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During a discussion with one of my staff today I had reason to do some reading on up on the definition of what can be deemed as property. From this link I found some commentary by Allens in relation to the 1996 case of Movitor Pty Ltd where a liquidator sought directions from the court as to whether he was able to enter into a litigation insurance funding arrangement to bring an action against Movitor’s directors for insolvent trading. This funding arrangement would result in him sharing 12% of the ‘winnings’ from the action with the funder. This was despite some of Movitor’s creditors being willing to provide funding. Of relevenat is that they were not willing to indemnify the liquidator if that action was unsuccessful.

Whilst the Court found that such an arrangement would breach the rules of champerty and maintenance because the insurer had no ‘genuine commercial interest’, the court took into consideration the liquidator’s powers of sale under section 477(2)(c) of the Law. It determined that a right of action possessed by a company, such as the right to bring an action for insolvent trading, fell within the definition of ‘the property of the company’. This property was able to be ‘sold’ to an insurance company despite that fact that it would otherwise breach the rules of champerty and maintenance.

Given the introduction of the PPSA, it would be interesting to know if such ‘property’ could be captured under a registered security interest? I had previously been of the belief that such actions were not caught by mortgage debenture charges held by banks but this may be something worth revisiting??

Thoughts

4 thoughts on “Insolvent Trading is ‘property’

  1. Hi Adrian

    Without researching the issues, a few comments. First, Movitar might be decided differently today – on the champerty and maintenance point – in light of the High Court’s decision in Fostif v Campbell Cash and Carry.

    Secondly, I think it is now beyond doubt that a chose in action, such as a right to sue, can be sold by a liquidator. A most recent decison is In the matter of SCW Pty Ltd [2013]NSWSC 578, where the court sanctioned a liquidator selling causes of action against directors by a tender process (albeit subject to conditions).

    Thirdly, since a cause of action is property, I think it should be captured under a General Security Agreement (the old mortgage debenture) potentially as “after acquired property” within the meaning of the PPSA, if not some other way. The GSA would, of course, need to be worded so as to catch such property.

    Definitely, food for thought.

    Regards
    Stephen Newman
    0450 883 423

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