For practical purposes, the power to regulate corporations resides in the federal legislature. The Corporations Act 2001 is a federal statute governing, among other things, the incorporation, governance and insolvency of corporations. Whilst there is a single executive regulatory authority for corporations, the Australian Securities and Investments Commission (‘ASIC’), judicial oversight of the Corporations Act 2001 is shared among Australia’s six state courts, two territory courts and one federal court. All of these courts administer the Corporations Act 2001, each according to its own procedural rules.
In the discussion which follows, statutory references are to the Corporations Act 2001, unless otherwise indicated.
A. DOMESTIC FAMILY OF COMPANIES
1. If insolvency proceedings must be commenced for the family of companies, does your law permit a joint proceeding, ie, a single court file, a single judge, a single list of creditors, single notice list, or must the case for each member of the family proceed separately with no practical acknowledgement of the related proceedings?
The Corporations Act provides a number of methods for dealing with an insolvent company. Not all of these involve the appointment of a liquidator who assumes control of the company’s affairs, realises its assets and discharges its liabilities in preparation for its dissolution (a process which in Australia is referred to as ‘winding up’ or ‘liquidation’).
Most insolvency ‘proceedings’ (or forms of external administration) involving Australian corporations are non-curial. The three most common of these are:
Voluntary administration is a form of external administration that a financially-troubled company (or a secured creditor) can initiate, using the procedure set out in Part 5.3A. The company comes under the control of the voluntary administrator. His role, in consultation with the company’s creditors, is either to work out a recovery plan for the company (in the form of a Deed of Company Administration which is administered by a deed administrator, usually the former voluntary administrator) or to ensure an orderly transition to winding up (with the object of securing a higher return for creditors than would be the case if the company were forced to engage in a fire sale of its assets).
In most cases receivership involves the appointment, by a secured creditor, of an external controller of the security, with the object of selling it to recover the creditor’s debt. The terms of the appointment are dictated by the security documentation, supplemented by some statutory provisions. When the receiver has realised the security, control of the company reverts to its directors; in practice, however, receivership is often followed by winding up.
A creditors’ voluntary winding up involves the appointment of a liquidator by the company’s creditors. This will happen in one of two ways:
The most often used curial form of insolvency proceeding is a court winding up, also called a court liquidation or compulsory winding up. As its name suggests, a court winding up is commenced by an application to a court, usually by a creditor (Part 5.4B).
Each of these forms of external administration involves the appointment of an independent insolvency practitioner (an accountant, not a lawyer) to the company. In the case of a court liquidation, the insolvency practitioner is appointed and supervised by the court. So far as the other forms of external administration are concerned, there is capacity for ad hoc court intervention/supervision. In each instance, the appointee takes control of the company; the directors’ residual powers are extremely limited.
As each company in a group is a separate entity, it will separately appoint or have appointed to it, an insolvency practitioner. There is no formal legal mechanism for initiating proceedings on a group basis. Nevertheless, the reality of insolvency in a group context is that the business affairs of the individual corporations within the group are often interrelated. As a result, it is not uncommon to find that the same insolvency practitioner has been appointed to each company within a group. On the other hand, where actual or potential conflicts of interest between companies in a group are recognised at the commencement of the external administration, different practitioners may be appointed.
In practice, it is relatively rare to find that only some companies within a group are placed in external administration. Considerations of commercial reputation will generally mean that solvent members of a group will support an insolvent member. Where they do not do so, it is usually because all of the group members are insolvent (or are rendered insolvent by intra-group loans, guarantees and transactions). Accordingly, it tends to be the case that all of the members of a group will enter external administration either at the same time or within a short period of time.
So far as the mechanics are concerned, an appointment made by a company (voluntary administration) or its creditors (creditors’ voluntary winding up) must be made by resolution. A receivership appointment is made by the secured creditor under a written instrument. In the case of a family of companies, where the same insolvency practitioner is to be appointed the receiver of each of the companies in the group, the appointments could be effected in the same document. A court may make multiple appointments on the basis of a single application or multiple applications.
