High Court Rules on Fall-Out From Wine Company Insolvency

Insolvency proceedings that arise in the midst of an ongoing trading relationship can sometimes result in large sums of money remaining in limbo for a significant period. In one such case, the High Court ruled on the correct destination of more than 870,000 Australian dollars (A$) that had been held in escrow following the collapse of a UK wine company.

The company had for many years acted as UK agent and distributor for an Australian wine producer. The producer terminated its agreement with the company after it fell into administration. The distributor subsequently entered voluntary liquidation. Following the termination of the contract, it had received A$874,928 from clients to whom it had sold the producer's wines.

That sum was held in escrow by agreement pending the Court's determination. The liquidators argued that the relationship between the producer and the company had been that of seller and buyer, not principal and agent, and that the former was thus in the same position as any other unsecured creditor.

However, in ruling that the producer was entitled to the entirety of the fund, the Court noted that the money had been received by the company after the termination of its authority to do so. It represented sums due to the producer for wine sold to the producer's clients in transactions where the company's role was that of an agent. The money was thus not available to the company's creditors.