Recoveries against related entities

Lessons and considerations from a recent insolvency trial.

The recent judgment of Justice Rangiah of the Federal Court in Pearce v Gulmohar [2017] FCA 660 (Pearce v Gulmohar) provides a useful and comprehensive guide to a number of issues that arise in proceedings for recoveries against related entities.

This article considers some of these issues and looks at ways to improve the odds of recovery in a voidable transaction case while also conducting the case efficiently.

A summary of facts

Grass Valley Formulators (GVF) manufactured pesticides. A factory fire occurred in late March 2009, and an environmental notice was issued requiring GVF to clean-up and dispose of the toxic waste.

GVF engaged a waste disposal company (Toxfree) but disputed all the invoices issued. By 30 April 2009, these invoices exceeded $2.5 million, with more still to come. GVF had insurance, but it was limited to approximately $1.55 million.
On 22 May 2009, GVF granted Gulmohar (a related entity) a charge over all of its assets. In the following months, substantial payments were made to related entities for management fees and repayments of loans. No money was ever paid to Toxfree and the directors subsequently put GVF into liquidation by a court application.

to read the full article published in the Australian Restructuring Insolvency & Turnaround Association Journal - December 2017.

Authors

Andrew Lambros is a Director at Bennett & Philp Lawyers