(a) What if the members of the family are organised under, or operate in, different locations within your country? Can a company from a distant location in your country commence its bankruptcy proceeding where its affiliate is located, if the affiliate has already commenced its bankruptcy proceedings?
Because there is only one Corporations Act, there are no domestic jurisdictional issues concerning the insolvency of Australian companies. All companies are incorporated under the Act and listed on one register maintained by ASIC (s 118(2)) which records, among other things, the registered office and registration number of the company.
Companies may, of course, maintain branch offices and places of business in different states or territories. However, those branches and places of business do not enjoy any legal identity separate from the company itself. A company will not, therefore, be subject to separate insolvency proceedings in different states or territories.
Any Australian court can wind up any Australian company, regardless of the geographical location of its registered office. Generally, courts will endeavour to ensure that the court handling the winding up application is the most geographically appropriate one, taking into account factors such as the location of its creditors, its business operations and its records. To that end, courts are empowered to transfer an insolvency proceeding to a more ‘appropriate’ court. This may be done on application by an interested party or on the court’s own motion.
(b) To the extent your country has different types of insolvency proceedings (such as Chapter 11 reorganisation and Chapter 7 liquidation in the US) do the members of the corporate family all have to proceed under the same type of proceeding?
There is no requirement that all companies within an insolvent group must be subject to the same type of insolvency proceedings. Moreover, individual companies can be subject to overlapping forms of external administration.
The most common form of overlap occurs when a creditor files an application to wind up a company. It is relatively common for the company to respond by appointing a voluntary administrator. If the creditor wishes to pursue its winding-up application, it must obtain the leave of the court (s 440A).
Another common form of overlap is simultaneous receivership and liquidation (ie, the company is under the overall control of a liquidator, but some of its assets are under the control of a receiver appointed by a secured creditor). In Australia, the instrument under which a secured creditor may appoint a receiver generally allows the receiver to manage the affairs of the company as well as realising the security. The subsequent appointment of a liquidator will remove that management power unless the liquidator or the court gives the receiver approval to continue managing the business. This overlap can give rise to tensions between the receiver (who is acting for a secured creditor) and the liquidator (whose primary focus is the company’s unsecured creditors).
2. Does your law permit, or prohibit, a single administrator/trustee/ receiver to administer the assets and the liabilities of the entire corporate family?
(a) If so, is there a hearing for the court to determine whether the administration by a single party is appropriate? Are secured and unsecured creditors or other parties in interest allowed to object or be heard at such hearing?
As discussed in answer to question A.1 above, the same insolvency practitioner may be appointed to all of the companies within a group. However (subject to the comments on pooling in answer to question A.6), the assets and liabilities of each company within a group must be administered separately.
This requirement to administer each insolvent company separately can sometimes place the insolvency practitioner in a position of conflict, when the interests of one company in the family conflict with the interests of another. Where the conflict is restricted to a discrete matter, the court may appoint a ‘special purpose’ or ‘conflict’ external administrator to manage that matter. However, it is more common for the practitioner or a person with a real interest in the insolvency proceedings (ie, a creditor) to obtain a court order removing the practitioner from the position of conflict and appointing an independent replacement (eg, Handberg, in the matter of Greight Pty Ltd (in liq) [2006] FCA 17).
(b) What about joint representation by other professionals, such as law firms or accounting or auditing firms?
Where the one insolvency practitioner is appointed to all members of the group and there is no conflict, there is no impediment to a professional firm providing services to all members in that group. Where a conflict exists and an independent external administrator has been appointed, naturally he will obtain separate and independent advice.
In certain exceptional circumstances, conflicts of interest may be managed by the one insolvency practitioner obtaining advice from separate firms, together with an application to the court for approval of the proposed course of action.
3. Does your law encourage or discourage overlapping boards or management teams for separate members of a corporate family?
Each company must have its own board.
This does not mean that the board of each company in a group may not be composed of the same individuals. However, each board must function separately in relation to each company. The law prohibits the board of a company within a group from preferring the interests of the group ahead of the interests of the company.
