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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Choosing courts in cross-border insolvency applications

As a federation, Australia has a mix of state and territory and federal courts, each with their own jurisdictions. Jurisdiction is however shared between courts in corporations matters, including those concerning the insolvency of companies under Ch 5 of the Australian Corporations Act 2001. Litigants have a choice of the Federal Court or the State and Territory Supreme Courts in which to bring their matters, and to switch courts.[1] 

But it can be different if the corporate insolvency matter is brought under the Cross-Border Insolvency Act 2008, even though that Act also offers the same choice of courts.[2]

And it is even more different in bankruptcy.

Federal Court of Australia and the Victorian Supreme Court

An application for an interim stay order was made to Justice Lee of the Federal Court under Art 19(1) of the Model Law; the stay was sought pending an application for recognition of German insolvency proceedings under Art 2(a) of the Model Law.

But there were proceedings pending against the company in the Victorian Supreme Court, before Justice Riordan, which was due for further hearing only a few days later.

Justice Lee queried why the stay action had not been commenced in the Supreme Court of Victoria? Taking proceedings in the Federal Court had “bifurcated the matter” and if he were to make the orders sought, he

“would perforce be making an order that the hearing currently listed before Riordan J on 9 July 2019 not proceed [and] have the practical effect of interfering with a current order made by a judge of another superior court [and] tie his hands”.

Lee J referred to the “profound importance of the relationship between the state courts and the federal courts as part of an integrated federal judicature” which was a reason why he would not, as a matter of discretion, make orders that would interfere with proceedings before another court.[3]

In the end, Justice Lee made the orders “with one important variation, being that the orders will not prevent or impede the continuation of the Victorian proceeding”. It was a matter for the parties as to whether an adjournment would be sought from Riordan J: Senvion Gmbh, in the matter of Senvion Gmbh [2019] FCA 1124.

Domestic matters

As initially explained, corporations litigants can choose their courts. Hence, a company ordered to be wound up by the Supreme Court of Victoria can, for example, be the subject of a voidable transaction proceeding by the liquidator in another Supreme Court, or the Federal Court.

As examples:

  • in Sihota v Pacific Sands Motel[4], the NSW Supreme Court granted leave under s 471B to proceed against a company ordered to be wound up by the Federal Court, Austin J saying that the Corporations Act is based upon referrals of power by the States to the Commonwealth and as a national scheme, “no Court is given primacy”.
  • in Maamari v Ringwood & Ply,[5] the NSW Supreme Court terminated the Federal Court’s winding up of a company. Barrett J saw no “discomfort, on the grounds of comity, about the idea that one superior court … may order the termination under s 482 of a winding up brought about by an order made by another superior court …”. But it might be otherwise if one court is asked to review the order of another court, Barrett J saying that in this case, he was not “invited to review or countermand the order of the [Federal Court], as would be the case if the subsequent application were an application to set aside the original order either because it was made in the absence of the defendant or for some other reason”.

Practical difficulties?

There can be some practical difficulties in changing courts, in one case[6] the NSW Supreme Court saying that unless for valid reasons, good practice requires that all proceedings in a liquidation or voluntary administration be in the one court. This was said to avoid the difficulty for creditors and members of the public in tracing what has happened among different courts.

Nevertheless, choice of courts remains the right of the litigant, and this may depend on a court’s reputation, allocation of specialist judges and time taken to deliver justice. While exercise of that choice may raise some documentation difficulties, these can be dealt with.

Bankruptcy

Bankruptcy is different because there is no shared jurisdiction under the Bankruptcy Act 1966 with state and territory courts – the only two courts with shared jurisdiction are the Federal Court and the Federal Circuit Court.[7]

It is simpler again in cross-border bankruptcy matters – only the Federal Court has jurisdiction.

Hence:

  • a Supreme Court cannot give leave to a creditor’s action under s 58(3) of the Bankruptcy Act, only the Federal Court or a Federal Circuit Court can do so, and they can refuse leave to proceed in a Supreme Court;[8]
  • a bankruptcy matter initially commenced in the Federal Circuit Court would require any cross-border issue to be brought in the Federal Court.

Complicated?

This law is home grown Australian.  The law is simple in New Zealand. It is not a federation and all matters are dealt with by the High Court.

There is probably no connection, but New Zealand is 1st on the World Bank’s 2019 ‘ease of doing business’ index, Australia is 18th, having dropped from 14th in 2018.

—————————–

[1] Section 58AA Corporations Act

[2] Section 10 Cross-border Insolvency Act 2008

[3] Referring to Wileypark Pty Ltd v AMP Limited [2018] FCAFC 143

[4] Sihota v Pacific Sands Motel Pty Ltd (in liq) (2003) 56 NSWLR 721

[5] Maamari v Ringwood & Ply Pty Ltd [2005] NSWSC 40

[6] Re Bosnjak Holdings Pty Ltd [2005] NSWSC 527

[7] Section 27 Bankruptcy Act

[8] Stojanovski v Stojanovski [2018] FCA 580

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