On August 22, 2019, Justice Gleeson delivered her judgment in Re Halifax.
Halifax Australia (Halifax Aus) owned and operated a number of Halifax investment services companies operating under the Halifax name in various locations around the world.
In late 2018, liquidators were appointed to Halifax Aus. At the time, Halifax owned 70% of Halifax New Zealand (Halifax NZ).
As a part of business operations, funds were transferred between Halifax Aus and Halifax NZ on an “as needs basis”. A majority (95%) of the funds held on trust by the Halifax group were affected by commingling. Halifax Aus, or its clients, were said to have been in a position to make a claim in relation to funds held in the name of Halifax NZ and vice versa. However, accounts held in the name of Halifax Aus and Halifax NZ, on behalf of investor clients, ceased to be feasibly traceable to any entitlement on the part of individual clients.
The liquidators proposed to bring applications in Australia and New Zealand to allow for the “pooling” of the above mentioned commingled funds. This proposed application ended up taking the form of an application for a ‘letter of request’, essentially requesting that the New Zealand court agree to hear the application cooperatively with the Federal Court of Australia (FCA). The letter of request application was made pursuant to section 581 of the Corporations Act 2001 (Cth) (Corporations Act).
The main issue in consideration was as follows:
Where a cross border insolvency matter exists, can the FCA issue a letter of request seeking that the New Zealand High Court (NZHC) act in aid of, and auxiliary to, the FCA to enable an application to be resolved in an effective way.
Decision and reasoning
The Court decided that it could issue the request to the NZHC to jointly hear, alongside the FCA, the applications in respect of pooled funds. The reasons were as follows:
As per New Zealand statute, the NZHC has jurisdiction over external administration matters.
The FCA held that the liquidators’ claim comprised an external administration matter because it followed the making of a winding up order.
The Court said that if the liquidators’ applications were not co-ordinated, a real prospect of inconsistent directions and further litigation existed, which would be to the detriment of creditors of Halifax Aus. Therefore, the Court found that the pooling of the accounts was required.
Finally, the Court held that there was no reason to believe that, upon receipt of the letter of request, the NZHC would not grant the relief. The Court emphasised that it did not see cause for concern considering the individual integrity of Australian courts in New Zealand and vice versa.
Re Halifax demonstrates that where a company has several commingled funds held on trust with its New Zealand counterpart, the courts can request the cooperation of the New Zealand courts to assist in distributing and managing assets and claims in insolvency proceedings.
This is somewhat a testament to the strong ongoing relationship between Australia and New Zealand, and the similarity in insolvency laws and regimes. Critically, the perceived willingness of the other jurisdiction is imperative to the success of these kinds of ‘letter of request’ applications.
The Halifax decision reminds us that section 581 of the Corporations Act is flexible and provides a certain extent of protection in insolvency matters, especially where assets move beyond the strict boundaries of their originating jurisdiction.
Special thanks to Ellen Soust in our Brisbane office for her assistance in preparing this content.