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Competition 5 M&A and Governance 2022
This test is applied at the time the agreement was entered into or, if there was no such agreement, at the time of the disposition; and the disposition has the effect of: • preventing the property from becoming available; or • hindering, or significantly delaying, the process of making the property available, • for the benefit of the company’s creditors in the winding-up of the company.
The legislators expressed the ‘market value’ of the property to mean the price that would be paid between a knowledgeable and willing, but not anxious, seller and buyer who transact at arm’s length.10 Conversely, the alternate ‘best price reasonably obtainable’ test recognises that in a distressed situation the company may not realise the full market value.
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Additionally, for a creditor-defeating disposition to be voidable, such a transaction must have occurred when the company was insolvent or if it enters external administration within the following 12 months.11
Any person, whether a director or advisor, will be exposed to both criminal and civil liability if they engage in, aid, counsel or encourage creditor-defeating dispositions.12 Breaches of directors’ duties, such as failing to prevent a creditor-defeating disposition, are also available. However, certain defences are available.13
THE FIRST DECISION
In Intellicomms, the first case that has considered the new creditor-defeating disposition legislation, the Liquidators of Intellicomms Pty Ltd (In Liquidation) (Intellicomms) made an application to the Supreme Court of Victoria for relief in relation to a sale agreement dated 8 September 2021 (Sale Agreement), which related to the sale of certain translation and interpretation service business assets of Intellicomms to the defendant, Technologie Fluenti Pty Ltd (TF) for the purchase price of $20,727.18.
TF (the “purchaser” under the Sale Agreement) was incorporated by the sister of the sole director of Intellicomms, two weeks prior to the Sale Agreement being entered into.14 The assets comprising the sale included business records, goodwill, intellectual property, shares, office equipment and computers. Aside from entitlements of employees transferring to TF, no other liabilities of Intellicomms were assumed by TF and therefore, approximately $3.3 million of liabilities remained with Intellicomms.15
That same afternoon that the Sale Agreement was entered into, the sole director of Intellicomms convened a meeting of its creditors at short notice and Intellicomms was placed into creditors’ voluntary liquidation, without Intellicomms informing its major creditor, Callscan Australia Pty Ltd trading as QPC (QPC), of the existence of the Sale Agreement.16 In essence, the sale was negotiated privately and there was no attempt by Intellicomms to put the sale to an open-market.17 Importantly, the Court considered there was no evidence as to why an urgent sale of the business was necessary, and why the sale could not be left to the Liquidators or even to voluntary administrators.18
Between the date of appointment of the Liquidators and 22 November 2021, the Liquidators received a number of expressions of interest by third parties regarding the purchase of the assets of Intellicomms,19 including an indicative offer from QPC to purchase Intellicomms’ assets for between $500,000 and $1,000,000.20
Between a relatively short period of time from 3 February 2021 and 8 September 2021 (being the date of the Sale Agreement), the director of Intellicomms caused four separate valuations of its business to be undertaken, whereby the valuations reduced from $11,277,346 as at 30 June 2020 to $57,000, on the basis of reduced trading revenue inputs provided to the valuers by the director due to what the director described as lost, or potentially lost, contracts of the business.21 The Court found that the director purposely provided those reduced inputs so as to minimise the consideration payable by her sister’s new company, TF.
Senior counsel for the defendant in Intellicomms himself conceded that the circumstances in which the Sale Agreement was entered into were “undoubtedly unattractive in the extreme to those with any affinity with insolvency law”.22 Accordingly, the main issue for the Court to resolve was whether the Liquidators were required to overcome a significant evidentiary burden and establish sufficient evidence upon which the Court could determine an actual monetary value as at the date of the Sale Agreement of each of: • the market value of the assets in question; and • the best price reasonably obtainable for the assets, • and, in each case, that the actual value of the assigned assets must be higher than the consideration paid under the Sale
Agreement.
