Published on 20 March 2019 at 5:12pm
One of the most controversial issues in modern insolvency law is the question of how to distribute an insolvent’s assets among its creditors. The pari passu principle attempts to resolve this issue by ensuring that all creditors are treated equally, ‘pari passu’, and share in insolvency assets pro rata depending on their pre-insolvency entitlements or the sums owed to them. This article analyses how this principle has been affected by its numerous and broad exceptions, in particular security, priorities, set-off, netting, debt subordination and members’ debts. It is argued that there are significant policy reasons justifying the continued existence of the exceptions to the principle with little to no modification, as the current distribution regime maximises the fairness and efficiency of the insolvency process.
I. INTRODUCTION
The ‘inevitable reality’ in insolvency law is that ‘total security for all is unachievable, and is contradictory of an entrepreneurial and productive business culture’.[1] Statistics demonstrate that in 2018-19 registered bankruptcy trustees brought in $305m but only $67m reached unsecured creditors.[2] The pari passu principle (‘PPP’) has emerged as a direct result of this ‘inevitable reality’. PPP exists to address the issue by ensuring fairness and equality of distributions to unsecured creditors. However, this principle has been severely eroded by its numerous and broad exceptions.
Although there are other exceptions to PPP, this paper will focus on security, priorities, set-off, netting, debt subordination and members’ debts.[3] Statistics demonstrate that secured protection is highly valuable in insolvency law, as in 2018-19 secured creditors were paid over $74m of the $305m brought in by trustees.[4] The practical financial significance of priority payments is also reflected in the statistics, as in 2018-19 trustee remuneration, costs and other payments exceeded $150m of the $305m brought in by trustees. [5] The financial impact of insolvency set-off and debt subordination is not widely documented but is especially relevant to clearinghouse arrangements and shareholder debts respectively.
These exceptions are vital to the insolvency regime as unsecured creditors often receive limited or no funds and ‘even if funds are available, insolvency law can only assist to a limited extent – full restitution is rarely, if ever, possible.’[6] As this paper will demonstrate, there are significant policy reasons justifying the continued existence of these exceptions to PPP with little to no modification.
II. NATURE AND RATIONALE
PPP has been described as ‘the foremost principle in the law of insolvency around the world’.[7] This long-standing principle is reflected in legislation as early as 1570 that stipulated commissioners in bankruptcy should pay creditors ‘a portion, rate and rate alike, according to the quantity of his or their debts’.[8] At its core, the principle requires that all creditors are treated equally, ‘pari passu’, and share in insolvency assets pro rata depending on their pre-insolvency entitlements or the sums owed to them.[9] This principle is manifested in modern corporate insolvency legislation under the Corporations Act 2001 (Cth) (‘Corporations Act’) which provides that all debts proved are to be distributed equally and rateably to creditors, and if there are insufficient funds the debts are to be paid proportionately.[10]
PPP exists to enforce the public policy notion that parties cannot contract to exclude the statutory provisions for pro rata distribution in bankruptcy in such a way that one creditor obtains more than its proper share.[11] The origins of this rationale date back to 1872 when Mellish LJ stated that ‘a person cannot make it part of his contract that, in the event of his bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws’.[12] The court held that such a clause would be void as a ‘fraud’ and a ‘clear attempt to evade the operation of the bankruptcy laws’.[13] If such a provision were permissible, it would likely encourage prospective creditors to include a term in every contract of sale that the price should be doubled in the event of bankruptcy.[14] In these cases, PPP will operate to void any contractual terms so long as the effect of the term is to cause the bankrupt estate to be distributed otherwise than in accordance with statute. [15]
The principle has been criticized as ‘shallow’, ‘rare and unnecessary’ and a ‘useless ideal’ due to its numerous exceptions.[16] It is true that the exceptions to PPP result in unequal distributions but this does not mean that the principle is passé. Rather, PPP is the golden thread interwoven throughout the insolvency regime, forming a foundation upon which the exceptions may be built. This paper will argue that the exceptions to PPP are derived from the same policy reasons of fairness, efficiency, transparency and predictability that underlie the principle itself.
