Scissors, paper, rock – Family Law v Bankruptcy Act (part II): can’t shape up**

Last week's post provided an overview of the legislative changes requiring the family court to take into account the rights of creditors as part of any property settlement.

There have been a number of decisions that have applied the changed regime, a summary of a few of the key decisions and outcome is set out below.

1. Trustee of the Property of G Lemnos and Lemnos (2009) FLC 93-394 - the interests of unsecured creditors do not automatically prevail over the interests of the non-bankrupt spouse. The Court must balance the competing claims. Here the non-bankrupt wife was at least aware of the bankrupt husband's activities and therefore had to bear some of the responsibility owed to creditors.
2. Debrossard & Official Trustee in Bankruptcy [2011] FamCA 648 - Having analysed the contributions of the spouses it was clear that the non-bankrupt wife had contributed to creation of the available assets. The appropriate division of property was held to be 60:40 to the wife's benefit as between her and the husband. As the husband was bankrupt the matrimonial property was distributed 60:40 between wife and trustee in bankruptcy respectively.
3. Sutherland v Byrne-Smith [2011] FMCA 632 - a relatively complex factual matrix was further complicated by a lack of documentary evidence. Having considered the individual contributions made by the couple towards the property the court treated both parties as having contributed equally towards the property which was the main asset of the parties. Therefore 50% of property or sale proceeds from property passed to the non-bankrupt spouse with the balance 50% passing to the creditors of the bankrupt.

Next week's post will consider the main factors the courts appear to take into account in this area.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Wonder Stuff song ‘Can’t shape up’.

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Scissors, paper, rock – Family Law v Bankruptcy Act (part I): who goes first?**

Last week’s post looked at the interplay between the rights of spouses on a property settlement under the Family Law Act and the rights of creditors on the bankruptcy of a spouse.

Since 2005, the Family Law Act has required that the court consider 'the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant'.

These amendments were largely as a result of the 'Jodee Rich Strategy' which saw the One.Tel founder allegedly seek to transfer significant assets to his wife under a property settlement entered into only days before he was at risk of commencing bankruptcy. At the time the transfers would have defeated creditors despite the clawback rules under the Bankruptcy Act which were unavailable for transfers under a property settlement.

Specifically the amendments introduced the following changes:

1. creditors were given the right to apply to set a property settlement agreement;
2. creation of a new act of bankruptcy for situations where a person becomes insolvent as a result of a transfer or transfers made under a property settlement;
3. extension of the claw back provisions under the Bankruptcy Act to allow the recovery of property transferred under a property settlement.

In a practical sense the provisions require the court to firstly consider the respective contributions made by each of the parties to the marriage and then also factor in the interests of creditors. Importantly however, the interests of creditors are not given more or less weight than the other factors the court must take into account.

Given that the legislation provides no particular guidance on how the court is to resolve disputes between non-bankrupt spouses and a trustee in bankruptcy, the case law in this area has evolved to develop the key principles.

Next week's post will summarise some of the key themes from the leading cases.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Ned’s Atomic Dustbin song ‘Who goes first?’.

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Out of time?** - The specifics of the Jodee Rich amendments

Previous posts have looked at the interplay between the rights of spouses on a property settlement under the Family Law Act and the rights of creditors on the bankruptcy of a spouse.

The amendments to the Family Law Act and the Bankruptcy Act made in 2005 radically changed how the Family Court is able to treat property interests where one or both of the parties to the marriage became bankrupt.

In particular, the Family Law Act permits the court to make whatever orders it considers appropriate, including -

1. altering the interests of the bankruptcy trustee in the vested bankruptcy property of a party involved in a family law property settlement;
2. ordering a relevant bankruptcy trustee to transfer property for the benefit of either or both the parties to the marriage or a child of the marriage; and
3. taking into account the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Blur song ‘Out of time’.

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When exactly is a director being a reasonable (man)**?

Posts over the last 2 weeks have looked at various aspects of the business judgment rule, leveraging the lessons explained in the decision of ASIC v Mariner Corporation Ltd [2015] FCA 589.

This case also explains when a director will be held to have acted reasonably as part of relying on the business judgment rule.

In particular, the court confirmed that the reasonableness of a director's belief should be assessed by reference to the:

1. importance of the business judgment to be made;
2. time available for obtaining information;
3. costs related to obtaining information;
4. director or officer’s confidence in those exploring the matter;
5. state of the company’s business at that time and the nature of competing demands on the board’s attention;
6. evidence available as to whether or not material information is reasonably available to the director.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the National song ‘Reasonable Man’.

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Avoid being on your own** (A safe Harbour in the Mariner, Part II)

Last week’s post summarised the leading Corporations Act case of ASIC v Mariner Corporation Ltd [2015] FCA 589. This post further considers the business judgment rule in more detail.

While the key principles in relation to the business judgment rule have remained largely constant for many years, ASIC v Mariner was the first case where the rule would have been successfully relied upon if the directors had been found to have breached their directors’ duties.

The business judgment rule, under section 180(2) of the Corporations Act 2001 (Cth) provides that a director will discharge their duties whenever a decision is made in good faith, for a proper purpose, after a director fully informs themselves that the decision is reasonable and rational.

Importantly, pursuant to section 189 of the Corporations Act, a director may rely on information provided by a co-director, if they do so in good faith, after having made an independent assessment of it

At a practical level, the ability of a director to rely on the business judgment rule will depend largely on the records kept in relation to a decision. This means comprehensive meeting and diary notes in relation to board decisions are critical.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Blur song ‘On your own’.

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