Extension of temporary changes to continuous disclosure provisions for corporations and its officers

September 23, 2020

Today the Federal Treasurer announced an extension of the temporary amendments to the continuous disclosures obligations under the Corporations Act 2001 until 21 March 2021.

This announcement does not come as a particular surprise to insolvency practitioners.

The release Read the rest of this entry »

ASIC commences action against RI Advice Group Pty Ltd for failing to have adequate cyber security

August 22, 2020

Today the Australian Securities and Investments Commission (“ASIC”) commenced proceedings against RI Advice Group Pty Ltd (“RI”).   It has been filed in the Federal Court Victorian Registry.  

RI holds an Australian Financial services licence and at all relevant times was a wholly owned subsidiary of the Australia and New Zealand Banking Group Limited (the ANZ).

According to the Concise Statement :

  • on 3 January or 3 March 2017 RI became aware of a ransomware attack on the computer systems of one of RI’s authorised representatives in 2016 which made files inaccessible [5];
  • on 30 May 2017 RI became aware another authorised representative’s files were hacked which affected 226 client groups [6]. 

ASIC alleges that in relation to each of those incidents RI should have but failed to:

 (a) properly review the effectiveness of cybersecurity controls relevant to these incidents across its AR network, including account lockout policies for failed log-ins, password complexity, multi-factor authentication, port security, log monitoring of cybersecurity events, cyber training and awareness, email filtering, application whitelisting, privilege management and incident response controls; and (b) ensure that those controls were remediated across its AR network where necessary in a timely manner, in order to adequately manage risk with respect to cybersecurity and cyber resilience.

  • between 30 December 2017 and 15 April 2018 an unknown malicious agent obtained and retained remote access to an authorised representative’s remote access to its file server and spent 155 hours accessing sensitive client information.  That resulted in 27 clients reporting unauthorised use of their personal information with that there were 3 attempts to redirect mail and multiple bank accounts being opened upon without consent.  There was a notification to the Australian Information Commissioner.  An investigation revealed that 8,104 individuals were exposed to the breach.

ASIC alleges that the risk management systems and resourcing relating to cybersecurity and cyber resilience were inadequate Read the rest of this entry »

Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632 (15 May 2020); deed of company arrangement, Corporations Act sections 588FA and 588FE, voidable transactions

June 11, 2020

In Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632 Middleton J considered the operation of the sub sectin 588FE(2B) involving the voidable transactions and whether payments were made under the administrator of a deed of company arrangement.

FACTS

On 29 October 2013, Mr Yeo and Mr Rambaldi were appointed as joint and several administrators of Ready Kit Cabinets Pty Ltd (in liq) (” the Company”) [8].

The DCT  commenced proceedings seeking to wind up the Company before the appointment of  Yeo and Rambaldi as voluntary administrators [9].  The first meeting of the Company’s creditors was convened and held on 7 November 2013 [10].  On 14 November 2013,  Yeo and Rambaldi issued a circular to creditors in which they advised that the second meeting of the Company’s creditors would be held on 22 November 2013. Yeo and Rambaldi provided creditors with a copy of a s 439A report with the circular [11].  At the second meeting of creditors  a resolution was passed that the Company should execute a deed of company arrangement [12].

On or about 11 December 2013, the DOCA was executed by:

  • each of the Company (by its then administrators,  Yeo and Rambaldi),
  •  Yeo and Rambaldi as deed administrators, and
  • the Director [13].

His Honour identified key provisions of the DOCA as:

  • Recital H. [14], that:

This Deed binds all Creditors of [the Company] pursuant to Section 444D of the Corporations Act and [the Company], all officers and members of [the Company], and the Administrators pursuant to Section 444G of the Corporations Act.

  •  management and control of the Company’s day-to-day business affairs were returned to the Director;
  • a fund was established and controlled by the Deed Administrators which constituted the whole of the property available for distribution to participating creditors [15];
  • the Company and Director made certain covenants and undertakings, including in respect of the Company’s compliance with its taxation obligations [15]; and
  •  upon default of the DOCA by the Company or the Director, the Deed Administrators were to convene a meeting of creditors to determine whether to terminate the DOCA and wind up the Company [15].