III. EXCEPTIONS
Secured Creditors
The institution of security is not truly an exception to PPP, as ‘such assets do not belong to the company and thus do not fail to be distributed among creditors on any basis’.[17] However, it is important to mention that PPP does not apply to secured property, property held on trust or property in a company’s possession but subject to a retention of title clause provided, in the latter case, the security arising under the retention of title clause is duly perfected under the Personal Property Securities Act 2009 (Cth) (‘PPSA’).[18]
Creditors who protect their position by taking security over the debtor’s assets in the event of insolvency are able to have their debts satisfied before all unsecured creditors, provided they have a valid and enforceable security. It is worth noting that the introduction of the PPSA vesting rules may have caused a shift in the power dynamic in insolvencies as the pool of assets available for unsecured creditors may increase where the secured creditor is unable to perfect their interest prior to external administration and thereby loses their secured status. [19]
The institution of security often results in unsecured creditors being disproportionately burdened by risks.[20] It has been argued that any risks may be negated by the fact that this exception to PPP does not lead to any unfairness to unsecured creditors. [21] These arguments stem from a belief that the security was ‘freely bargained or contracted for’, ‘it does not deprive the company of value’ and the ‘relevant parties are given due notice of security arrangements and so cannot, with justice, complain’. [22]
However, the argument that security does not create unfairness to unsecured creditors is oversimplified. The security is not always freely bargained due to issues of involuntary creditors, inequality of bargaining power, competitive conditions and third party effects of secured credit bargains. Moreover, it is an overgeneralisation to claim that security does not deprive a company of value as this can occur when the security interest extends to after acquired property. Finally, any notice is limited in the case of involuntary creditors, misinformed creditors and creditors affected by a quasi-security.
It must be conceded that any potential for unfairness is negligible compared to the impact that removing the institution of security would have on our entrepreneurial society. Although security may undermine PPP’s aim of equality, the recognition of secured rights and proprietary claims assists in minimising credit risk and the costs of capital for all borrowers. [23] In addition, the PPSA helps creditors to more effectively protect their position against a potentially insolvent customer and increases their chance of receiving any returns on their losses.[24] Therefore, commercial interests of transparency and predictability require that PPP should continue to exclude secured creditors.
Priorities
Liquidation costs rank ahead of all other claims on the estate and employee entitlements rank second, such that these debts must be fully paid before any other debts.[25] PPP has been significantly diminished by the scope of these priority claims. Priority payments often exhaust the total funds available and the ordinary unsecured creditors receive nothing.[26]This exhaustion of funds is not a recent phenomenon in insolvency law as the Cork Committee in 1982 observed that ‘Pari passu distribution of uncharged assets was in practice seldom, if ever, attained because, in the overwhelming majority of cases, the existence of preferential debts frustrated such distribution’.[27]
There is a valid policy justification behind this system, namely to ensure efficient administration of the insolvent estate and to uphold moral entitlements to priority payments.[28] Prioritising the costs of establishing and administering the insolvent estate aims to ensure that if costs are incurred in administration of the estate for the benefit of the general body of creditors, then they should bear the burden of these costs. [29] Roy Goode notes that ‘if creditors were asked to supply funds during this post-liquidation period, they would be unlikely to oblige if the debts involved were to enjoy no priority over pre-liquidation creditors’.[30] It can also be argued that administration costs never really compete with other unsecured claims because they arise after the ‘cut off’ date that applies to pre-liquidation claims and subsequently are not a true exception to PPP.
The only small modification that could be made to this priority is if the liquidator's transactions with creditors paying the expenses of the liquidation and post-liquidation did not have to prove for a dividend in competition with other creditors.[31] This would increase the incentive for creditors to pay liquidation costs incurred in the administration of the estate and increase the fairness of these transactions.
Despite the prevalence of unions and a highly developed social welfare system, employees are especially vulnerable upon the insolvency of their employer company and deserve special treatment.[32] The Harmer Report concluded that, ‘The rationale put forward for the priority for employees is that they are in a particularly vulnerable position if their employer becomes bankrupt or is wound up’.[33] This vulnerability stems from an inherent power inequality where employees do not account for the risk of insolvency and do not consent to a debtor-creditor relationship with their employer. Employees often lack the information or expertise necessary to calculate the extent of such risks and, even if they could make the appropriate calculations, their ability to negotiate wages is impeded by severe competition in the market for jobs.[34]Unlike most trade creditors, independent contractors and torts claimants, employees are disproportionately burdened by the economic costs of insolvency, as they are often financially dependent on employers as their primary source of income. Prioritising employees may also encourage workers to remain with a financially ailing employer.
