INSOLVENCY Alert: Issues Paper 2 – New Law – Bank can subrogate to recover payments made by receivers to employees

7 July 2014


When a Bank appoints a receiver under a charge, section 433 of the Corporations Act 2001 (Act) requires the proceeds of certain charged assets to be used by the Receiver to satisfy certain employee entitlements in priority to the Bank. Section 561 of the Act has a similar effect where a company is in liquidation, but only if there are insufficient uncharged assets available. In Part 1 of this paper dated 31 March 2014, we observed that even though these sections co-exist, they are not identical in their effect, which leaves open complex questions about what obligations and rights follow in different circumstances. In the Italiano case in 2010, this culminated in a finding that a liquidator had acted in breach of trust and raised uncertainty as to whether there is any general right for a Bank to subrogate in order to recover payments it makes to employees. Last week the Federal Court clarified these issues in a case in which Thomson Geer assisted Adelaide liquidator George Divitkos to obtain directions.

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