The Court ultimately held that the test is whether, on the balance of probabilities, the consideration payable under the Sale Agreement was less than both of the limbs contained in s 588FDB(1)(a). In Intellicomms, on the balance of probabilities the market value of the assets was significantly more than the value paid under the Sale Agreement and that the best price reasonably obtainable for the assets was not less than market value by having regard to QPC’s, amongst others, interest in purchasing the assets.23
The entry into the Sale Agreement was therefore held to be a creditor-defeating disposition within the meaning of s 588FDB(1) of the Act, as it had the effect of the assets becoming unavailable for the creditors of Intellicomms in the winding up and the Sale
10 Explanatory Memorandum, [2.26]. 11 Corporations Act 2001 (Cth), s 588FE(6B)(b). 12 Ibid, ss 588GAB, 588GAC. 13 Corporations Act 2001 (Cth), ss 588FE(6B)(c), 588GA, 588GAB(3), 588GAC(3). 14 Intellicomms [4]. 15 Ibid [33] - [34]. 16 Ibid [16]. 17 Ibid [66], [87], [230]. 18 Ibid [229]. 19 Ibid [100]. 20 Ibid [68], [89] – [90]. 21 Ibid [18], [42] – [43]. 22 Ibid [15]. 23 Ibid [242] – [243].
Agreement was entered into at a time when Intellicomms was insolvent.24
Intellicomms also provides guidance on the types of relief available not just for creditor-defeating dispositions, but for any transaction the Court is satisfied is voidable. In this regard, the Court’s jurisdiction to make orders is constrained by the powers provided for in s 588FF(1) of the Act.
The Court in Intellicomms made declarations that the Sale Agreement was a creditor-defeating disposition within the meaning of ss 588FDB(1) and a voidable transaction within the meaning of 588FE(6B) of the Act and that the Sale Agreement was void at and after the time it was made. Additionally, the Court declared it had jurisdiction under s 588FF(1) (b) to order that TF deliver up to Intellicomms, all property of Intellicomms the subject of the Sale Agreement. This order was made in contrast to TF’s submission that the difference between the market value of the property and the purchase price be paid to the Liquidators.
However, the Liquidators in Intellicomms attempted to go one step further and sought orders under sections 588FF(1)(c) or 588FF(1)(d) of the Act that TF deliver up to Intellicomms all of TF’s property, including property which was not previously the property of Intellicomms. This was on the basis that TF’s property had necessarily been ‘derived’ by TF as a result of the void Sale Agreement, by using Intellicomms property (which specifically included Intellicomms intellectual property and confidential information) or from the proceeds of that property, since the date of the Sale Agreement. Essentially, the Liquidators sought the transfer of any new software licences and customer contracts obtained by TF since the date of the Sale Agreement.
The relevant sections the Liquidators sought these orders under, being sections 588FF(1)(c) and 588FF(1)(d), respectively provide that the Court may make an order requiring a person to:
…pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction; …transfer to the company property that, in the court’s opinion, fairly represents the application of either or both of the following: • money that the company has paid under the transaction; • proceeds of property that the company has transferred under the transaction;
However, on 3 June 2022, Associate Justice Gardiner refused to order that all of TF’s property be transferred to Intellicomms, as there was no basis or evidence for the calculation of an amount representing the benefits which TF received under section 588FF(1)(c), and the Court was unable to determine what fairly represented the application of the proceeds of property transferred to TF under the Sale Agreement pursuant to s 588FF(1)(d)(ii) of the Act.
TAKEAWAYS ARISING FROM INTELLICOMMS
Intellicomms provides a stark reminder that the powers of the Court under section 588FF(1) are confined in respect of specific property transferred under an impeached transaction. Liquidators, and ASIC if considering such action on its own initiative, should act swiftly in relation to recoveries under these transactions otherwise they may be faced with a high evidentiary burden to evidence proceeds of transferred property.
Whilst it is now beneficial that there is authority dealing with the operation of s 588FDB of the Act, it only provides high-level guidance as to what may constitute a creditor-defeating disposition as the transaction itself had “all the hallmarks of a classic phoenix transaction” 25 and the issues in the proceeding were ultimately confined to whether the assets were sold for an undervalue. The Liquidators in Intellicomms also sought relief in the alternative to a creditor-defeating disposition that the Sale Agreement was an uncommercial transaction26 or an unreasonable director-related transaction27. This relief was not pressed at the hearing of Intellicomms; however, it is more than possible that this transaction would have been captured and voidable by either or both of the uncommercial transaction or unreasonable director-related transaction provisions. Peter Bowden
Nikita Goodwill
We will continue to wait with interest for further judicial guidance regarding the creditor-defeating disposition regime. Additionally, it is unclear whether there will be any further developments regarding criminal or civil prosecution against the director of Intellicomms, or against its pre-insolvency advisors. In particular, it appeared the Court in Intellicomms took pains to note: • that the evidence appeared to suggest the director of Intellicomms planned the transaction and liquidation in close consultation with her business management consultants who operate a pre-insolvency advisory business;28 and • the director of Intellicomms mislead its creditors and expressly denied the existence of the Sale Agreement during the meeting to resolve the company into liquidation, a short time after entering into the
Sale Agreement.29
24 Ibid [243]. 25 Ibid [16]. 26 Corporations Act 2001 (Cth), s 588FB. 27 Ibid, s 588FDA. 28 Intellicomms [16]. 29 Ibid [85].
