6.52 In company liquidation,207 the provable debts are determined by reference to the ‘relevant date’,208 which is defined in the Corporations Act 2001 (Cth), s. 9 as the day that the winding up is taken because of Div. 1A of Part 5.6 of the Act to have begun.209 This in turn refers to the day of the winding-up order or the day on which a resolution was passed for a winding up, but if the company immediately before the winding up was under administration or was subject to a deed of company arrangement, it is the day on which the administration began.210 The date is modified in relation to proof of debts by ss. 553(1A) and 553(1B) of the Corporations Act, to accommodate the situation in which the circumstances giving rise to a claim against the company occurred at a time when the company was under a deed of company arrangement, and the company was under the deed (p. 288) immediately before the resolution or the court order for a winding up. In that case, the claim is admissible to proof against the company and, for the purpose of applying the sections in Div. 6 of Part 5.6 of the Act (dealing with proof and ranking of claims), the relevant date for the claim is the date on which the deed terminates.
Source Id: law-9780199578825-chapter-6-div5-537ReferencesDay & Dent Constructions Pty Limited (In Liquidation) v North Australian Properties Pty Limited (Provisional Liquidator Appointed),  FCA 12, (1981) 54 FLR 277, (1981) 34 ALR 595, (1982) 150 CLR 85, 18th February 1981, Australia; Federal Court [FCA]Northside Properties Pty Limited and the Companies Act, Re,  2 NSWLR 320, 1971, Australia; New South WalesParker, Re, (1997) 80 FCR 1, 1997, Australia
6.53 The concept of the ‘relevant date’ is not specifically incorporated into s. 553C of the Corporations Act dealing with mutual credit and set-off. Traditionally, the question whether there are mutual debts, mutual credits or other mutual dealings between a company in liquidation and a creditor so as to qualify for a set-off has been said to be determined by reference to the date of the liquidation.211 In a voluntary liquidation this has been taken as referring to the date of the resolution, while in a court-ordered winding up the weight of authority has favoured the view that it means the date of the order.212 However, the authorities in question pre-dated the inclusion in the Corporations legislation of both the definition of the ‘relevant date’ and the concept of administration of companies. In Re Parker,213 Mansfield J held that the determination of set-off entitlements should also take place by reference to the ‘relevant date’, so that when, as in that case, liquidation follows immediately after an administration, the date for determining whether there are mutual credits, mutual debts or other mutual dealings is the day on which the administration began.214
Source Id: law-9780199578825-chapter-6-div5-538ReferencesAFG Insurances Limited, Re,  NSWSC 735, (2002) 20 ACLC 1588, 20th August 2002, Australia; New South Wales; Supreme Court [NSWSC]JLF Bakeries Pty Limited v Baker's Delight Holdings Limited,  NSWSC 894, (2007) 64 ACSR 633, Australia; New South Wales; Supreme Court [NSWSC]
6.54 Three points may be made in relation to the situation in which there was a prior administration. In the first place, if a debt incurred by a company while under administration is not provable in a subsequent liquidation, the debt similarly could not be employed in a set-off, since the set-off section requires that the creditor's claim be provable. Therefore, at least to that extent, the concept of ‘the relevant date’ must apply to set-off. Second, in relation to the claim on the other side of the account, being a claim accruing to the company while under administration, the same result often would follow whether the determinative date is the day the administration began or the date of the winding-up order.215 This is because of the qualification to the insolvency set-off section in s. 553C(2) of the Corporations Act, which provides that a creditor is not entitled to claim a set-off if at the time of giving credit to or receiving credit from the company the creditor had notice of the fact that the company was insolvent.216 The board of a company may resolve to appoint an administrator if in the opinion of the directors the company is insolvent or it is likely to become insolvent at some future time.217 It is not necessary that the company be insolvent at the time of the (p. 289) appointment,218 and so bare knowledge of the appointment by itself would not seem to constitute notice of the fact that the company was insolvent.219 However, other circum-stances combined with the appointment may provide notice of present insolvency,220 in which case any debt that the creditor subsequently incurred to the company could not be set off in a subsequent liquidation whether the date for determining set-offs is the date of the liquidation or the date of the administration. The third point is that a creditor often would not be disadvantaged by being unable to prove a debt incurred by the company after an administrator has been appointed,221 and therefore being denied a set-off in respect of it. This is because an administrator is personally liable for debts incurred in the exercise of his or her functions and powers for services rendered, or for goods bought or property hired, leased, used or occupied.222 In those circumstances, the creditor can sue the administrator personally. Moreover, expenses properly incurred by an administrator in preserving, realizing or getting in property of the company or in carrying on the company's business have priority of payment in a liquidation.223 If the creditor would be paid in full in any event, he or she would not need a set-off. For those reasons, the question whether the avail-ability of a set-off is determined by reference to the date that the administration began, or the date of the winding-up order or the resolution for a voluntary winding up, often would not be significant.