Between 11 December 2013 and 5 July 2017, the Company was returned to the management and control of the Director and continued to trade [16]. During this time the Company incurred fresh liabilities Read the rest of this entry »

Commonwealth Parliament amends the Corporations Act with Part 9.11 and section 459E, F and G. The statutory period will extend from 21 days to 6 months for 6 months. The statutory minimum is raised from $2,000 to $20,000 for 6 months. Some protection for directors trading while insolvent for the next 6 months.

March 24, 2020

The Commonwealth Parliament passed the Coronavirus Economic Response Package Omnibus Act 2020 yesterday.  It introduced the Bill yesterday as well.

It is a wide ranging Act but to the extent that it relates to those practicing commercial law the relevant provisions are amendments to section 9 and 459E – G for the statutory demand and 588Eff. The statutory minimum has been raised from $2,000 to $20,000.  That is significant but what will have a bigger impact on the use of statutory demands is the statutory period being increased from 21 days to 6 months.  These amendments are to last for 6 months from date of proclamation unless otherwise modified by regulation.  Accordingly, from now until about 24/25 September 2020 at least the new regime regarding the use of statutory demands will be in place.  The statutory period of a statutory demand served tomorrow would not  expire until around 25 September.  As such applications to set aside the statutory demand can be filed any time up to that date.

Given this is a significant area of my practice it is important to be on top of these changes.

The Act provides:

Part 2—Amendments relating to businesses in financial distress

Corporations Act 2001

21  Section 9

Insert:

statutory period means:

                     (a)  if a period longer than 21 days is prescribed—the prescribed period; or

                     (b)  otherwise—21 days.

22  Paragraphs 459E(2)(c) and 459F(2)(b)

Omit “21 days”, substitute “the statutory period”.

23  Subsection 459G(2)

Omit “21 days”, substitute “the statutory period”.

24  Subsection 459G(3)

Omit “those 21 days”, substitute “that period”.

25  In the appropriate position in Chapter 10

Insert:

Part 10.42—Transitional provisions relating to the Coronavirus Economic Response Package Omnibus Act 2020

  

1669  Application of amendments made by Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020

 The amendments made by Part 2 of Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 apply to statutory demands that are served on or after the commencement of that Schedule.

Corporations Regulations 2001

26  Before regulation 5.4.01

Insert:

5.4.01AA  Temporary increase to the statutory minimum and statutory period

 (1)  For the purposes of paragraph (a) of the definition of statutory minimum in section 9 of the Act, the amount prescribed is $20,000.

 (2)  For the purposes of paragraph (a) of the definition of statutory period in section 9 of the Act, the period prescribed is 6 months.

 (3)  This regulation is repealed at the end of the period of 6 months starting on the day this regulation commences.

27  Paragraphs 3 and 5 of Form 509H of Schedule 2

Omit “21 days”, substitute “the statutory period”.

28  Form 509H (note 2) of Schedule 2

Omit “minimum of $2,000.”, substitute “minimum. The statutory minimum is $2,000 or a greater amount prescribed by the regulations. For a 6?month period in 2020, a greater amount of $20,000 is prescribed (see the Coronavirus Economic Response Package Omnibus Act 2020).”.

29  Form 509H (note 5) of Schedule 2

Repeal the note, substitute:

    1. The statutory period is 21 days or a longer period prescribed by the regulations. For a 6?month period in 2020, a longer period of 6 months is prescribed (see the Coronavirus Economic Response Package Omnibus Act 2020).

The second amendment to the Corporations Act is to provide temporary relief for directors who may engage in insolvent trading for the next 6 months or any longer time prescribed by regulations.  The amendments are to sections 588E and 588GA and the insertion of 588GAAA.

Part 3—Temporary relief for directors from duty to prevent insolvent trading

Corporations Act 2001

30  Paragraph 588E(8A)(a)

After “subsection 588GA(1)”, insert “or 588GAAA(1)”.

31  After section 588GA

Insert:

588GAAA  Safe harbour—temporary relief in response to the coronavirus

Safe harbour

(1)  Subsection 588G(2) does not apply in relation to a person and a debt incurred by a company if the debt is incurred:

            (a)  in the ordinary course of the company’s business; and

            (b)  during:

                         (i)  the 6?month period starting on the day this section commences; or

                        (ii)  any longer period that starts on the day this section commences and that is prescribed by the regulations for the purposes of this subparagraph; and

 (c)  before any appointment during that period of an administrator, or liquidator, of the company.

