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Editor's Note The Global Financial Crisis continues into 2009. This will no doubt provide some interesting reading throughout the year and a variety of international cross-boarder insolvency issues. One of the main industries affected by the crisis has been the banking industry. This issue looks at the adoption of a new bank capitalisation program in Italy designed to enable “healthy” Italian banks increase their capital ratios in the current financial turmoil who are expected, in turn, to provide adequate flow of financing to the economy. In addition, this issue discusses the reasons behind and the impact of the exclusion of Australian Banks from the Model Law on Cross-Border Insolvency. Other articles in this issue include recent Australian, Canadian and Argentinean case law summaries. In Australia it was held that the Commissioner of Taxation has no effective priority for GST payable on post-appointment transactions, thus having the prospect for significant revenue leakage. In Canada, the Court held that a board’s duty is much wider than maximising shareholder value and includes all stakeholders. In Argentina the Courts held that the electronic filing of a proof of debt was valid. With effect from 1 October 2008, the UK Companies Act 2006 has extended the scope of directors’ duties in relation to conflicts of interest and established a framework in which matters giving rise to conflict situations can be authorised. As always, we extend our grateful thanks to all of our contributors. Tony Sims |
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Court Rejects Commissioner's Claim for Liquidator's Personal Liability for GST In a recent decision given by the Federal Court of Australia, the court has rejected a claim by the Commissioner of Taxation that a liquidator should be personally liable for the GST payable on sales occurring during the term of the liquidator's appointment. In the case of Deputy Commissioner of Taxation v PM Development Pty Limited [2008] FCA 1886 (12 December 2008) the Court rejected an argument that the provisions of the Australian GST legislation (the A New Tax System (Goods and Services Tax) Act 1999) should be read such that the liability for GST on those sales should be attributed to the liquidator in its capacity as a notional "representative entity" rather than the insolvent company to which the liquidator was appointed (referred to in the GST Act as the "incapacitated entity"). As a result of the decision, the Commissioner may be unable to recover the whole of the GST payable on post-appointment transactions where the secured creditor's interest exceeds the proceeds of sale. The Commissioner's problems are exacerbated where the Commissioner must pay an input tax credit to the entity purchasing assets from the incapacitated entity. In such a case, the Commissioner will in effect be subsidising the return to secured creditors. The Commissioner has not yet decided whether or not to appeal the decision. However, given the Court's criticisms of the GST Act, legislative amendments may be the only option. In many ways, the Court's decision in PM Developments is not a surprise. The absence of an effecting deeming provision in Division 147 has been the subject of significant academic comment from the time of the introduction of GST. More surprising is the fact that after 8 years of the GST's operation in Australia, no legislation has been introduced to fix the problem. The Commissioner's need for personal liability against the representative for post-appointment transactions is more acute in the administration of GST than it is in the administration of income tax. Firstly, it is often the case that an insolvent entity will have few if any prospects of generating assessable income in excess of its accumulated losses. Secondly, and more importantly, the GST payable by the incapacitated entity will generally give rise to an equivalent input tax credit in the hands of the purchaser. Thus, no net revenue is generated from the transaction. If the Commissioner's has no effective priority for GST payable on post-appointment transactions, the Commissioner will remain liable to pay out the whole amount of the input tax credit but will only be able to recover a fraction of the tax payable by the incapacitated entity. Given the current economic environment, this has the prospect for significant revenue leakage. Perhaps this prospect will give the legislature the incentive it needs to finally fill the gaps in this aspect of the GST's operation. For more details please click here. For the full case decision please click here. Andrew Sommer |
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Canada’s Supreme Court Rejects the Revlon Test for Directors’ Duties BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 In June 2008 the Supreme Court of Canada issued its ruling in the BCE case which concerned a proposed $52 billion leveraged buyout. On December 19, 2008, the Court finally released the much anticipated written reasons for the ruling. In this case the bondholders opposed the plan and claimed they were oppressed and it wasn't fair and reasonable because the $30-billion in debt that would have been piled onto the company meant their bonds would have declined by an average of 20%. The reasons confirm that the U.S. standard in Revlon do not apply in Canada. In that case, a Delaware court ruled that the only obligation a board had was to maximize shareholder value. The BCE reasons confirm an earlier Supreme Court decision which held that in Canada a board's duty is much wider and includes all stakeholders. The response to the Supreme Court’s reasons in BCE has been mixed. On the one hand, Canadian corporate lawyers and the directors say they are reassured by the affirmation that so long as they exercise business judgment and consider the long term interests of the corporation, courts will not interfere. The BCE decision represents one of the strongest endorsements of the business judgment rule in Canada to date. On the other hand, given how fact specific the reasonable expectations test for establishing an oppression action claim remains, it is unclear how it will apply in situations other than a change of control situation. For example, there remains uncertainty as to how it will be applied in a situation where a corporation enters the zone of insolvency and must make certain decisions, such as closing down plants and laying off workers. For the full case note by Stephanie Ben-Ishai, INSOL Scholar, please click here. For the case decision please click here. See also an a update by Osler Hoskin & Harcourt LLP, 22 December 2008. Tax Claims and the Use of Electronic Documents Under the Argentine Insolvency Law Tifec S.A. s/ concurso preventivo, 25th September 2008 In this case the Civil and Commercial Court of Córdoba (Province of Córdoba, Argentina), considered the issue whether a proof of claim filed against the