Source Id: law-9780199578825-chapter-6-div5-539ReferencesJay-O-Bees Pty Limited, Re,  NSWSC 818, (2004) 50 ACSR 565, 28th September 2004, Australia; New South Wales; Supreme Court [NSWSC]Parker, Re, (1997) 80 FCR 1, 1997, AustraliaWright and ors v Eckhardt Marine GmbH, Appeal No 13 of 2002,  UKPC 37,  1 AC 147,  3 WLR 414,  BCC 702, 14th May 2003, United Kingdom; Privy Council [UKPC]
6.55 The question was important, however, in Re Parker.224 The creditors of a company under administration resolved that it be wound up. The company had a holding company, and it was alleged that there were cross-debts between them. The holding company had given a floating charge over all its assets to a secured creditor, which assets included debts owing to the holding company. Because of the charge, nothing would be available for the holding company's unsecured creditors. The charge crystallized after the commencement of the subsidiary's administration and before the resolution for its winding up. Mansfield J was asked to determine whether, in those circumstances, there could be a set-off in the subsidiary's liquidation. One of the issues was the date for determining rights of set-off. If the date was the date of the winding up, the crystallized charge would have had the effect of destroying mutuality as between the subsidiary and the holding company in relation (p. 290) to the debts.225 The secured creditor, therefore, would have obtained the benefit of the holding company's claim against the subsidiary without reduction for a set-off.226 However, Mansfield J held that the appropriate date was the same as that fixed for determining what debts were provable in the winding up, being the date that the administration began. He accepted that there were mutual debts for the purpose of the insolvency set-off section at that date,227 and therefore the secured creditor took subject to the prior set-off entitlement.228
Source Id: law-9780199578825-chapter-6-div5-540ReferencesParker, Re, (1997) 80 FCR 1, 1997, Australia
6.56 The approach adopted in Re Parker would become complicated in the situation in which an administration is followed by a deed of company arrangement before the company goes into liquidation. The day on which the administration began is still defined as the relevant date,229 but special provision is made in s. 553(1A) for the situation in which the circumstances giving rise to a debt or claim against the company occurred while the company was under the deed. The debt may be proved in the liquidation, and s. 553(1B) provides that, for the purpose of applying the other sections of Div. 6 of Part 5.6 dealing with proof and ranking of claims, the relevant date for that debt is the date on which the deed terminates. If a debt is provable under s. 553(1A), it would ordinarily be regarded as capable of being included in a set-off,230 so that the view expressed in Re Parker would have to be qualified (p. 291) to accommodate a set-off in relation to debts coming within the ambit of s. 553(1A). In such a case, there could be two relevant dates for determining rights of set-off. Once a company goes into administration, the day on which the administration began would constitute a relevant date for the purpose of a subsequent liquidation. But if the administration was followed by a deed of company arrangement before the liquidation, the date on which the deed terminated would constitute a second relevant date for debts of the company arising out of circumstances occurring while the company was under the deed. In either case, however, a debt of the company which arose out of circumstances that occurred while the company was under administration and before the deed would not be provable, in which case it could not be set off under s. 553C.231
Source Id: law-9780199578825-chapter-6-div5-541ReferencesGye v McIntyre,  HCA 60, (1991) 171 CLR 609, 1st March 1991, Australia; High Court [HCA]Parker, Re, (1997) 80 FCR 1, 1997, Australia