GLOBAL AND DOMESTIC CHALLENGES AND SOLUTIONS: SKILLS SHORTAGES AND VISA PROCESSING TIMES
Anne O’Donoghue, Diane Markantonakis, Palwasha Nawabi and Sophie Gao, Immigration Solutions Lawyers
INTRODUCTION
In the wake of COVID-recovery on a global scale, we find a plethora of challenges which ensue that present their own unique solutions. In an economic lens, housing, recreational travel, migration, and jobs, are a small yet renowned collection of industries which were deeply affected by COVID-19 and the changes it brought with it. Skilled migration was halted in an attempt to secure international borders but luckily recovery is near due to the “current global cessation of movement being unprecedented”.1 Our idea of recovery is hopeful given the accommodating governmental policies which on a global and domestic scale, consider the need for an increase of skilled migration through visa intakes and a dire need to increase the capabilities from a logistical point of view, in processing these visa’s, and reinstating workers in critical industry sectors to address skill shortages.
This article aims to provide an overview of the global challenges facing the world and Australia with respect to current skills shortages and visa processing times and the visa products which Australia is offering and how this be best utilised to address these shortages.
GLOBAL PERSPECTIVE Preface
“In many ways, the global economy relies on people making decisions to migrate: Central American tomato pickers in Florida, Bangladeshi construction workers in Abu Dhabi, and Indian entrepreneurs in Melbourne. Global migration has proven to be an integral and necessary part of our globalized economy, though its face has looked different in every region, country, and city, as well as to each family.”2 In recent years, this global melting pot, came to a standstill.
Skills Shortages
According to ManPower Group (a Fortune 500 American multinational corporation) the global talent shortage has reached an astonishing 16-year high.3 The top 5 skills shortages include essential industries such as IT, logistics and manufacturing.4 The COVID-19 pandemic is of course one of the major contributors to what is known as the ‘Great Resignation’; significant job losses and workplace closures in 2021 resulted in a ‘tight labour market’ which continues to cause skills shortages.5 ‘A record of 423,000 job vacancies and tens of thousands of unresolved application have resorted in an urgent political and economic problem.’6To counter these skills shortages, especially during the pandemic, many countries shifted their focus on the global labour market as opposed to the local labour market. Foreign workers and global talent are in high demand.
In 2019, the UNDESA estimated the stock of international migrants worldwide to be 272 million, 245 million of which are working age (aged 15 and over).7 In Australia, New Zealand, the U.K and U.S, job vacancies have increased from their pre COVID-19 levels which suggest that all of these economies are presently
1 ‘Five Ways COVID-19 Is Changing Global Migration’ Erol Yayboke, March 25 2020 https://www.csis.org/analysis/five-ways-covid-19-changing-global-migration. 2 Ibid. 3 ‘These are the world’s most in-demand professions’ Joe Myers, 24 May 2022, https://www.weforum.org/agenda/2022/05/most-in-demand-professions-list-2022/ 4 Ibid. 5 ‘Majority of workers who quit a job in 2021 cite low pay, no opportunities for advancement, feeling disrespected’ Kim Parker and Juliana Menasce Horowitz, 9 March 2022, Pew Research Centre, https://www.pewresearch.org/fact-tank/2022/03/09/majority-of-workers-who-quit-a-job-in-2021-cite-low-pay-noopportunities-for-advancement-feeling-disrespected/ . 6 ‘How to Fix Australia’s Broken Visa System’ Tom Mcllroy, Financial Review, 24 June 2022, https://www.afr.com/politics/federal/how-to-fix-australia-sbroken-visa-system-20220622-p5avut. 7 ‘ ILO Global Estimates on International Migrant Workers’ International Labour organisation, 2021, https://www.ilo.org/wcmsp5/groups/public/--dgreports/---dcomm/---publ/documents/publication/wcms_808935.pdf.