Wage earner protection funds and cross guarantees have been proposed as alternatives to employee priorities.[35]However, requiring companies to deposit employee entitlements as they accrue into an independently administered fund or allowing employees to claim their entitlements directly from their employer’s related companies would inappropriately complicate the insolvency regime, leading to increased costs and inefficiency. The current system of priorities may often exhaust available funds but its efficiency, fairness and predictability justifies its continued existence.
Set-Off
Set-off under s 553C of the Corporations Act provides a major exception to PPP because it provides a preference to the creditor who is also a debtor.[36] Set-off is mandated by statute and automatically operates from the date of the winding-up order.[37] Secured creditors may take advantage of set-off if they choose not to rely on their security.[38] The High Court has observed that it would be unjust if a creditor would be required to meet the bankrupt’s claim in full but at the same time could only lodge a proof of debt for the creditor’s own claim potentially resulting in a dividend of some few cents in the dollar on the whole of the debt owed by the bankrupt to him.[39] As the Harmer Report states, ‘Fairness requires that there be provision in the insolvency legislation for mutual credit and set-offs’.[40] The High Court has also acknowledged that the rule of set-off should be limited in its scope in order to protect the interests of the general body of creditors.[41] Although it is harsh to force the creditor to pay their debt in full and only receive a partial payment from the insolvent company, it is arguable that other creditors are in a similarly unsympathetic position.
However, departure from PPP is justified to the extent that it benefits the general body of creditors. Set-off encourages the provision of goods or services to insolvent companies and financial institutions might be encouraged to provide funds to a financially struggling company if they have the right of set-off against claims the company has on the lender.[42] It is also arguable that the debtor/creditor relationship is similar to a secured creditor, as liability is incurred in the knowledge of a right of set-off. [43] However, Symes and Duns note that this offers a very limited justification, as ‘the rule does not seek to confine itself to such a restricted fact scenario (where the party dealing with the ailing debtor was initially a debtor and only subsequently became a creditor)’. [44] Additionally, if the parties were solvent, they would be entitled to a set-off and this should be respected in the debtor’s insolvency, as it might otherwise encourage creditors to have the debtor made bankrupt simply to prevent set-off applying.[45] Therefore, the right to set off should continue to exist without modification, as it ensures fairness and encourages entrepreneurialism.
Netting
The netting exception is more complex, as drafting of contractual terms plays an important role in determining whether PPP has been breached. Roy Goode defined netting as a contractual procedure that prescribes a manner in which claims of different parties against each other are reduced to a single balance, with the outcome of ‘a contractually completed set off’.[46] Therefore, netting can be described ‘as both the procedure for, and the outcome of a contractually completed set off’.[47] The netting exception is reflected in the Payment Systems and Netting Act 1998 (Cth) to the extent that the Act disapplies PPP for certain approved netting arrangements.
In British Eagle Airlines v Compagnie Nationale Air France (‘British Eagle’), it was held that netting could not amount to an exception to PPP.[48] In this case, the clearinghouse of the International Air Transport Association (IATA) provided the machinery for the monthly settlement of debits and credits arising when members performed service for one another in the carriage of passengers and cargo. Under the Agreement of the clearinghouse, the airline operators could not claim payment directly from one another, but could only claim from IATA the balances due to them under the scheme. The House of Lords held by majority that the relevant IATA Agreement amounted to a contracting out of pari passu, which was contrary to public policy and thus void. It was ultimately ‘irrelevant that the parties to the clearinghouse arrangements had good business reasons for entering into them and did not direct their minds to question how the arrangements might be affected by the insolvency of one or more of the parties’.[49] The majority held that the general company law rules regarding liquidation should prevail over private clearinghouse arrangements.[50]
Following the decision of British Eagle the relevant provision in the IATA Agreement was amended so that the members continued to have no liability for payment or right of action between each other, but ‘in lieu thereof members shall have liabilities to the Clearing House for balances due by them resulting from a clearance or rights of action against the Clearing House for balances in their favour resulting from a clearance and collected by the Clearing House from debtor members in such clearance’.[51] The effectiveness of that provision was tested in International Air Transport Association v Ansett Australia Holdings Ltd (‘Ansett’).[52] The High Court upheld the efficacy of the relevant provision in the IATA Agreement that made IATA alone a creditor. The High Court, by a 6-1 majority, held that no bilateral debts arose under the amended regulations and there was, therefore, no inconsistency with the insolvency legislation. Therefore, PPP could not apply to invalidate the arrangements.
