Longley v ACN 090 609 868 Pty Ltd (in liq) (formerly Solar Systems Pty Ltd)

The Federal Court of Australia was tasked with determining whether the liquidators of Solar Systems Pty Ltd and its associated entities could distribute shares in Silex Systems Ltd in specie to certain creditors. The dispute arose from the liquidation process of the Solar group companies, which were involved in the research, development, and manufacture of solar technology. The liquidators, Stephen Graham Longley and David Laurence McEvoy, sought to distribute shares in Silex Systems Ltd to specific creditors, including shareholder lenders and bridge lenders, instead of selling the shares and distributing the proceeds. The legal issue before the court was whether such an in specie distribution to creditors was permissible under the Corporations Act and in accordance with established legal principles.

Justice Finkelstein, who presided over the case, ruled that in specie distribution to creditors could be permissible under certain conditions. He reasoned that creditors do not have an inherent right to individual shares of a company's assets but rather to the proceeds from the sale of those assets. However, creditors and debtors can mutually agree to substitute a different obligation, such as the transfer of property instead of cash, provided that the rights of the company's contributors are not prejudiced. The court also noted that there was no statutory provision in the Corporations Act that would render such an in specie distribution invalid or against public policy. Furthermore, the court observed that secured creditors, who hold an equitable interest in the assets, could effectively seek foreclosure through this consensual distribution. Justice Finkelstein concluded that the liquidators were justified in distributing the Silex shares in specie to the secured creditors, provided that the distribution did not adversely affect unsecured creditors and other legal requirements were met.

The court's decision allowed the liquidators to proceed with the distribution of the Silex shares in specie to the secured creditors, expediting the liquidation process and reducing ongoing costs. The court ordered that the liquidators' costs of the application be borne by the liquidation of the defendants.