There is no legal requirement that each company within a group have a separate management team and it is quite common for companies within a group to share management teams.
(a) If the directors of a parent company are not directors of the subsidiary, but they either directly or indirectly manage the affairs of the subsidiary anyway, do your country’s laws render such people de facto or ‘shadow’ directors of the subsidiary?
If the board of a company is accustomed to acting in accordance with another person’s instructions or wishes, that other person is defined as a director of the company (s 9). The ‘other person’ may be an individual or a company. The Act thus codifies the common law concept of a de facto or shadow director.
In practice, the scope of the de facto/shadow director definition is still relatively unclear. The few court cases on the issue have tended to turn upon their own facts.
(b) Do the duties or responsibilities of officers or directors of a family of companies change when the companies become insolvent? For example does their duty shift from a responsibility to the shareholders to a responsibility to the creditors? What if only one of the companies is insolvent?
The duties of directors in Australia are governed by both the Corporations Act and common law. In summary, in discharging their duties the directors must have regard to the interests of the company’s creditors, particularly when the company is insolvent or nearing insolvency. However, that requirement does not give rise to an actionable duty by creditors.
Corporations Act
The main Corporations Act provisions governing directors’ duties are contained in sections 180-190A. There are two fundamental concepts underlying these provisions:
There is an additional statutory requirement that a director not allow a company to incur debts while it is insolvent (see the answer to question A.9 (b) below).
Common law
As with the Corporations Act, the common law duties of directors are owed to their company and not to individual shareholders or to creditors.
From 1986 until 2000, there was a body of judicial opinion which arguably suggested that, once a company was threatened by insolvency, its directors were under a duty to consider the interests of creditors and that that duty might be actionable by individual creditors. In 2000, the High Court of Australia (the ultimate appellate court) stated that there is no such actionable duty: the correct principle is that, when a company is insolvent, the ability of shareholders to ratify or forgive directors’ breaches of their duty to the company is circumscribed by the interests of the creditors (Spies v The Queen (2000) 201 CLR 603). In other words, as long as the company is solvent, the shareholders can generally forgive breaches of duty by the directors, because the financial impact of those breaches is borne by the shareholders; but when insolvency supervenes, the financial burden of directors’ breaches of duty falls upon the creditors, thus making it inequitable to allow the shareholders to forgive those breaches.
As noted in answer to question A.1 above, once an insolvency practitioner is appointed to an insolvent company, the directors’ right to manage the affairs of the company is replaced by that of the practitioner. The appointee’s duties are owed primarily to the creditors of the company.
4. Are there rules and do they change regarding members of the corporate family transferring assets among one another (such as by way of loans, capitalisation, other transactions) when the members are insolvent?
The transfer of assets between companies within a group is generally governed by the same rules that govern any corporate transaction. With few exceptions (eg, financial reporting), the Corporations Act does not recognise a group of companies as having any separate existence from the individual companies in the group.
There are two sets of principles which govern intra-group transfers and transactions which occur prior to the commencement of external administration: the duties of directors and the ‘claw-back’ rules.
Before considering these, we refer briefly to the ‘related party transaction’ provisions of the Corporations Act (Part 2E.3). These only apply to public companies. They prohibit a public company or a subsidiary of a public company from giving a financial benefit to a company that is a related party of the public company. The definition of ‘related party’ in section 228 is extremely broad and its potential application (if any) to a corporate group would depend upon the structural make-up of the group. There are two important points to note about the related party prohibition:
Duties of directors
To reiterate, directors owe their primary duty to their companies, not to the group. Generally speaking, those duties prevent directors from entering into any transaction unless they reasonably believe that the transaction is in the company’s own best interests. Therefore, it would be a breach of their duty for the directors of a solvent member of a group to transfer its assets to an insolvent member, unless the directors of the solvent company reasonably believed that the transfer was in the best interests of the solvent company. It would not be sufficient for the directors simply to believe that the transfer was in the best interests of the group, unless they also believed that their own company’s interests coincided with or were dependent upon the interests of the group.
