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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Happy** to be a safe Harbour in the Mariner?

Today's post considers the decision in ASIC v Mariner Corporation Ltd [2015] FCA 589.

The case is particularly important because it highlights the interaction between directors’ duty and liability where a company breaches a Corporations Act 2001 (Cth).

ASIC brought the case against Mariner and three of its directors alleging the directors had breached their directors’ duties of care and diligence by failing to comply with the takeover provisions under the Corporations Act. ASIC also argued the directors breached their duties regardless of whether the company itself had breached the Corporations Act.

ASIC argued the directors’ primary breach was in relation to their duty of care and diligence, under section 180 of the Corporations Act.

The court held that directors owe their duties to the company. As such, the key issue is whether actions taken by the directors jeopardised the company’s interests.

Here the evidence showed that the directors had considered the risk to the company of their decision and reasonably concluded that the benefit outweighed the risks. This meant there was no breach of section 180 of the Corporations Act.

The case is also important because it was the first time that the so-called ‘business judgment rule’ would have been successfully relied upon if the directors had been found to have breached their directors’ duties.

Next week’s post will explore the key issues in relation to the business judgment rule.

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 ‘Happy’.

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