Netting has widespread social and commercial advantages. As Kirby J noted, netting provides ‘manifest benefits for world trade . . . human convenience and peace’.[53] However, the British Eagle decision created concerns that netting might be contrary to public policy as it may contravene the pari passu provisions in insolvency.[54] Justice Mandie observed that the decision rested on the established propositions of equality in treatment of creditors and ‘that a person is not allowed, by stipulation with a creditor, to provide for a different distribution of the person’s effects in the event of bankruptcy than that which the law provides’.[55] Similarly, Justice Kirby, dissenting in Ansett, argued that the private contractual arrangements made by the carriers with IATA must yield to the requirements of the deed of company arrangement and the provisions of, and policy evident in, the insolvency provisions of the Corporations Act.[56] The joint majority judgment also acknowledged that ‘Australian courts should refuse to give effect to contractual provisions which purport to circumvent or dislocate the order of priorities which is set out in a [deed of company arrangement]’.[57]However, the majority held that the amended regulations did not involve any repugnancy between the deed of company arrangement and the IATA Agreement nor any infringement of public policy.
Where property rights are created between individual members, any attempt to contract out of these rights should be struck down as contrary to public policy. However, if the agreement only creates rights between the member and the clearinghouse, the arrangement should survive liquidation. Therefore, the netting exception is justified to the extent that there is a notable difference between rendering a contractual term invalid and creating a contract to which the parties had never agreed. [58] Where an agreement limits the parties’ rights to rights against the clearinghouse, without creating any debts between members, the court should not be allowed to simply rewrite the agreement in order to create debts between members.[59] PPP does not provide courts with jurisdiction to rewrite the parties’ contract to impose a relationship of debtor and creditor contrary to the parties’ agreement.[60]Although the courts could render a provision void if it resulted in property being distributed contrary to statute, PPP does not provide courts the power to create a property right where none had existed.[61]
It appears that the IATA v Ansett case is ultimately an example of how clever drafting had avoided application of PPP, with little change in the underlying economic realities.[62] As Lord Simon pointed out in dissent in British Eagle, netting should form an exception to PPP in cases where there is a bona fide commercial transaction and not a ‘deliberate device’ to give a preference on liquidation.[63] Netting should remain an exception to PPP due to the widespread commercial and social benefits of having a collective system. Moreover, any costs to the actors in a netting arrangement resulting from increases in uncertainty, monitoring and administrative costs, as well as the risk that a going concern surplus would be lost and the pool of assets would be diminished is ultimately outweighed by the benefits it brings to the same actors.[64]
Debt Subordination
Pursuant to s 563C of the Corporations Act, debt subordination is another exception to PPP. Debt subordination involves a transaction whereby either the junior creditor (the person whose debt is subordinated) or the senior creditor (the person specifically given priority as a result of the junior creditor’s subordination) agrees not to be paid by a common borrower or other debtor until another creditor of the common debtor has been paid. [65] A creditor will engage in debt subordination by receiving a higher rate of interest due to the increased risk. Similar to secured creditors, subordination only becomes relevant once the debtor becomes insolvent because until then both junior and senior creditors can be fully paid. [66]
Although parties cannot contract out of PPP, debt subordination allows parties to contract such that one party’s debt will rank behind the other unsecured debts of a company. [67] Precedents have allowed for contracting out of PPP on the basis that a creditor would be permitted to waive a debt in full (or in part) and that this might be agreed in advance of, or after, a liquidation.[68] However, in the case of Attorney-General ν McMillan & Lockwood Ltd, Richardson and Bisson JJ observed that subordination was barred by PPP as the ‘principle of equal sharing among creditors is fundamental to the scheme of the winding-up and insolvency legislation and it is not open to a company to contract for unequal distribution of its property on liquidation’.[69]
