The relation-back day under the new Insolvency Law Reform Act: The AI#4

Welcome to the fourth edition of The aVoidable Issue. The full version of this article can be seen by visiting the SV Voidables website, or you can subscribe by emailing [email protected]: 

https://www.svpartners.com.au/voidables/the-avoidable-issue-/the-relation-back-day-under-the-new-insolvency-law-reform-act 

This week’s article looks at what the definition of the relation-back day will be following the amendments introduced by s 91 of the Insolvency Law Reform Act 2016 (Cth) (ILRA) on 1 March 2017. Apart from clarifying what the relation-back day will be in a number of circumstances not previously identified under the current regime, the ILRA also clarifies one problem area that has been the subject of conjecture. This article offers a handy table to guide Practitioners through the complexities associated with s 91 of the ILRA.

For those new to the insolvency landscape, the relation-back day is used by Practitioners and the Courts to determine what date to relate-back from in respect of clawing-back voidable transactions incurred during a prescribed period, pursuant to ss 588FE and 588FF of the Corporations Act 2001 (Cth) (the Act).

What has changed?

The introduction of s 91 of the ILRA clarifies what the relation-back day will be in a number of circumstances not previously identified under the current regime. These circumstances are explained in more detail in the below table.

The changes to the relation-back day definition also clarifies a gap in the law that currently exists when it comes to assessing the following scenario:

1. an application to wind-up a company is filed into Court;
2. Administrators are appointed before the Court determines the winding-up application; and
3. the Court subsequently (despite the company being in Voluntary Administration) winds-up the company and Official Liquidators are appointed.

Although, some Practitioners regard the relation-back day as beginning from step (1) – ie the date of the filing of the application to wind-up the company – Brereton J held that the relation-back day is the date Administrators were appointed: Chief Commissioner of State Revenue v Rafferty’s Resort Management Pty Ltd (in Liq) [2008] NSWSC 452.

Section 91 of the ILRA now determines that the relation-back day begins from step (1).

A workable summary of s 91 of the ILRA

Takeaway

We welcome the clarification to the definition of the relation-back day. If you or your clients have any questions concerning this article or anything relating to voidable transactions, expert solvency reports or insolvent trading, please feel free to contact one of the SV Voidable expert advisors.

Article written by Caitlin Scantlebury and Matthew Hudson of SV Voidables.