6.57 But how would this work for the claim on the other side of the account which it is sought to include in a set-off, being the company's claim against the creditor? If the company's claim arose before the day on which the administration began, and the administration was followed by a deed of company arrangement before the liquidation, the claim should be capable of being included in a set-off against a provable debt whether that provable debt relates to the first or the second relevant date.232 Further, if the company's claim against the creditor arose while the company was under the deed, it should be capable of being included in a set-off against a provable debt arising in that period.233 But what about a claim which accrued to the company before the deed, while the company was under administration? Once a debt of the company which arises out of circumstances occurring during the period of a deed becomes provable under s. 553(1A), so that pursuant to s. 553(1B) the relevant date for that debt is the date that the deed terminates, there is nothing in s. 553C to suggest that a set-off in respect of that debt should be limited to cross-debts which similarly accrued to the company during that period. A person dealing with a company during the period of the administration may have notice of insolvency so as to preclude a set-off under s. 553C(2),234 but apart from that there is nothing in s. 553C which would exclude a set-off in relation to a claim which accrued to the company before the deed and while it was under administration. A limitation to that effect would not follow from the concept of mutuality, because mutuality does not require that there should be a temporal or other connection between the claims the subject of a set-off.235 As the High Court observed in Gye v McIntyre,236 the word ‘mutual’ conveys the notion of reciprocity rather than of correspondence. If, then, Re Parker is followed, and if administration is followed by a deed of company arrangement before liquidation, it may be that a claim possessed by the company that arose out of circumstances occurring before the deed and while the company was (p. 292) under administration would be treated differently for the purpose of set-off to a claim against the company which arose out of circumstances occurring in the same period.237 Moreover, while it was held in Re Parker that a floating charge held by a third party over the company's assets which crystallized during the period of the administration is subject to a set-off determined as at the date the administration began, the crystallized charge should nevertheless preclude a set-off in relation to a provable debt that was incurred while the company was under the deed. This is because crystallization would destroy mutuality for the purpose of a set-off determined as at the date that the deed terminated,238 the date of termination being the relevant date for that particular debt.239
Source Id: law-9780199578825-chapter-6-div5-542ReferencesCinema Plus Limited (Administrators Appointed) v ANZ Banking Group Limited,  NSWCA 195, (2000) 49 NSWLR 513, 28th July 2000, Australia; New South Wales; Supreme Court [NSWSC]; Court of Appeal [NSWCA]Parker, Re, (1997) 80 FCR 1, 1997, Australia
6.58 The Re Parker approach would be artificial in the common situation in which an administrator carries on the company's business during the administration,240 the object of administration being to maximize the chances of the company, or as much of its business as possible, continuing in existence.241 Consider, for example, the case of a company which has a credit balance on a current account with its bank on the day that an administrator is appointed.242 At the same time, the company has a contingent liability to indemnify the bank, for example in relation to letters of credit which the bank has issued at its request. Subsequently, the company goes into liquidation, and the bank is called upon to honour the letters of credit. The bank has a provable debt in the liquidation for its right of indemnity from the company, the amount of which is to be valued as at the day of the appointment of the administrator.243 On that day there were mutual dealings between the bank and the company, which could be the subject of a set-off.244 But what if during the administration the administrator drew on the current account in the course of carrying on the company's business? The drawings would have reduced the credit balance, but a set-off entitlement determined as at the date of the administrator's appointment would not take them into account. Alternatively, the administrator after his appointment may have closed the account, and transferred the credit funds to an account with another bank. It would make little sense in that situation to talk of determining the set-off rights of the first bank in the liquidation as at the date that the administration began. The point is that the account remained an operating bank account notwithstanding the administration, and the company through the administrator245 was entitled to deal with the funds on deposit.
