AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
interests where another method of perfection is used, such as control or possession). Transactions are vulnerable to challenge once a company enters into liquidation, and a liquida- tor has the power under the Corporations Act to bring an application to the court to declare certain transactions void. This contrasts with an administrator, which is required to identify potential voidable transactions (which would then need a liquidator to recover them) in its report to creditors but does not itself have the standing to challenge the transactions. There are several types of transactions that can be held voidable: • unreasonable director-related transactions; • unfair preferences; • uncommercial transactions; and • unfair loans. Except for transactions entered into by com- panies in voluntary administration, operating under a deed of company arrangement, under restructuring or subject to a restructuring plan, transactions held to be unfair preferences or uncommercial will only be voidable where the transaction was also an insolvent transaction. An insolvent transaction is an unfair preference or uncommercial transaction that occurred while the company was cash-flow insolvent or contrib- uted to the company becoming cash-flow insol- vent. Insolvent transactions involving a related party or entered into to defeat, delay or interfere with the rights of any or all creditors in a winding- up may be voidable. Each type of voidable transaction has different criteria and different hardening periods (which may be longer if the transaction involves a relat- ed party). An unfair preference will occur where
an unsecured creditor receives a greater amount than it would have received if the creditor had been required to prove for it in the winding up of the company. A loan, guarantee or security may be set aside as an uncommercial transaction if a reasonable person in the company’s position would not have entered into the transaction. An unfair loan to a company at any time before liquidation is liable to be set aside, irrespective of whether or not the company was insolvent at the time the loan was made. A loan is unfair if the interest or charges in relation to the loan either were extortionate at the time the loan was made or have since become extortionate (eg, following a variation). This provision has seldom been used, as Australian courts are reluctant to intervene unless the commercial terms greatly deviate from typical market terms. Ad valorem mortgage duty was previously a fea- ture of secured financings but is no longer pay- able in any Australian jurisdiction. Stamp duty may be payable on transactions such as (but not limited to) a transfer of property or the creation or acknowledgement of a trust. In most acquisition financings, it is the creation of a trust that is relevant, as the security trustee will hold the security on trust for the benefit of the financiers (resulting in a declaration of trust). The document creating that trust (usually the security trust deed) may attract nominal stamp duty, depending on the jurisdiction in which such document is executed by any party. Documents that are not duly stamped may be inadmissible in court. 8. Tax Issues 8.1 Stamp Taxes
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