A more persuasive argument is that ‘creditors are no worse off in an absolute sense as a result of the subordination, if they would have received no more, absent a subordination, and this does not offend bankruptcy law’.[70] Justice Adams in In Re Walker Construction Co Ltd (in liq) observed that ‘the statutory requirement of pari passu payment does not rest on considerations of public policy, but is a matter of private right to which the maxim quilibet potest renunciare juri pro se introducto [anyone may at his pleasure renounce the benefit of a stipulation or other right introduced entirely in his favour] may properly be applied’.[71] The debt subordination exception is justified to the extent that the right to pari passu treatment with other creditors is a private right that creditors could renounce.[72] There is no need to modify this exception, as there is nothing ‘morally wrong or unfair’ in a debt subordination agreement because no one is prejudiced ‘except the intending creditors themselves, and, they having waived their claims to a division of the assets pari passu, it would seem there is no reason for [interfering] with such an arrangement’.[73]
Subordination of Shareholders’ Claims
Section 563A of the Corporations Act provides that shareholder claims against the company are subordinated until all other debts payable by, and claims against, the company are satisfied. The majority in Sons of Gwalia Ltd v Margaretic (‘Sons of Gwalia’) held ‘that s 563A does not embody any principle that shareholders come last’.[74] The decision ultimately recognised that all shareholders who allegedly suffer loss due to the insolvent company’s defective disclosure practices may be permitted to lodge a proof of debt.[75] This decision was overturned by the 2010 amendment to s 563A.[76] Now, a subordinate claim includes a debt claim owed to a person in the person’s capacity as a member of the company and any other claim that arises from buying, holding, selling or otherwise dealing in shares in the company.[77]
Dissenting in Sons of Gwalia, Callinan J held that prioritising a shareholder’s claim would ‘sit uncomfortably’ with the notion that s 563A gives shareholders equal billing with ordinary creditors upon insolvency.[78] Justice Callinan recognised the ‘ample and superior statutory rights’ enjoyed exclusively by shareholders, including their right to limited liability and their right to share in the wealth of the company.[79] In Callinan J’s view, it would be unfair if creditors’ rights were diluted ‘to less than a trickle’ as a direct result of competitive claims made by a large body of shareholders ranking equally with ordinary creditors.[80]
The risk of increased shareholder claims would have a significant impact, as shareholders are contingent creditors and are not required to prove their claim in order to take part in the distribution of assets. Instead, shareholders only need to approximate the value of the claim and submit a proof of debt.[81] Even though liquidators may deny shareholder claims, they must first consider the claims and appeals from shareholders, ‘who would otherwise have nothing to lose given the worthless value of their shares in insolvency’.[82] Litigation funders would also likely influence an increase of mass shareholder class actions. [83] Shareholder misrepresentation claims may involve thousands of claims that will severely impact the efficient administration of the insolvency regime. [84] The risk of successful shareholder actions potentially diluting the assets available for distribution to other non-shareholder creditors and delaying the administration of the insolvent estate is sufficiently grave to justify this departure from PPP.
IV. CONCLUSION
The exceptions to PPP may be numerous and broad in their scope but policy considerations justify their continued existence. Entrepreneurialism would be unduly constrained if security were not an exception, as businesses could struggle to find funding. The efficient administration of the insolvent estate and moral entitlements to payment justify the prioritisation of liquidation costs and employee entitlements. The simplification and promotion of ongoing business dealings justify insolvency set-off and netting. Finally, contractual subordination of debts and statutory subordination of shareholder claims do not lead to any unfairness to the general body of creditors and ensure the efficient administration of the insolvency regime. Any modification to these exceptions is not warranted as they play a significant role in promoting fairness, efficiency and entrepreneurialism under Australian corporate insolvency law.