debtor electronically in relation to a tax obligation is valid under the Argentine tax and insolvency laws. The Argentine Federal Tax Authority (called “Administración Federal de Ingresos Públicos” AFIP by its Spanish acronym) filed a proof of claim to establish its tax claim against the debtor under the applicable tax law, and it submitted a hard copy of the debtor's affidavits kept in electronic form in the creditor's computers. The claim was disallowed by the court of first instance mainly on the basis of the evidentiary effectiveness of the documents issued by the debtor “deemed affidavits” prepared and submitted electronically to the national tax collecting authority. The court interpreted that the source of the tax obligation had not been proved. The appellate court disagreed and through a decision that included a dissenting opinion, reversed the lower court decision and held that the source of the tax obligation had been sufficiently proved on the basis of the affidavits electronically generated by the debtor. For a case note by Prof. Hector Miguens, INSOL Scholar, please click here. | |||||
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Africa, Europe & Middle East Italian Measures for the Government’s Subscription of Subordinated Bank Securities On 28 November 2008, as part of a law decree enacting various fiscal stimulus measures, the Italian Government adopted a new bank capitalization program directed at “healthy” Italian banks whose shares are listed on a regulated exchange. The law decree (No. 185/2008) was published in the Italian Official Gazette on November 29, 2008 (“Decree 185”). Article 12 of Decree 185 empowers the Ministry of Economic Affairs (the “Ministry”) to put in place a bank capitalization program similar to those already approved by other EU Member States. The program is open to banks that, although not undercapitalized, wish to increase their capital ratios in the current financial turmoil. The Ministry is authorized to subscribe to eligible securities under Decree 185 through December 31, 2009. The Government expects that the issuing banks will in turn “provide an adequate flow of financing to the economy”. It is however difficult to anticipate at this stage whether many Italian listed banks will actually take advantage of the capital strengthening program described above. The actual financial terms of the securities will be contained in the Ministry’s implementing measures. Thus, at this stage, banks may not yet assess the advantages and/or merits of the program. Moreover, it is still unclear how onerous, invasive and strict the terms of the undertakings that will be included in the memorandum of understanding to be entered into by the Ministry and each issuing bank will be. For more details please see Cleary Gottlieb Steen & Hamilton LLP, Alert Memo, 2 December 2008, Directors Duties in Relation to Conflicts of Interest The Companies Act 2006 (the "2006 Act") effects the most sweeping and significant alteration of UK companies legislation for over 20 years. Significant portions of the 2006 Act were implemented on 1 October 2007, 6 April 2008 and 1 October 2008, with the remainder coming into force on 1 October 2009. One of the main sets of provisions of the 2006 Act which became effective on 1 October 2008 relates to new statutory duties for directors in connection with conflicts of interest. The newly codified duties concern directors' obligations to avoid conflict situations, to declare interests and not to accept benefits from third parties. A director must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. This applies, in particular, to the exploitation of property, information or opportunity, whether or not the company could take advantage of that property, information or opportunity. This duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company, since that is covered by the separate duty to declare to the company any interest in a proposed or existing transaction or arrangement with the company. A director will, therefore, be in breach of this duty if he is in a situation, or allows a situation to arise, which involves, or could involve, a conflict. This is unless the situation cannot reasonably be regarded as likely to give rise to a conflict of interest or the conflict situation was authorised in one of the ways mentioned below. In essence, the provisions extend the scope of directors' duties in relation to conflicts and establish a framework in which matters giving rise to conflict situations can be authorised. For the full article please see Jones Day Bulletin, December 2008. |
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Model Law on Cross-border Insolvency : Exclusion of Australian Banks The current volatility in the world’s financial markets leads us to examine how the insolvency of Australian and foreign banks is treated in an international cross-border perspective. While Australia recently enacted the Cross-Border Insolvency Act 2008 (Cth) (CBLA) by which the UNCITRAL Model Law on Cross-Border Insolvency (the model law) applies to cross-border insolvencies, banks and insurers are in fact excluded from the operation of the Model Law. This article discusses the reasons for that and the impact of that exclusion, illustrated by some comparative case studies. The article shows that international cross-border insolvency law necessarily has to be seen in the context of the domestic bank insolvency laws which are in the process of significant change. For the full article please see Australian Insolvency Journal, October - December Issue 2008, P. 4 |
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INSOL International Rio de Janeiro One Day Seminar - Thursday 2nd April 2009 The INSOL International Association of Insolvency, Restructuring and Bankruptcy Professionals in association with Instituto Brasileiro de Direito Empresarial (IBRADEMP) will be hosting a one day educational regional seminar in Rio de Janeiro on 2nd April 2009. The educational program will cover a number of international cross-border issues of relevance to Brazil, Argentina and other Latin American countries. The seminar will benefit from simultaneous translation in Portuguese, Spanish and English. For further information on this seminar or for sponsorship information please contact: Penny Robertson, Communications Manager, INSOL International, 2-3 Philpot Lane, London EC3M 8AQ Tel: +44 207 929 6679, Fax: +44 207 929 6678 or pennyr@insol.ision.co.uk |
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This issue was kindly sponsored by:
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INSOL Contacts If you would like to send an article for inclusion in one of our forthcoming issues please contact our Technical Manager, Sonali Abeyratne at sonali@insol.ision.co.uk If you would like to introduce a new member to INSOL International please contact, Jelena Sisko at jelena@insol.ision.co.uk |
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