There is a specific statutory provision (s 187) which, subject to the company’s constitution, allows directors of a wholly-owned subsidiary to act in the best interests of the holding company. However, this is extremely limited: relevantly, it does not apply where the subsidiary is insolvent or becomes insolvent because of its directors’ actions. There is a dearth of case authority on the practical application of section 187.
Claw backs
If a company is being wound up, certain transfers of company property in the ‘relation back’ period leading up to the commencement of the winding up, often referred to as voidable transactions, can be recovered by the liquidator on behalf of the company from the transferee (Part 5.7B). The ‘relation back’ period varies depending upon the type of transaction.
Consistent with the rest of the Corporations Act, the principles and rules governing voidable transactions do not generally take account of whether the transferee and the transferor are members of the same group.
Examples of voidable transactions include, relevantly, uncommercial transactions which were entered into when the company was insolvent.
An uncommercial transaction is one which a reasonable person, in the company’s position, would not have entered into, having regard to any relevant matter including:
As a practical matter, it should also be noted that the statutory defence to a claw-back action is that the transferee acted in good faith and with no reason to suspect that the transferor company was insolvent (s 588FG). Where the transferor and transferee are members of the same corporate group, it would be expected that the transferee would have some difficulty in establishing this defence.
(a) Are cash sweep procedures allowed, that is, all cash from all subsidiaries is swept out to one account controlled by one of the family entities and then redistributed among the family members to pay bills?
Following the commencement of the external administration, the ability of a subsidiary to pay the debts of another subsidiary will depend upon the powers and duties of the relevant insolvency practitioner, he being the person in control of the management of the affairs of the company. In exercising his powers and discharging his duties, the insolvency practitioner must consider the best interests of each individual company. Having regard to this guiding principle, the cash sweep procedures described are very unlikely to be permissible.
(b) What if the redistribution results in a healthy subsidiary funding the shortfalls in another subsidiary that is losing money?
On the basis that the healthy subsidiary is not subject to any form of external administration and remains in the control of its directors, the answer to this question is as recorded above.
5. How does your law treat claims of one member of a corporate family against other members of the corporate family?
As the Corporations Act does not generally attribute any separate legal identity or recognition to a group as distinct from its corporate members, creditor claims by one group company against another rank equally with claims by any third party creditor. If the group company creditor holds security, it will rank above any unsecured creditors (provided, of course, that the security itself is not susceptible to a claw-back action by the liquidator). As a matter of practice, intra-group transactions are usually subjected to a high degree of scrutiny by insolvency practitioners.
Nevertheless, the Corporations Act does allow voluntary subordination of debts (s 563C), and this is extremely common in voluntary administration. There, creditors which are related to the insolvent company will often agree to postpone their claims if unrelated creditors agree to a deed of company arrangement.
6. Does your law allow for the pooling of assets and liabilities of all members of the corporate family, so that a creditor of one member becomes, in essence, a creditor of all members (sometimes referred to as ‘substantive consolidation’)?
At present, there is no statutory provision that specifically allows the pooling of the assets and liabilities of the members of a corporate group. It follows that the basic principle in insolvent groups is that creditors must claim against individual group companies. Despite the absence of a specific statutory regime, two pooling practices have developed.
First, if the companies are in winding up, it is possible to obtain the consent of the creditors to treat the group as a single entity in which the assets and liabilities of each company in the group are pooled together (ss 411, 477 or 510). For abundant caution, the liquidator may seek the comfort of a court order in addition to the consent obtained from the creditors. (A court order is mandatory, in any event, if the liquidator is proposing a scheme of arrangement under s 411, but s 411 has been little used since the advent of voluntary administration in 1993.)
Secondly, where the companies are in voluntary administration, the creditors can enter into a pooling arrangement by agreeing to a deed of company arrangement to that effect (Humphris, Re ACN 004 987 866 (2003) 21 ACLC 1474). Again for abundant caution, the voluntary administrators may seek the comfort of a court order.
The federal government has announced (October 2005) its intention to legislate to allow pooling as part of a package of insolvency reforms.
(d) If the pooling of assets and liabilities is called for, are there any protections for certain types of creditors, such as creditors with a lien or other security interest in particular assets?
