Recent exciting developments

In the last month, the insolvency industry has seen exciting developments in the delivery of the High Court’s decision on the Mighty River special leave application and the Victorian Court of Appeal’s decision on the Amerind appeal.

When the river runs dry, or will it?

In Mighty River International Limited v Hughes & Anor¹, the High Court granted Mighty River International Limited (Mighty River) leave to appeal the Western Australia Court of Appeal’s decision in relation to “holding” deeds of company arrangement (Holding DOCA) to the High Court.

Links to our previous publications on the Mighty River decisions are here and here.

In the Supreme Court of Western Australia, Master Sanderson held that the use of a Holding DOCA was a valid exercise of the Administrators’ powers and that Holding DOCAs were in widespread use in the industry.

On appeal in the Western Australia Court of Appeal last year, Buss P, Murphy JA and Beech JA unanimously held that Holding DOCAs were valid under the Corporations Act² and recognised their use by insolvency practitioners in Western Australia.

Mighty River then sought leave to appeal the decision of the Court of Appeal to the High Court of Australia.

Nettle J and Gordon J of the High Court made orders granting Mighty River leave to appeal to the High Court.

Their Honours referred to the following in coming to their decision:

• there is an inconsistency with Holding DOCAs between the fact that there is no property being made available to creditors in the Holding DOCA and the principal object of Part 5.3A of the Act;
• Holding DOCAs provide time for the administrators to conduct investigations and seem to take control away from the creditors; and
• the purpose of Holding DOCAs seems to be a means for administrators to “get around” having to extend the convening period.

Their Honours queried the inconsistency of Holding DOCAs with the object of Part 5.3A of the Act suggesting the direction and control of the administration was ultimately taken out of the hands of the creditors and placed in the hands of the administrators without remedy or certainty as to what was to become of the company’s affairs.

This grant of leave raises questions about the validity of the use of Holding DOCAs in Western Australia.

Stay tuned for Mighty River’s appeal to the High Court.

Who do you trust - trustee’s right of indemnity

More recently, the Victorian Court of Appeal handed down its decision in Commonwealth of Australia v Byrnes and Hewitt & Ors (Amerind).³

In the underlying decision, Robson J of the Victorian Supreme Court held that the corporate trustee’s right of indemnity was not property of the company and therefore the provisions of insolvency law setting out a statutory priority were not applicable to that right or those trust assets.

The Court of Appeal overturned the decision of Robson J finding it inconsistent with High Court authority.⁴

Their Honours held that a company’s right of indemnity as trustee over trust assets was property of the company and therefore the priority regime set out in the Act applied.⁵

What this means is that creditors of an insolvent company that acts as a trustee, now have access to the assets of that trust, subject of course to the statutory priorities set out in sections 433, 555 and 556 of the Act.