With the first tranche of changes under the Insolvency Law Reform Act 2016 (Cth) (ILRA) now some 6 months behind us you could forgive the industry for thinking that the entire overhaul of its legal framework was not quite as traumatic as everyone thought it was going to be. And just when the slightly warmer days and smell of spring in the air were starting to make us think that winter was well and truly behind us, the profession has again been forced to brace itself and acclimatise to a whole new raft of changes which took effect on 1 September 2017.
In the words of Jon Snow “winter has come” and with a new set of strict liability offences making their debut, the reception is sure to be a frosty one.
Across both personal and corporate insolvency there are substantial number of new strict liability offences including such matters such as the deriving of profit or advantage (60-20) and failing to keep books of a business previously carried on or failing to make such books available for inspection by creditors (70-10(4)).
But of the new provisions, the ones that are most likely to see insolvency practitioners finding themselves on thin ice (in a practical sense) are the raft of amendments in respect of the handling of funds under Division 65 of the Insolvency Practice Schedules (IPS) for both Corporations and Bankruptcy.
Under the schedule to the Criminal Code Act 1995 (Cth) a strict liability offence is an offence for which intention or fault does not have to be present. The act of committing the offence means that a person is guilty of it whether they intended to do it or not. Given the mostly administrative nature of funds handling and the likely room for error that comes along with such administrative tasks, it is easy to see why the imposition of a strict liability regime for funds handling may make some practitioners feel uneasy.
The changes to both corporate and personal insolvency brought in by the respective new Division 65’s in relation to funds handling are for the most part identical, however this article will mostly focus upon the changes in the context of corporate insolvency appointments.
The new provisions will apply to any funds received by an External Administrator (EA) on or after 1 September 2017 for both new and existing appointments, extending the current law to apply to company’s under administration (including those subject to a DOCA) and not just liquidations as was the law under the old regime. Accordingly an EA of a Company is defined under the IPS as being a person who is:
Under the new regime s 538 of the Corporations Act 2001 (Cth) (Corporations Act) along with Corporations Regulations 5.6.06-5.6.10 will be replaced by Division 65 of the IPS (Corporations) and (Bankruptcy). Section 543 of the Corporations Act in relation to the investment of surplus funds for companies in liquidation remains unchanged and forms part of the new regime. The Transitional requirements are contained in s1586-1590 of the Corporations Act.
In accordance with the simplified outline set out at Division 65-1 EA’s have a duty to:
As a general note section 65-1 sets out that the EA may keep a single account for a group of related companies (called a pooled group).
People with a financial interest in the external administration of a company (such as creditors) may ask the Court to give directions to the EA about the way money and other property of the Company is to be handled.
If the EA of a Company does not comply with the division, the EA may have to pay penalties, be paid less remuneration or may be removed.
Section 65-5 – EA must pay all money into an administration account
Section 65-10 The Administration Account
Section 65-15 EA must not pay other money into the administration account
Section 65-20 Consequences for failure to pay money into an administration account
Section 65-25 Paying Money Out of the Administration Account
Section 65-40 Handling Securities
Section 65-45 Handling of Money and Securities – Court Directions
Section 65-50 – Rules in relation to consequence for failure to company with this division.
It is evident from the above that the application of Division 65 is likely to have far reaching consequences for EA’s and how they manage funds received and paid out on appointments.
The most obvious of which are the imposition of strict liability penalties for:
The imposition of strict liability offences for breaches, whilst clearly intended to act as a deterrent for the improper handling of funds, may also see EA’s incur substantial and serious penalties for purely administrative errors regardless of whether such errors occurred as a result of a failure to properly manage their practice or as a result of pure inadvertence. Whilst the application of strict liability will leave open the defence of honest and reasonable mistake, the onus of proving that defence will ultimately rest with the EA, adding to both the time and expense incurred by the EA in dealing with that particular matter.
Such criticisms were identified by the industry early on as evidenced by the submissions made by ARITA, the Law Council of Australia, along with a number of insolvency and legal firms when the legislators called for submissions on the draft Insolvency Law Reform Bill (Cth) in 2014.
Early criticisms of some of the sections which were subsequently included in the Act include:
In the explanatory memorandum to the ILRA Bill 2015 the legislature indicates that strict liability offences are appropriate in the circumstances given the need to “strongly deter misconduct that can have serious consequences for affected parties”.
It is also noted that the imposition of strict liability tends to reduce non-compliance and would be beneficial to both ASIC and AFSA in their efforts to deal with offences expeditiously and to maintain public confidence in their regulatory regimes.
Limiting insolvency practitioner discretion also appears to have been a further aim with the far reaching consequences of potential abuses of power being sighted as a justification for the imposition of tougher penalties.
A further consideration that specifically references Funds Handling appears to stem from a perceived difficulty and need for additional resourcing and investigation should the regulators be required to establish proof of intention.
Such explanations are likely to be cold comfort for insolvency practitioners who are faced with the task of ensuring that they and their staff are able to comply with the new regime.
As with any new legislation, there is bound to be a period of adjustment, however in light of the serious potential consequences for non-compliance, it is important that EA’s have in place proper systems and processes so that they can be confident that they are properly complying with the new provisions.
Given that EA’s bear the sole responsibility for compliance with the division it is important that staff working on matters are made aware of the new requirements and are given proper training and guidance about what is required.
Whilst the true impact of these provisions won’t be seen until the regulators begin to enforce their terms or matters come before the Court for consideration, it seems clear from the above that further policy and guidance is required in order to assist practitioners to be able to properly comply.
Alternatively, and in the absence of such policy or guidance, one would hope that regulators would see fit, at least initially, to afford practitioners some leniency in the enforcement of the new provisions.
In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph , Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph , Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph : "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.
The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane  NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.
The recent decision in New Aim Pty Ltd v Leung  FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.