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Longley v ACN 090 609 868 Pty Ltd (in liq) (formerly Solar Systems Pty Ltd) [2010] FCA 1468

by Hilary Kincaid 17. January 2011 09:51


The Defendants were placed into administration and then liquidation. The Applicant liquidators, with court approval, entered into bridging finance agreements to enable the business to continue trading.


Shareholders provided two bridging loans under the security of a fixed and floating charge over two of the Defendants.


The Administrators sold the Defendants’ assets for a deposit of $1 million, cash or Silex shares to the value of $5 million (to be paid in monthly instalments), and Silex shares to the value of $13 million (to be issued on completion of the sale).


The liquidators wished to finalise the liquidation and make a final dividend to the secured creditors consisting of Silex shares in specie and cash. If it were necessary to await the sale of the two parcels of shares before declaring the final dividend, liquidation costs would increase.


The secured creditors consented to the proposed final dividend. The priority creditors’ interests were not adversely affected, nor was the Commonweath’s subrogated claim for payments through GEERS unfavourably impacted. Unsecured creditors interests were not prejudiced as Silex shares would not be worth more than the principal of the secured bridging loans.



The Liquidators’ application was allowed for two reasons:

  • While a creditor in a winding up only has a right to participate in the proceeds of a sale the parties can agree to substitute a different obligation for the obligation to make payment: [16]. Also, there was no reason in principle why the creditors couldn’t unanimously agree to have the companies assets transferred to them provided the contributories’ rights were not prejudiced. There was no prejudice as the market value of the assets to be transferred (less sale costs) was less than what was owed to the creditors: [18]. An in specie distribution is not made invalid or contrary to public policy by the Corporations Act 2001 (Cth).
  • Distribution in specie was to be made to secured creditors who had an equitable interest due to their security interest over the Defendant’s assets. They would be entitled to trace the value of their claims into the substitute assets.

Relevant paragraphs of Ford



Ford's Principles of Corporations Law


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