find the latest legal job
Corporate Counsel and Company Secretary
Category: Generalists - In House | Location: Newcastle, Maitland & Hunter NSW
· Highly-respected, innovative and entrepreneurial Not-for-Profit · Competency based Board
View details
Chief Counsel and Company Secretary
Category: Generalists - In House | Location: Newcastle, Maitland & Hunter NSW
· Dynamic, high growth organisation · ASX listed market leader
View details
In-house Projects Lawyer | Renewables / Solar | 2-5 Years PQE
Category: Generalists - In House | Location: All Australia
· Help design the future · NASDAQ Listed
View details
Insurance Lawyer (3-5 PAE)
Category: Insurance and Superannuation Law | Location: Brisbane CBD & Inner Suburbs Brisbane QLD
· Dynamic organisation ·
View details
Legal Counsel
Category: Corporate and Commercial Law | Location: North Sydney NSW 2060
· 18 month fixed term contract · 3-5 years PQE with TMT exposure
View details
Barrister faults the Corporations Act

Barrister faults the Corporations Act

A NEW South Wales barrister has stumbled on what appears to be a loophole in the Corporations Act that has for years been causing trouble for lawyers that want to keep their clients happy. As a…

A NEW South Wales barrister has stumbled on what appears to be a loophole in the Corporations Act that has for years been causing trouble for lawyers that want to keep their clients happy. As a result, a Supreme Court judge has called on the government to look closely at the current law.

For years it was thought that when a creditor makes a successful application to the Court to wind up a company and is successful, the creditor’s legal costs are paid. In fact, said Geoff McDonald, barrister and managing partner of Hall Chadwick, a recent decision by the Supreme Court of New South Wales has clarified an anomaly in the law that means those costs are not to be paid.

It is a mistake in the Corporations Act, McDonald told Lawyers Weekly. “When creditors are chasing money they are owed, and there are hundreds of these every day, the substance of the application may be successful but because of the loophole they don’t get their legal costs paid,” he said.

Under the Corporations Act, the legal costs of making an application to the Supreme or Federal Court are payable if the company is liquidated. “In fact, these costs are paid before the liquidator’s fees. They usually approximate $5,000 to $10,000 but can easily escalate in contested cases,” said McDonald.

For years these legal costs have been paid by liquidators in priority to all other creditors, McDonald said. But Paul Fordyce, partner of PMF Legal and director of Insolvency Notices, and McDonald recognised a growing incidence of these costs being awarded when the law needed clarification.

In McDonald v Deputy Commissioner of Taxation 2005, the judge found that there was a loophole in the law and said that these legal costs are no longer payable, said McDonald.

“The Court held that, when an application is made but the company is liquidated through a Voluntary Administration, the legal fees have no priority and in fact do not have to be paid by the company,” he said.

According to University of Melbourne Faculty of Law professor Ian Ramsay, there is a significant point in this case that does represent a gap in the law. “The judge is right to draw the Parliament’s attention to it,” he told Lawyers Weekly.

The gap works to the disadvantage of creditors, who are not paid in certain circumstances, said Ramsay. McDonald added that although it is unlikely to affect lawyers’ pay, it will affect their clients.

“The effect of this decision is to unfortunately result in the creditor missing out on its legal fees. As a result, it is likely that more negotiated settlements will occur where part or all of those costs can be recovered by the creditor,” McDonald said.

“Clearly, the law needed clarification and needs amending. This case run by PMF Legal and my company has enabled the judge to call for legislative reform.”

Costs are expensive, said Ramsay, and there is a “tremendous amount of insolvency litigation”. “The way forward now is for the Government to consider the comments of the judge in this case,” he said.

Like this story? Read more:

QLS condemns actions of disgraced lawyer as ‘stain on the profession’

NSW proposes big justice reforms to target risk of reoffending

The legal budget breakdown 2017

Barrister faults the Corporations Act
lawyersweekly logo
Promoted content
Recommended by Spike Native Network
more from lawyers weekly
LCA president Fiona McLeod SC
Aug 17 2017
Where social fault lines meet the justice gap in Aus
After just returning from a tour of the Northern Territory, LCA president Fiona McLeod SC speaks wit...
Marriage equality flag
Aug 17 2017
ALHR backs High Court challenge to marriage equality postal vote
Australian Lawyers for Human Rights (ALHR) has voiced its support for a constitutional challenge to ...
Give advice
Aug 17 2017
A-G issues advice on judiciary’s public presence
Commonwealth Attorney-General George Brandis QC has offered his advice on the public presence of jud...
APPOINTMENTS
Allens managing partner Richard Spurio, image courtesy Allens' website
Jun 21 2017
Promo season at Allens
A group of lawyers at Allens have received promotions across its PNG and Australian offices. ...
May 11 2017
Partner exits for in-house role
A Victorian lawyer has left the partnership of a national firm to start a new gig with state governm...
Esteban Gomez
May 11 2017
National firm recruits ‘major asset’
A national law firm has announced it has appointed a new corporate partner who brings over 15 years'...
opinion
Nicole Rich
May 16 2017
Access to justice for young transgender Australians
Reform is looming for the process that young transgender Australians and their families must current...
Geoff Roberson
May 11 2017
The lighter side of the law: when law and comedy collide
On the face of it, there doesn’t seem to be much that is amusing about the law, writes Geoff Rober...
Help
May 10 2017
Advocate’s immunity – without fear or without favour but not both
On 29 March 2017, the High Court handed down its decision in David Kendirjian v Eugene Lepore & ...