Source Id: law-9780199578825-chapter-6-div5-543ReferencesParker, Re, (1997) 80 FCR 1, 1997, AustraliaStein v Blake,  UKHL 11,  2 All ER 961,  1 AC 243,  2 WLR 710,  2 BCLC 94, 18th May 1995, United Kingdom; House of Lords [UKHL]
6.59 Further difficulties arise from the nature of insolvency set-off. The prevailing view is that a set-off under the insolvency set-off section occurs automatically. It does not require the procedural step of taking an account in the liquidation.246 The question of the automatic (p. 293) nature of insolvency set-off was not specifically addressed in Re Parker. However, the decision suggests that the set-off in that case was regarded as having occurred at the date of commencement of the administration, as opposed to the date of the liquidation. In other words, it was not simply a matter of looking at the date of commencement of the administration in order to determine which claims could be included in a set-off, which set-off occurred as at the liquidation date. In Re Parker, a floating charge over the holding company's assets crystallized after the appointment of administrators to the subsidiary and before the subsidiary's winding up, and Mansfield J held that the chargee took subject to a set-off under s. 553C determined as at the date of commencement of the administration. Section 553C provides that, ‘an account is to be taken of what is due from the one party to the other in respect of those mutual dealings’, and ‘the sum due from the one party is to be set off against any sum due from the other party’. The ‘one party’ and ‘the other’ are the parties to the set-off, and the use of the present tense (‘is due’) suggests that there should be mutuality when the set-off occurs.247 If it was thought in Re Parker that a set-off, if avail-able, would have taken place on the date of the liquidation, there should not in fact have been a set-off in that case. Mutuality in insolvency set-off is determined by reference to equitable interests,248 but crystallization of the charge before liquidation would have had the consequence that there was no mutuality in equity when the liquidation occurred.249 In equity, the subsidiary's debt was due to the secured creditor rather than to the holding company. Therefore, the decision to allow a set-off would appear to have been on the basis that a set-off was thought of as having occurred before crystallization, at the date of the administration, when there was mutuality. It would be a curious notion, however, if a set-off in a liquidation were regarded as having taken place retrospectively at the date of commencement of a prior administration, when the company's business was still operating and it continued to operate during the period of the administration. Consider, for example, the situation posited above, where a company's current account with its bank had a credit balance when an administrator was appointed, and the company and the bank had entered into a dealing before the administration, for example the issue by the bank of a letter of credit at the request of the company, which later gave rise to a claim by the bank against the company. If a set-off in a subsequent liquidation were thought of as having occurred at the date the administration began, where would that leave drawings on the account after the commencement of the administration, including where the administrator transferred the funds to another account?250 Looking at the matter retrospectively, the conclusion would be that, to the extent of the bank's claim against the company, the current account was not in credit when the administrator was appointed because the account was the subject of an automatic set-off occurring as at that date. If there was no credit balance, the administrator should not have been entitled to draw on the account.
Source Id: law-9780199578825-chapter-6-div5-544ReferencesCinema Plus Limited (Administrators Appointed) v ANZ Banking Group Limited,  NSWCA 195, (2000) 49 NSWLR 513, 28th July 2000, Australia; New South Wales; Supreme Court [NSWSC]; Court of Appeal [NSWCA]
(p. 294) 6.60 Moreover, if the set-off were taken to have occurred retrospectively on the date of the administrator's appointment, the administrator could be adversely affected in relation to his or her lien on the company's assets. An administrator is personally liable for certain debts incurred in the performance of his or her functions or powers.251 On the other hand, the administrator is entitled to be indemnified out of the company's property for debts for which he or she is liable and also for remuneration,252 the right of indemnity being secured by a lien on the company's property.253 An administrator may look upon a credit balance on the company's bank account as an asset against which he or she is entitled to exercise the right of indemnity, and on the faith of that assumption may incur debts for which he or she is personally liable.254 But if the company goes into liquidation while the debts are still outstanding, and the bank has a claim against the company, for example in relation to letters of credit issued at the request of the company before the administration which the bank was later called upon to honour, the application of the automatic theory of insolvency set-off as at the date of commencement of the administration would mean that, because of the liquidation, the company's asset in the form of the credit balance will have disappeared in a set-off occurring retrospectively when the administration began. The administrator would therefore be personally liable for the debts without a valuable right of indemnity from the credit funds. If, on the other hand, set-offs were regarded as occurring at the date of the liquidation, albeit that the provable debt necessary for the set-off is determined as at the commencement of the administration,255 the administrator's lien on the account in credit would destroy mutuality in the liquidation in relation to the account and the company's liability to the bank. To the extent of the lien there would not be a set-off,256 and the administrator, therefore, would not be prevented by the liquidation from exercising the lien against the account.