  (2)  A person who wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588G(2) bears an evidential burden in relation to that matter.

When the safe harbour does not apply

 (3)  Subsection (1) is taken never to have applied in relation to a person and a debt in the circumstances prescribed by the regulations for the purposes of this subsection.

Definitions

 (4)  In this section:

evidential burden, in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist.

32  Subsection 588GB(7) (paragraph (b) of the definition of relevant proceeding)

After “subsection 588GA(1)”, insert “or 588GAAA(1)”.

33  Paragraph 588HA(1)(a)

After “safe harbour”, insert “described in subsection 588GA(1)”.

34  Subsection 588WA(1)

Repeal the subsection, substitute:

 (1)  Subsection 588V(1) does not apply in relation to a corporation that is the holding company of a company, and to a debt, if:

        (a)  the corporation takes reasonable steps to ensure that either subsection 588GA(1) or 588GAAA(1) (the safe harbour provision) applies in relation to:

                    (i)  each of the directors of the company; and

                    (ii)  the debt; and

       (b)  the safe harbour provision does so apply in relation to each of those directors and to the debt.

The Explanatory Memorandum relevantly Read the rest of this entry »

Government announces increase to threshold for statutory demands and the time period to respond. Also mooted is reduction in personal liability for directors of companies trading while insolvent.

March 22, 2020

As part of the Government’s second stage relief package it has announced that it will amend the Corporations Act 2001 to:

  • increase the threshold for issuing a statutory demand from $2,000 to $20,000; and
  • extend the time within which to apply to set aside a statutory demand from 21` days to 6 months.

The Prime Minister’s media statement of earlier today relevantly provides:

The Government is temporarily increasing the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive. The package also includes temporary relief for directors from any personal liability for trading while insolvent.  The Corporations Act 2001 will be amended to provide temporary and targeted relief for companies to deal with unforeseen events that arise as a result of the Coronavirus.

(Emphasis added_

No details have been provided as to what is meant by relief from liability of directors who may trade while insolvent.  It is too cryptic at this stage.  

The pressure of receiving a statutory demand for relatively small debts is lifted, for the time being.  The threshold of $ 20,000 remains within the scope of many existing statutory demands.  Statutory demands for sums a little over $2,000 are issued but they do not make up the majority of statutory demands. 

The sting of statutory demands has been dulled by the long period within which an application to set it aside can be made, Read the rest of this entry »

Jolimont Heights Pty Ltd v Ryan [2018] VSC 678 (9 November 2018): section 459 of Corporations Act, application to set aside statutory demand, genuine dispute

November 22, 2018

The Victorian Supreme Court, per Matthews JR, considered an application to set aside a statutory demand in  Jolimont Heights Pty Ltd v Ryan [2018] VSC 678.

FACTS

Jolimont Heights Pty Ltd (‘JH’), made an application pursuant to s 459G of the Corporations Act 2001 (Cth) (‘Act’) by originating process dated 9 July 2018 to set aside a statutory demand dated 19 June 2018 (‘Statutory Demand’)  [1].

The application was made under s 459H &/or s 459J on the basis:

  • there was a genuine dispute as to the existence of the debt
  • due to some other reason, being that the Statutory Demand was defective  [2].

In support of its application, JH relied on Read the rest of this entry »

Re Ad Astra Institute Pty Ltd [2018] VSC 563 (25 September 2018) and : Section 359G Corporations Act, application to set aside statutory demand, 21 day affidavit required to ‘raise’ or ‘identify’ a particular ground expressly, genuine dispute, offsetting claim.

November 3, 2018

The Victorian Supreme Court in Re Ad Astra Institute Pty Ltd [2018] VSC 563 considered an application to set aside a statutory demand.  In dismissing the application the court undertook a useful analysis of both genuine dispute but more particularly the approach to be taken in preparing an offsetting claim.

