As the year 2023 draws to a close, Associate Principal Caroline Callegari provides an update on insolvency - has it returned to normal? This latest article provides some answers.

Introduction

At start of the year my colleague posited a question to everyone - Would this be the year insolvency returns to normal?

Now that we are almost at the end of the 2023 – the answer to that question now seems to be yes and no.

YES, in terms of the fact that as the year goes on, and all the COVID concessions and rental deferrals are catching up with business owners and tenants, we are finding more and more companies going into Administration or Liquidation.

And NO, in the sense that there have been several significant cases decided by the High Court at the start of the year (see our previous articles) and liquidators seem to be relying on them to go after more and more creditors to seek to get more money back into the liquidation.

Let me explain.

The statistics

In terms of the numbers (and note we are talking about all types of appointments – Court appointments, voluntary liquidation, administration and DOCAS, controller appointments (by a creditor), and restructurings), in the 2020 financial year there were 10,031 appointments; and in the 2023 financial year there were- 10,377 appointments. As you can see these numbers are similar and have jumped back up compared to the drops to 6274 and 6477 in the FY21 and FY 22 years). See below table for the statistics from ASIC:

Australian insolvency statistics (Released 9 October 2023)

Note: Blue shading indicates figures are provisional, refer to INFORMATION SHEET 80: How to interpret ASIC insolvency statistics. Published to the most recently completed month

Table 2: All appointments over a company including the first, subsequent and transitional appointments–Summary, MONTHLY

General Trends

In our practice, we are seeing liquidators targeting creditors who were paid in the six months prior to liquidation. Those creditors being asked to pay back significant sums of money as an unfair preference payment.

In addition, we have observed liquidators increasingly putting the onus on the creditor to establish a defence to the claim, rather than exploring and setting out why the payment is a preference payment.

This is despite the fact that, in the Badenoch [1] case, the High Court did away with the peak indebtedness rule (which had been used by liquidators to bolster the amount of the unfair preference clawed back) and clarified how the “running account” or “continuing business defence” is to apply.

An unfair preference claim by a liquidator can seem unfair, especially if creditor still has a lot owing to it in the liquidation and taking into account that the “set-off” defence no longer applies (as stated in the Metal Manufacturers case).[2]

If you receive a claim from a liquidator, all is not lost - as there are still defences available. These include:

services or goods for the running of the business throughout and payments to you always go up and down – what you do need to establish here is that the situation remains as per usual, and payments were for what was provided;
the “good faith” defence – that the party acted in good faith and had no reasonable grounds to suspect the company was insolvent: s 588FG(2) of the Act; and
the doctrine of ultimate effect.

How Sharrock Pitman Legal can help?

Accordingly, if you receive a demand for repayment of an unfair preference - don't sit on it. Contact a member of our Disputes & Litigation team who can explore whether you have a defence. If so, we can prepare an appropriate response to the liquidator to dissuade them from pursuing legal proceedings against you to recover the money.

Finally, be wary, but not alarmed. Yes, things seem to be returning to normal, but that is not necessarily bad news – but rather a sign of the times. Remember, if you find your business in trouble, or subject to a demand, or you just want to think ahead and take steps to protect yourself from bad creditors, please do not hesitate to contact us on 1300 205 506 or via email at litigation@sharrockpitman.com.au. We're on your side.

‍

References

[1] Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2

[2] Metal Manufactures Pty Limited v Morton [2023] HCA 1

‍

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.‍

Written by a member of our Legal Team

Caroline Callegari

For further information contact

Caroline Callegari

Caroline Callegari is an Associate Principal and leads our Disputes & Litigation team. She has an advisory and advocacy practice in the following areas: Commercial Litigation, corporate and personal disputes, debt recovery and, insolvency and bankruptcy matters. Caroline can be contacted on (03) 8561 3324.

No items found.

As the year 2023 draws to a close, Associate Principal Caroline Callegari provides an update on insolvency - has it returned to normal? This latest article provides some answers.

However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Supreme Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be published on the Supreme Court website for at least 14 days prior to any application being lodged.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself usually does not take long to process the application (maybe another 1 to 2 weeks) and this is completed using the electronic Supreme Court filing system. This means you do not have to go to a Court hearing. The timeframe for processing applications for Letters of Administration is even less, given that there is no Will document for the Court to consider. There is also a general discretion for the Court to raise a 'Requisition' asking for more information before they review the application - this can sometimes delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate or Letters of Administration. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.

You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE:

(03) 8561 3318

Free Property Law webinar -

Land Development and Joint Ventures

Is this the year Insolvency returns to normal (Part 2)?

As the year 2023 draws to a close, Associate Principal Caroline Callegari provides an update on insolvency - has it returned to normal? This latest article provides some answers.

Introduction

The statistics

General Trends