Source Id: law-9780199578825-chapter-6-div5-545ReferencesAnsett Australia Limited v Travel Software Solutions Pty Limited,  VSC 326, (2007) 65 ACSR 47, 19th September 2007, Australia; Victoria; Supreme Court [VSC]Arcfab Pty Limited v Boral Limited,  NSWSC 1188, (2002) 43 ACSR 573, 21 ACLC 151, 11th December 2002, Australia; New South Wales; Supreme Court [NSWSC]Central Data Networks Pty Limited v Global Diagnostics Limited, (1998) 84 FCR 304, Australia; Federal Court [FCA]Handberg v Smarter Way (Aust) Pty Limited,  FCA 469, (2002) 190 ALR 130, 15th April 2002, Australia; Federal Court [FCA]JLF Bakeries Pty Limited v Baker's Delight Holdings Limited,  NSWSC 894, (2007) 64 ACSR 633, Australia; New South Wales; Supreme Court [NSWSC]Metal Manufacturers Limited v Hall,  NSWSC 298, (2002) 41 ACSR 466, 16th April 2002, Australia; New South Wales; Supreme Court [NSWSC]Opes Prime Stockbroking Limited (Administrators appointed) (Receivers and Managers appointed), Re,  FCA 1425, (2008) 171 FCR 473, 17th September 2008, Australia; Federal Court [FCA]Parker, Re, (1997) 80 FCR 1, 1997, AustraliaPearce (G M & A M) and Company Pty Limited v RGM Australia Pty Limited,  4 VR 888, 1998, Australia; Victoria; Supreme Court [VSC]; Court of Appeal [VSCA]Reed Constructions Australia Limited v DM Fabrications Pty Limited, (2007) 25 ACLC 1463, 2007, AustraliaSilberman v One Tel Limited, (2001) 20 ACLC 93, 2001, Australia
6.61 But notwithstanding those difficulties, the evident view in Re Parker as to the operation of the insolvency set-off section has since been followed.257 It is also consistent with views expressed in the Victorian Court of Appeal in G. M. & A. M. Pearce and Co Pty Ltd v RGM Australia Pty Ltd,258 in the context of a deed of company arrangement that was not followed by a liquidation. The deed in that case incorporated the insolvency set-off section applicable in company liquidation.259 In accordance with s. 444A(4)(i) of the Corporations Law,260 the deed specified that the admissible claims under the deed were those which arose on or before the date of the appointment of the administrator to the company. The Court of Appeal held that a set-off occurred automatically under the deed,261 so that it was not (p. 295) necessary for a debtor to the company who also had a claim against the company to make a claim under the deed in order to obtain a set-off. The date that the set-off occurred, accepting an automatic operation, was not in issue. While there are judicial statements which might be said to favour the date of the deed as the date for the occurrence of set-offs,262 it was assumed in the Pearce case that the set-off would have taken place when the administration began.263 This has also been suggested in other cases.264 At least in the case of a deed of company arrangement, the Corporations Act does not require that the insolvency set-off section be incorporated into the deed,265 so that the parties may have some control over its operation.266 However, this is not so in a company liquidation, given that the section is mandatory in a liquidation and cannot be contracted out of.267
Source Id: law-9780199578825-chapter-6-div5-546ReferencesParker, Re, (1997) 80 FCR 1, 1997, Australia
6.62 In the circumstances in issue in Re Parker, an alternative view is that the date for determining the availability of a set-off should remain the date of the liquidation, given that the concept of ‘the relevant date’ has not been specifically incorporated into s. 553C. On the other hand, there still has to be a provable debt, and the determination whether there is a provable debt would take place by reference to ‘the relevant date’, including as modified by s. 553(1B) when the company was under a deed of company arrangement before the liquidation. This alternative view would have the consequence that the company's claim against the creditor and the provable debt owing by the company would be treated differently for the purpose of a set-off, but that may also happen in some circumstances on the Re Parker approach.268 It would also mean that the date for determining set-offs and the date for determining the provable debts would not coincide, which would represent a departure from the approach generally adopted in the past.269 There would still nevertheless be a connection because of the requirement that there be a provable debt, and in any (p. 296) event it has not always been the case in the past that the dates coincided.270 This view would avoid the difficulties that may follow consequent upon the Re Parker approach.