Decided on 15 September 2023| High Court of Australia
The key legal principles arising from this case revolve around the interpretation and application of specific provisions within Australian corporate and insolvency law, particularly Section 579E(1)(b)(iv) of Corporations Act, 2001. The case addresses the issue of when companies in liquidation can be considered part of a joint business scheme or undertaking for the purpose of pooling their assets and liabilities. The central question is whether the enforcement of a chose in action (rights in property, specifically a combined bundle of rights), such as the recovery of misallocated sale proceeds, qualifies as part of a business scheme carried on jointly, as required by the law for pooling to occur.
The case involved three applicants: John Maxwell Morgan, Sydney Allen Printers Pty Ltd (in liquidation), and Sydney Allen Manufacturing Pty Ltd (in liquidation). They sought special leave to appeal before the High Court of Australia against a Full Court decision. The first respondent was McMillan Investment Holdings Pty Ltd, and the second respondent was the Australian Securities and Investments Commission (ASIC).
The applicants sought to pool the assets and liabilities of two companies in liquidation, Sydney Allen Printers and Sydney Allen Manufacturing. The primary issue was whether these companies, while in liquidation, could be considered part of a joint business scheme or undertaking, given their joint chose in action to recover the proceeds of a business sale.
The case centres on the interpretation of specific provisions of the Corporations Act, 2001 i.e. Section 579E(1)(b)(iv), which sets the criteria for pooling assets and liabilities of companies in liquidation. The key question was whether the enforcement of a chose in action qualifies as a business activity carried on jointly by the companies in question.
The case also delved into the concept of a “joint business scheme” and what activities can be classified as part of such a scheme. The applicants argued that the business scheme continued even during liquidation because they were pursuing the recovery of sale proceeds, which they considered an integral part of the business transaction. On the other hand, the respondents contended that the liquidations were separate, and the enforcement of the chose in action did not constitute a jointly carried business scheme.
An essential aspect of the case was the timing of when the chose in action arose. The applicants argued that it arose when the sale proceeds were misallocated, while the respondents maintain that it only arose after the completion of the sale. This timing has a significant bearing on whether the business scheme was indeed joint and ongoing.
The case also examined the impact of reinstatement under Section 601AH(5) of the Corporations Act, 2001. The question is whether reinstatement affected the ability to treat the companies as jointly conducting a business scheme for the purpose of pooling. This provision raises issues related to the legal personality of companies in liquidation and their ability to be part of a joint business scheme.
The High Court granted special leave to appeal, indicating its interest in the legal issues presented in the case. This decision allows the parties to proceed with their appeal, and the ultimate resolution of these legal questions will occur at a later stage, following a full hearing and consideration of the case.
The fact that special leave was granted suggests that the High Court believes there are genuine legal questions and uncertainties regarding the interpretation and application of these provisions in insolvency and liquidation scenarios. The final judgment will likely provide clarity on whether the recovery of a chose in action can be considered part of a jointly carried business scheme, which will have implications for how such actions are treated in the context of liquidation and insolvency, affecting the rights and interests of creditors and stakeholders.