The position of secured creditors should, in theory, be unaffected by pooling, since the secured creditor should be able to identify specific secured property to which it can have recourse. Any pooling of assets would not remove the secured creditor’s security over such property. Nevertheless, it is possible for intermingling of assets between the group companies to create doubt regarding the title to particular items of property. In that situation, the secured creditor may need to commence litigation in order to establish its rights over the property.
7. How are secured creditors treated with respect to a family of companies? For instance, if a creditor has a security interest in the assets of one member of the family, and a guarantee from another member of the family, are both such claims valid in insolvency proceedings of the entire family?
Consistent with the Corporations Act’s general non-recognition of group entities, there are no special rules governing the relationship between a secured creditor of one company and the other corporate members of the group.
Therefore, if a creditor has security over the assets of one member of a group and has a guarantee of the same debt from another member of the group, both the security and the guarantee may be enforced in the insolvency of each company – for example, if the security is insufficient to discharge the liability, the creditor can prove in the winding up of the guarantor company for the balance.
8. Do your laws or courts provide for post-insolvency commencement of new financing that allows continued operation of the business and provides adequate protection to the lender who made the loan? Explain.
A liquidator is expressly empowered by the Corporations Act to obtain credit on the security of the property of the company (s 477(2)(g)). However if such an agreement will or may extend more than three months after it is entered into, then the liquidator must obtain the approval of the court or the creditors (s 477(2B)).
In the context of voluntary administrations, there have been examples of ad hoc applications to the courts which resulted in the granting of priority to post-administration funding (Re Spyglass Management Group Pty Ltd (admin apptd); Mentha and Anor (as joint and several admins of Spyglass Management Group Pty Ltd (admin appt)) (2004) 51 ACSR 432).
One of the insolvency reforms announced by the federal government in late 2005 is the proposal that creditors of a company in voluntary administration considering a deed of company arrangement be given the right to include in the deed priority for post-deed creditors. If such a reform were introduced, it could make it easier for deed administrators to secure external funding to aid the reconstruction of the company.
9. Are directors and officers subject to civil or criminal sanctions if:
(a) Fraud or misrepresentation of a company’s finances are discovered?
There is a wide range of both criminal and civil sanctions that can be (and are) imposed upon directors and officers in the event of fraud or misrepresentation of a company’s finances.
These sanctions begin with basic requirements for the maintenance of accurate contemporaneous financial records by all companies (s 286) and annual financial reporting to shareholders for non-private companies (s 292). They are reinforced by a host of prohibitions on the misreporting of finances and, in the case of listed companies, failure to keep the stock market informed about material changes in the company’s financial position (Chapter 6CA).
In the insolvency context, there is a statutory requirement for a liquidator to report to ASIC if it appears (among other things) that:
ASIC can then investigate, with a view to determining whether to begin criminal proceedings against a director or officer, or to ban a director or officer from being involved in the future management of companies.
The liquidator can also initiate civil proceedings for damages against former directors and officers, in the name of the company, under the general law and the Corporations Act (s 1317J).
(b) They allow the company to continue to operate while knowing it does not have the ability to pay the debt being incurred?
This is the subject of a specific statutory regime in Part 5.7B, Divisions 3-6. Colloquially referred to as the ‘insolvent trading’ provisions, Divisions 3-6 impose a positive duty on directors to prevent their company from incurring a debt while the company is insolvent.
In addition to providing criminal sanctions, these provisions allow a liquidator to obtain orders that directors pay to the company an amount equal to the sum of the debts incurred by the company while insolvent.
Although a director can escape liability by proving that he had reasonable grounds to expect and did expect that the company was (and would remain) solvent, a series of court cases has established that directors have a positive duty to keep themselves informed of their company’s finances, with the result that ignorance of the company’s finances does not by itself constitute reasonable grounds for believing that the company was solvent.
In a corporate group situation, Division 5 specifically imposes civil liability for insolvent trading debts on the insolvent company’s holding company if certain criteria are satisfied (s 588V). This, of course, reinforces the commercial reality that in Australia it is relatively rare for a solvent group to allow individual companies to collapse into insolvency.
