Stop Press - In an important judgment the Court rejects liquidators' attempts to claw back bank guarantees

The liquidators of the Hasties Group of companies, a liquidation going back to 2012, supported by our Commonwealth funder, commenced proceedings against over 20 of Australia's largest construction clients in 2017.

This was not just a simple building and construction case. It was an action brought by the liquidators who broadly attempted to argue that contractual rights of set-off should be narrowly construed and it should be the liquidator's role to adjudicate on that right of set-off and, in an attempt to make new law, that bank guarantees could not be drawn on the normal manner, upon the insolvency of Hasties but rather each of the Respondents should first:

1. Submit a proof of debt in the administration of Hasties;
2. Allow the liquidator to take into his custody or control the funds drawn down by each of the Respondents;
3. Place upon the Respondents the constraints of the Corporations Act in a winding up, namely that they only get to participate in the bank guarantees on a pari passu basis but only after the employee's entitlements and the liquidators' costs had been dealt with in full.

In yesterday's judgment, Justice Middleton of the Federal Court rejected all of the liquidator's claims in a carefully worded 197 page judgment and in respect of the bank guarantee claim, in particular, noted that the longstanding authority, or case law, indicated that the terms of such bank guarantees entered into between Hasties and the Respondents have the result that the provision in the bank guarantees to each of the Respondents was as good as cash and that the bank guarantees were able to be called upon by each Respondent notwithstanding a dispute may exist as between the parties regarding the Respondents' underlying entitlement to those monies.

Had the Judge ruled otherwise there is every chance that bank guarantees would have disappeared from trade and commerce because effectively, any party in breach of a contract giving rise to the right to call on the bank guarantee who had entered into insolvency would, through its liquidator, be entitled to claw back money received from that bank guarantee.

The win represents, in our view, a great outcome for business generally.

The time to appeal the decision is well and truly open but the outcome is so comprehensive we are hopeful this long, protracted litigation is coming to an end.

We would particularly like to acknowledge the hard work of Stuart McKenzie and Lois Bullen in defending this action along with our highly competent Counsel, they did a superb job. 

For more information please contact Linda Branton on 0418 272 111 or linda.branton@cbp.com.au.