[1] Michael Murray and Jason Harris, Keay’s Insolvency: Personal and Corporate Law and Practice (Law Book, 10th ed, 2018) 28. [2] Australian Financial Security Authority, ‘Monies administered by registered trustees under Parts IV and XI of the Bankruptcy Act’, Annual Administration Statistics, 2018-19. [3] For other exceptions, see for example Corporations Act 2001 (Cth) ss 562, 562A and 563AA. [4] Australian Financial Security Authority (n 2) 29. [5] Australian Financial Security Authority (n 2) 29. [6] Murray and Harris (n 1) 28. [7] See Andrew Keay and Peter Walton, ‘The preferential debts regime in liquidation law: In the public interest?’ (1999) 3 Company, Financial and Insolvency Law Review 84, 85. [8] Bankruptcy Act 1570 13 Eliz c 7 s 2. [9] Vanessa Finch, ‘Security, insolvency and risk’ (1999) 62 MLR 633, 634. [10] See Corporations Act 2001 (Cth) ss 501, 555. [11] Peter Niven, ‘The Anti-deprivation Rule and the Pari Passu Rule in Insolvency’ (2017) 25 Insolvency Law Journal 5, 5. [12] Ex Parte MacKay; Ex parte Brown; Re Jeavons (1873) 8 LR Ch App 643, 647. [13] Ex Parte MacKay; Ex parte Brown; Re Jeavons (1873) 8 LR Ch App 643, 647. [14] Ex Parte MacKay; Ex parte Brown; Re Jeavons (1873) 8 LR Ch App 643, 647; see also: Re Harrison; Ex Parte Jay (1880) 14 Ch D 19. [15] See Ex Parte MacKay; Ex parte Brown; Re Jeavons (1873) 8 LR Ch App 643, 647 [16] See Rizwaan Jameel Mokal, ‘Priority as Pathology: The pari passu Myth’ (2001) 60 (3) The Cambridge Law Journal 581, 585, 621. [17] Roy Goode, Principle of Corporate Insolvency Law (Sweet & Maxwell, 2nd ed, 1997) 152. [18] See Christopher Symes and John Duns, Australian Insolvency Law (LexisNexis Butterworths, 3rd ed, 2015) 179. [19] See for example Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (rec and mgrs. Appt’d) [2017] NSWCA 8. [20] Vanessa Finch, ‘Is Pari Passu Passé’ (2000) 5 Insolvency Lawyer 194, 200. [21] Finch (n 20) 200. [22] Finch (n 20) 200. [23] Murray and Harris (n 1) 27. [24] Murray and Harris (n 1) 27. [25] See Corporations Act 2001 (Cth) ss 556, 559, 560. [26] See Murray and Harris (n 1) 609. [27] See Kenneth Cork, Insolvency Law and Practice: Report of the Review Committee (HMSO, 1982) Cmnd 8558, 317. [28] Symes and Duns (n 8) 175. [29] Symes and Duns (n 8) 175. [30] Roy Goode, Principle of Corporate Insolvency Law (Sweet & Maxwell, 2nd ed, 1997) 154. [31] See Finch (n 20) 194-195. [32] See Symes and Duns (n 8) 175; See for contrast: Alan Schwartz, ‘Security Interests and Bankruptcy Priorities: A Review of Current Theories’ (1981) 10 Journal of Legal Studies 1, 36; Susan Cantlie “Preferred Priority in Bankruptcy” in Jacob Ziegel (ed) Current Developments in International and Comparative Corporate Insolvency Law (1994) 413, 438. [33] Australian Law Reform Commission, General Insolvency Inquiry, Report No 45 (1988) [155]. [34] Finch (n 20) 206. [35] See Australian law Reform Commission, General Insolvency Inquiry, Report No 45 (1988) [155]; Robbie Campo, ‘The Protection of Employee Entitlements in the Event of Employer Insolvency. Australian Initiatives in the Light of International Models’ (2000) 13 Australian Journal of Labour Law 236, 243; Michael Quinlan, ‘Potential Changes to Priorities for Secured Lenders’ (Paper presented at the Commercial Law Association seminar on Proving Insolvency and Securing Debt, Sydney, 20 June 2000) 20; Peter Holding, ‘Who Bears the Risk?’ (1995) 69 Law Institute Journal 789. [36] See MS Fashions Ltd v Bank of Credit and Commerce International SA (in liq) [1993] Ch 425, 446. [37] See Gye v McIntyre (1991) 171 CLR 609. [38] See MS Fashions Ltd v Bank of Credit and Commerce International SA (in liq) [1993] Ch 425, 446. [39] Gye v McIntyre (1991) 171 CLR 609, 618-619. [40] Australian law Reform Commission, General Insolvency Inquiry, Report No 45 (1988) [825]. [41] Day & Dent Constructions Pty Ltd (in liq) v North Australian Properties Pty Ltd (prov liq apptd) (1982) 150 CLR 85, 95. [42] Note that there is no set-off if the creditor had notice of the insolvency, Corporations Act 2001 (Cth) s 553C(2). [43] Symes and Duns (n 8) 171. [44] Symes and Duns (n 8) 171. [45] Symes and Duns (n 8) 171. [46] Roy Goode, Legal Problems of Credit and Security (Sweet & Maxwell, 3rd ed, 2003) [7–09]. [47] Goode (n 46) [7-09]. [48] [1975] 1 WLR 758. [49] [1975] 1 WLR 758, 780H-781A. [50] [1975] 1 WLR 758, 780H-781A. [51] IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151, 151-152. [52] (2008) 234 CLR 151. [53] (2008) 234 CLR 151, 195 per Kirby J. [54] See for example: Re Opes Prime Stockbroking Ltd (administrators appointed) (receivers and managers appointed) (2008) 68 ACSR 88, 19-20 per Finkelstein J. [55] IATA v Ansett Australia Holdings Ltd (2005) 53 ACSR 501, 523 per Mandie J. [56] IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151, 188 per Kirby J. [57] IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151, 180 per Gummow, Hayne, Heydon, Crennan and Kiefel JJ. [58] IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151 [27]–[28]. [59] IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151 [27-28]. [60] IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151 [27]-[28]. [61] Niven (n 11) 18. [62] Lomas v JFB Firth Rixson Inc [2012] 2 All ER 1076 [95]. [63] British Eagle Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758, 771 per Lord Simon of Glaisdale. [64] Mokal (n 7) 600. [65] P R Wood, Wood on International Finance: The Law of Subordinated Debt (Sweet & Maxwell, 1990) 1, cited in Garry Bourke, ‘The Effectiveness in Australia of Contractual Debt Subordination Where the Debtor becomes Insolvent’ (1996) 7 Journal of Banking and Finance Law and Practice 107, 108. [66] P R Wood, Wood on International Finance: The Law of Subordinated Debt (Sweet & Maxwell, 1990) 1, cited in Garry Bourke, ‘The Effectiveness in Australia of Contractual Debt Subordination Where the Debtor becomes Insolvent’ (1996) 7 Journal of Banking and Finance Law and Practice 107, 108. [67] Finch (n 20) 198-199. [68] See Finch (n 20) 198-199. [69] [1991] 1 NZLR 53, 61. [70] Re NIAA Corp Ltd (in liq) (1994) 12 ACLC 64, 74. [71] [1960] NZLR 523, 536. [72] [1960] NZLR 523, 536. [73] In Re Ferro Concrete Co of Australasia (1910) 5 SASR 133, 138. [74] Sons of Gwalia Ltd v Margaretic (2007) 232 ALR 232 [19] per Gleeson J, [118] per Kirby J. [75] See: Anil Hargovan and Jason Harris, ‘Sons of Gwalia and Statutory Debt Subordination: An Appraisal of the North American Experience’ (2007) 20 Australian Journal of Corporate Law 265, 275-276. [76] See Corporations Amendment (Sons of Gwalia) Act 2010 (Cth). [77] Corporations Act 2001 (Cth) s 563A. [78] Sons of Gwalia Ltd v Margaretic (2007) 232 ALR 232, [227], [242], [258], [256], [209]. [79] Sons of Gwalia Ltd v Margaretic (2007) 232 ALR 232, [227], [242], [258], [256], [209]. [80] Sons of Gwalia Ltd v Margaretic (2007) 232 ALR 232, [227], [242], [258], [256], [209]. [81] Hargovan and Harris (n 75) 276-277. [82] Hargovan and Harris (n 75) 276-277. [83] Hargovan and Harris (n 75) 276-277. [84] Hargovan and Harris (n 75) 276-277.
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