofcontemporarycommerceisconductedbypersonswhohavemorecreditthan money.Individualsandbusinessorganisationsengageincommerceinthisway,asdoagenciesof governmentandevennations.Centraltomoderncommerceistheabilitytohonourthepromiseto pay (whether from assets or income) in the future. Most eventually pay their way. Inevitability, however,forsome,thepromisetopaycannotbehonoured.Itisthenthatinsolvencylawbecomes ofcriticalconcern.” It is as a consequence of this consideration that an understanding of insolvency law is not only important for those who have to deal with or manage the consequences of such impecuniosity, but also anticipate it as a possibility. For them, this book is a necessary, indeed vital, addition to their library. The publication of its 10th edition is timely. Ever since the publication of the Harmer Reportandtheenactmentofitssuggestedreforms,theParliamenthasnotbeenabletoresist the temptation to tinker with Australia’s insolvency laws, if its various legislative efforts mightbesodescribed.Indeed,thosevariouspiecemealeffortslendweighttothecallbythe authors for a further general review of our insolvency laws. In recent times, though, there have been a number of significant amendments. First, there has been the enactment of detailed provisions concerning both the conduct of insolvency administrations and the oversight of the conduct of insolvency administrators. Even more recently, the Corporations Act has been amended to provide for what is described as a “safe harbour” defence to claims against directors for insolvent trading. Provision was also made for the invalidation of clauses (called ipso facto clauses) which operate to terminate contractual and other arrangements merely because of the appointment of an external administrator These most recent legislative initiatives will facilitate corporate restructuring. In particular, though, and as the authors explore in Chapter 21; “Restructuring and Workouts”, the “safe harbour”defencewillbeofgreatsignificancefordirectorsofcompaniesandtheiradvisors vi Foreword whowishtopursueaworkoutorrestructuringinformallyandoutsidetheframeworkofone of the forms of external administration for which the Corporations Act provides. “Restructuring” and “workouts” have long been part of the lexicon of insolvency practitioners. The authors are to be congratulated, therefore, for the inclusion of this new chapterinthebook.Hopefully,thelegislativeinitiativewhichitconsiderswillheraldanew era in Australian insolvency practice. Moreover, also hopefully, that era will fortify the observation of the Law Reform Commission, when commenting on the voluntary administration regime, that; “constructive or creative insolvency is not a myth”. I commend the authors for their work on the 10th edition. May 2018 Preface In the last few prefaces, going back to the 2010 edition, we foreshadowed what we thought were then pending insolvency law reforms. It was not until shortly before this, the 2018 10th edition, that these reforms have become law, under the Insolvency Law Reform Act 2016, involving substantial change to the structure and content of insolvency law and its practice.Thechangesinvolvedastageddeferral,withsomecommencingon1March2017, and the remainder, the bulk, commencing on 1 September 2017. Inaddition,shortlybeforethatSeptemberdate,thelongawaiting“safeharbour”reformsin relation to insolvent trading commenced. Reforms limiting the exercise of ipso facto termination rights in insolvency also became law, but with their commencement delayed until 1 July 2018, with the extent of their coverage still, as at the date of publication, under review. Then,inpersonalinsolvency,reformstoreducetheperiodofbankruptcytooneyear,andto extend and improve the regulation of debt agreements, were introduced into parliament in late 2017 and early 2018. Their passage was diverted through a 2018 Senate committee inquiry which, while endorsing the Bills, has left them yet to progress into law. For the purposes of what became a delayed publication of the 10th edition, initially due soon after 1 September 2017, we had to draw a line in the sand at the introduction of the bankruptcy and debt agreement reforms into parliament. In the chapters affected, we have referred to the changes as only being proposed law, although it is anticipated that the respective Bills will remain largely unchanged. Similar tentative coverage is given to the pending ipso facto changes. This the 10th edition is therefore as current as the legislature has allowed as at May 2018. The delay in publication to account for law reform has also brought the benefit in allowing coverage of the recent significant developments in case law in 2018 in relation to the liability of liquidators for environmental clean-up costs in Linc Energy and the complex intersection between trusts and corporations law in the decisions in Amerind and in Killarnee. The first two are the subject of special leave applications to the High Court of Australia. Weshouldbeandaregratifiedthatsomelong-awaitedlawreformhaseventuated,evenifit