(c) Same as (b) above but the directors believe that if some event occurs (eg, chance to obtain new contract in prospect, new equity infusion, or new financing) it will be able to save the company and pay its bills?
As noted under (b), the main defence to an insolvent trading action involves the director establishing that he had reasonable grounds to expect and did expect that the company was and would remain solvent.
Whether a director is able to establish such a defence in any insolvent trading claim against him will be a question of fact to be determined by the court on the balance of probabilities. In principle there is no reason why the prospect of a new contract, equity infusion or financing could not be the basis of such a defence.
B. INTERNATIONAL FAMILY OF COMPANIES
1. If one or more members of the corporate family is incorporated under or governed by the laws of another country, does that change your answers to any of the questions set forth above?
The short answer to this question is no, so far as members of the family which are incorporated in Australia are concerned.
With respect to the members of the family which are incorporated outside Australia, the Corporations Act contains three (limited) procedures for dealing with cross-border insolvency issues. In summary it provides for:
insolvency courts (and request such assistance from those courts) (Division 9, Part 5.6).
Each of these options is discussed in answer to question B.2(a) below.
2. If insolvency/restructuring proceedings are instituted for corporate family members in different countries:
(a) What controls as to where the case must be filed (eg, centre of main interests, principal place of business, location of parent, etc)?
Winding up under Part 5.7
Jurisdiction to wind up a foreign company in Australia under Part 5.7 depends on that company’s classification not only as a ‘foreign company’ but also as a ‘Part 5.7 body’. A foreign company (which is defined as including a body corporate incorporated outside Australia) that is also a ‘Part 5.7 body’ is one that either:
In addition to the Part 5.7 statutory requirements, a winding-up order under Part 5.7 may also depend on other ‘jurisdictional connections’. In ASIC v Edwards ((2004) 22 ACLC 1469) it was held that while the presence of assets or creditors in Australia is not required for jurisdiction per se, it will be relevant to the court’s discretion to order a winding up. Therefore, practically speaking, the presence of local assets, or creditors within the jurisdiction who would benefit, will be of importance to the determination of the winding up application under Part 5.7.
It is important to understand that this statutory mechanism establishes a separate insolvency administration in Australia and does not give recognition to any foreign insolvency proceeding. It provides for a local winding up to be undertaken in accordance with Australian insolvency law, with such adaptations as are necessary.
Section 583(c) specifies the circumstances in which a foreign company which is a Part 5.7 body may be wound up and include: its dissolution, deregistration, ceasing to carry on business in Australia and inability to pay its debts. The most common of these is the last, which is defined in section 585 to include circumstances where there is a failure to comply with a statutory demand or the return unsatisfied of execution or other enforcement of an Australian or foreign judgment.
Part 5.7 does not extend to other forms of external administration such as creditors’ voluntary winding up or voluntary administration.
Ancillary liquidation of foreign registered company: section 601CL
If a registered foreign company is being wound up, or is being dissolved or deregistered, in its place of origin, the local agent must lodge notice of that fact with ASIC. Thereafter the court must, on application of the foreign liquidator, appoint an Australian liquidator.
The Australian liquidator of the foreign company is required to:
Local and foreign creditors are entitled to share in the proceeds from this winding up pari passu, subject to Australian laws in relation to creditors’ rights. One example of local law affecting the distribution to local and foreign creditors is the existence of certain priority unsecured creditors, such as employees with claims for unpaid wages or other entitlements. In such a situation, those creditors will be entitled to be paid out before the proceeds are remitted to the principal liquidator overseas.