FACTS

The defendant was engaged to develop QMS and other documentation (‘Training Documentation’) to meet the requirements of being a Registered Training Organisation (‘RTO’) and on the Commonwealth Register of Institutions and Courses for Overseas Students (‘CRICOS’) [4].

In July of 2016, the plaintiff offered the defendant a contract for services, [4], with consultancy fees at:

    • an hourly rate (minimum of 3 hours) $575 per hour + GST
  • daily rate (maximum of 8 hours) $2,800 per day + GST [5].

The note at the bottom of the consultancy fees provides:

Please note:The terms of all invoices are 14 days and all invoices will be charged according to the hourly rate plus GST (Goods and Services Tax). These rates are reviewed from time to time and may change. We will tell you of any changes as soon as practicable after a change occurs [6].

with a further stipulation :

As negotiated:It is agreed that IRM [the Defendant] will cap its fees payable for initial registration and CRICOS registration at AUD$100,000 inclusive of required ASQA fees.

The Agreement was set out to have been made on 25 July 2016 and executed by James Sackl on behalf of the plaintiff. At all material times Read the rest of this entry »

A G Coombs Pty Ltd v M & V Consultants Pty Ltd (in liq) [2018] VSC 468 (22 August 2018): failure to comply with statutory demand, interlocutory injunction, allegation of abuse of process

August 31, 2018

The Victorian Supreme Court in A G Coombs Pty Ltd v M & V Consultants Pty Ltd (in liq) [2018] VSC 468 considered and dismissed a plaintiffs’ application for injunctive relief to prevent an application under section 459 of the Corporations Act 2001 being made.

FACTS

On Friday 15 June 2018, the plaintiffs sought urgent interlocutory relief and final relief by way of an injunction to enjoin the defendant from making an application under s 459P of the Corporations Act 2001 (Cth) to wind up each of the plaintiffs in insolvency in connection with statutory demands Read the rest of this entry »

Re Mossgreen Pty Ltd (in liquidation) [2018] VSC 230 (9 May 2018): rights to owners of goods held by liquidator under Australian Consumer and Fair Trading Act 2012

May 14, 2018

In Re Mossgreen Pty Ltd (in liquidation) [2018] VSC 230 Robson J considered the application of the Australian Consumer Law as against the operation of the Corporations Act and powers of liquidators.

FACTS

The auction house operating through the entity Mossgreen Pty Ltd (in liq) (‘Mossgreen’) went into liquidation on 4 May 2018. Administrators had been appointed on 21 December 2017 [1].

As an auctioneer, Mossgreen held a large quantity of goods (the ‘consigned goods’) belonging to other people (the ‘consignors’) described as being:

(a) goods delivered to it to be auctioned, but which had not yet been auctioned;

(b) goods delivered for auction, but which had failed to sell and which were awaiting collection by their owners; and

(c) goods which, although successfully sold at auction, had not been collected by the successful bidders [2].

which were stored in  three warehouses [3].

Sobraz Pty Ltd (‘Sobraz’), the plaintiff, is the landlord of one of the warehouses, situated at 1 Torteval Place, Clayton [3].

The administrators’ stocktake of the goods cost in excess of $1 million [4]. The administrators sought to levy each consignor with the sum of $353.20 per lot as a condition for releasing the lot to the consignor, asserting an equitable lien [5]. The administrators application for Read the rest of this entry »

In the Matter of Innovateq Pty Ltd [2018] VSC 124 (24 April 2018): Corporations, bringing proceedings under s 237 Corporations Act, application to wind up company, section 461

May 2, 2018

Justice Kennedy in In the Matter of Innovateq Pty Ltd [2018] VSC 124 considered an application under section 237 of the Corporations Act for leave to commence proceedings in a derivative action.  Judgments regarding leave applications are relatively uncommon.

FACTS

The proceeding involved two applications:

  • leave to the plaintiff pursuant to s 237 of the Corporations Act 2001 (Cth) (Act) to commence court proceedings in the name of Innovateq Pty Ltd (ACN 132 372 242) (Company) against Mr Daniel Phillips (a former employee) and two companies associated with him, Certeq Pty Ltd and Certeq NZ Pty Ltd (Certeq) (Leave Application); and
  • for an order that the Company be wound up (Winding Up Application).

The Company, in its capacity as trustee for the Read the rest of this entry »