has coincided with the 10th edition, and resulted in some major re-writing of the text. In fact, the safe harbour and ipso facto reforms have prompted us to cover what is an increasing trend in insolvency, to seek to manage the financial difficulties of a business through developing discipline and skills involved in corporate turnaround. We provide an overview of turnaround and restructuring in a new Chapter 21, which is, we would like to think, a contribution to that growing discipline inAustralia. As we said in the preface to the 9th edition, the impetus for these reforms has come from a recognitionthatattendingtobusinessdistressandfailure,andmoresoanticipatingit,needs a more significant focus. That is not to say that this development is new, or that many viii Preface businesses have not been salvaged or reconstructed through many a commercially agreed process in the past. But with the latest safe harbour and ipso facto reforms, there is now some legislative recognition that a more flexible approach, with some legislative direction, and control, is desirable. How the results of supporting an innovative and entrepreneurial business environment and of trying to preserve value in failing businesses will be assessed is problematic. We commend the government for requiring a review of the safe harbour laws after two years, but by what process and standard the assessment is to be made is difficult to anticipate. Noneofthismeansthattheformalprocessesofinsolvency,whichcomprisethebulkofthis text, will become redundant. Corporate restructuring always involves a best endeavours approach, and the formal regime can either be a fail-safe or a means of implementing an agreed outcome. There will always be those companies that become insolvent and little if anything but the formal liquidation processes are needed to deal with them. It is there, and in the area of personal insolvency, that we make many criticisms, and suggest ideas for reform. Our view remains, as we said in the 9th edition, that legislative inattention to some of the inflexibilities of the present corporate insolvency regime, along with greater regulatory requirements imposed, may well be a reason for the move towards informal restructuring. This is not an unhealthy trend, but it is an unsatisfactory way to promote it. Nevertheless, we consider that, whileAustralia’s insolvency laws could be much improved, theygenerallyoperatetoanacceptablestandard,andratereasonablywellinternationally.In view of the limited data, in corporate insolvency, we, or anyone, can only make this assessment based on informed intuitive analysis, and individual case outcomes, but the assessment is valid nevertheless. What was our concluding chapter to the last editions of the text – a critical review of the operation of the insolvency regime – has now been incorporated into our opening chapter, chapter1.Whilethechapterassumessomeknowledgeofthelawandpractice,weconsider itisimportanttoputitfirst,sothatsucceedingchapterscanbecriticallyreadinitscontext. Wecontinuetoseethebestapproachtoexplaininginsolvencyasthatoriginallyadoptedby Professor Andrew Keay in the first edition in 1993. We remain in contact with Professor Keay, now in Leeds, England, and continue to acknowledge his scholarship throughout this edition of the text. WearepleasedandhonouredtohaveaninsightfulforewordfromRichardFisherAM,who, amongotherdistinguishedpositions,wasacommissioneronthe1988ALRCreportheaded by the late Ron Harmer. Mr Fisher reminds us of the focus on corporate restructuring in the Harmer Report, in support of our re-focus of the book, and at the same time acknowledges that, with thirty yearsnow having passed since that Report, it is time fora further review ofinsolvency law to be conducted. We would like to thank readers who have made suggestions for inclusions in the book, in particular Peter Agardy, Christopher Athanassios, Associate Professor David Brown, Preface ix Amanda Coneyworth, Associate Professor Anil Hargovan, Jim Johnson, Morgan Kelly, Kane Kersaitis, Nicholas Mirzai, Catherine Nguyen, Renee Stevens, Allison Silink, Geoff Green, Professor Christopher Symes and Mark Wellard. We are pleased to see that Lara Weeks has returned as editor for this edition. Michael Murray has continued to focus mainly on the personal insolvency chapters, and Jason Harris on the corporate, but we both reviewed and contributed to the whole of the text. Jason made the major contribution to the restructuring chapter. Jason would like to thank his undergraduate and postgraduate insolvency students at UTS over the past fourteen years whose probing questions and enthusiasm for the topic have greatly contributed to his understanding of insolvency law. Most importantly, Jason thanks his family, Kathy, Ciaran, Erin and Katie, for their continuing love and support. We have stated the law and law reform as available to us as at May 2018. MICHAELMURRAY JASONHARRIS Sydney May2018
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