Cooperation between Australian and foreign courts
Division 9 of Part 5.6 contains the statutory scheme for cooperation between Australian and foreign courts in ‘external administration matters’. An ‘external administration matter’ means a matter relating to:
Under section 581(2), an Australian court must act in aid of, and auxiliary to, the courts of prescribed countries which have jurisdiction in external administration matters, although it retains discretion as to the nature and extent of the aid to be given. Prescribed countries include the UK, the US, Malaysia, the Republic of Singapore and Canada (Corporations Regulation 5.6.74). In the case of requests from the appropriate courts of other countries, an Australian court has a discretion whether to assist at all, and as to the nature and extent of the aid. Nonetheless, unless there is a compelling reason not to do so, the court ought to give the assistance requested (Re New Cap Reinsurance Corpn Holdings Ltd (1999) 32 ACSR 234).
A request for assistance will usually be in the form of a letter of request from the foreign court. Where the Australian court is required or elects to assist, it may exercise the powers it would have had if the matter had arisen in its own jurisdiction (s 581(3)).
Section 581(4) is the reciprocal provision which permits the Australian court to request the assistance of a foreign court with jurisdiction in external administration matters. In considering the issuance of such a request, an Australian court will examine, in addition to whether it is an ‘external administration matter,’ whether there is a good substantive reason for the request, and the utility in the request. The principle of utility was considered in Re HIH Insurance Ltd (in liq) ([2004] NSWSC 454). It was held that utility requires that there be a likelihood that the foreign court will accept and act upon the request if made.
Section 581(4) may also be invoked in the context of a voluntary administration if Australian court orders are made which attract the need for the foreign court to act in aid of, and auxiliary to, the Australian court (Re AFG Insurances Ltd (admin appt) and Anor (2002) 43 ACSR 60).
(b) Do the courts attempt to exercise jurisdiction over the assets of the company filing domestically no matter where located (for example, overseas), or do they limit their jurisdiction to only those assets located in your country?
Overseas property is commonly regarded as contemplated by an Australian liquidation, despite the fact that section 9 of the Corporations Act does not explicitly mention overseas property. However, the availability of overseas property is restricted by both the Corporations Act and by those principles of Australian private international law which require that the Australian court defer to the law of the jurisdiction where the property is located (lex situs).
The first consideration as to whether or not the court will attempt to exercise jurisdiction over foreign assets is whether the assets are comprised of movable or immovable property. Title to immovable property is governed by the lex situs, and so it is up to an Australian liquidator to apply for an order from the foreign court to deal with the title to immovable property or the proceeds of its sale (Re Doyle (decd), ex p Brien v Doyle (1993) 41 FCR 40).
Movable overseas property of a company filing domestically will normally be treated by the court as under the control of the Australian liquidator. However, if rights over those assets have already been created by the lex situs, such as foreign securities, then the liquidator will take subject to those rights.
Re Doyle (supra) also stands for the proposition that the voidable transaction provisions will not apply to overseas property unless the lex situs makes provision giving effect to Australian law.
In a receivership, an Australian receiver is able to collect and realise overseas property of the corporate debtor if the charge, which seeks to extend to overseas property, covers the asset, and if the charge is valid in the lex situs.
(c) Would your courts enforce a court order from a foreign country that attempted to exercise jurisdiction over assets located in your country but owned by the company that is subject to foreign insolvency proceedings?
In the winding-up context, whether an Australian court will enforce a foreign court order attempting to exercise jurisdiction over local assets will depend on:
Turning to the second of these considerations, the power conferred on the Australian court under section 581(2) to assist a foreign court in an external administration matter does not extend or alter the range of remedies it can order (Re Independent Insurance Co Ltd (2005) 23 ACLC 1337). Therefore, an Australian court will not enforce a foreign court order for a remedy that would not otherwise be available to it.
In terms of receivership, as long as there is sufficient connection between the company in receivership and the jurisdiction in which the receiver is appointed, Australian courts recognise the appointment of an overseas receiver. Any charge must be valid under the law of the debtor company’s incorporation, and properly registered under the law of the property’s lex situs.
(d) Has your country adopted any procedures (such as the Model Law on Cross-Border Insolvency) to address the various issues that arise in dealing with cases of cross-border insolvency?
The federal government has announced that it will adopt the UNCITRAL Model Law on Cross-Border Insolvency. The present expectation is that the adoption will occur in 2006 as part of a package of insolvency law reform, to which earlier references have been made.
