LIQUIDATION
Winding-‐up or Liquidation (Are the same thing)
• Liquidation – Collective one for benefit of all creditors, where there is multiple defaults
1. INSOLVENCY PRACTITIONERS
o Must be ‘registered liquidators’ to take any appointment under Part 5
o ASIC MUST GRANT REGISTRATION OF LIQUIDATORS S1282-‐ Capable of performing the duties and is otherwise ‘Fit and Proper’ person to be registered as liquidator.
o Registered with ASIC
o
Qualifications: Accounting, commercial law experience, practical experience, capable.ASIC CAN DEREGISTER LIQUIDATORS – Court has power of removal of liquidators.
2.
COMMENCEMENT
Insolvent liquidations may be voluntary or compulsory
• Voluntary Liquidation (or ‘Creditors’ voluntary liquidation, CVL)
Directors procure members’ (not creditors) resolution to wind up
Appoint liquidator without court involvement
Creditors’ meeting held within 11 days, at which creditors get chance to replace liquidator.
NOTE: Members Voluntary Liquidation (‘MVL’) are where company is solvent – s491-‐ must have a declaration of solvency by directors – s494
• Compulsory (Court) Liquidation on petition – s459P
Who may apply for a winding up order under s459P -‐ creditors, the company, liquidator or with leave ASIC, the directors, a contributory (Standing).
Court will only wind up ‘in insolvency’ if satisfied is Insolvent.
Insolvency Test: Inability to pay due debts – s95A: ‘A person is solvent if and only if the person is able to pay all the person’s debts as and when they become due and payable.’
• Cash flow test or Balance Sheet test (Assets over Liabilities)
• S459D; Allows court to take into account contingent or prospective liabilities.
3. STATUTORY DEMAND: If Issue proving Insolvent
• S459E: Creditor may fill in the form and serve a statutory demand IF: Debt is over +$2000 (Statutory Minimum); This requires payment within 21 days.
Statutory Demand can be set aside:
o Can be set aside if genuine dispute – s459H
o Comp may apply to set aside demand (substantial injustice or ‘some other reason’) -‐459G
•
Failure to comply with a statutory demand
-‐ The court must presume that the company is insolvent if during or after the 3 months ending on day when the application was made the company failed to comply with a statutory demand. -‐459C
It is then up to the company to prove it was solvent.
EXAMPLE:
Comp is owed $2k; issue statutory demand; arrives; comp who have 21 days to pay; if don’t pay then they are presumed to be insolvent.. you as a creditor could effectively wind them up
EXAMPLE
: Indiv creditor owed 2k; perusing a debt collector process; go to court; company don’t; you get a judgment; then go to comp; they don’t pay; go back to court then they can send a court bailiff to get money.. if don’t get a receiver is appointed.. receiver = presume insolvency.
4. LIQUIDATORS POWERS AND DUTIES
• Liquidator is Agent of Company.
• Duty to collect in and realize its assets – s478 o Those to which it appears to be entitled.
• Duty to investigate company’s affairs and report to creditors
o Report to ASIC if suspect offences or misappropriations, breached or duty, or where unable to pay creditors more than 50c in the Dollar – s533
o Liquidator has power to apply to court for examination of officers and other persons with information, and to call for books and documents – s596A-‐598
• Liquidator also has ‘limited power’ to carry on business in short term (as far as necessary for beneficial disposal or winding up). – s477(1)
5. POWER TO SWELL/PRESERVE ASSETS
Liquidators can challenge voidable or un-‐commercial transactions, unlawful preferences or voidable charges – Part 5.7B -‐ IN 11. Voidable Transactions
Liquidator can ‘Disclaim’ onerous or unprofitable contracts or assets.
i.e. Contaminated land; Petrol station leaks.. don’t remediate back to good state, just walk away.
o Terminates companies’ liability and leaves other party to prove for any loss as claim in liquidation.
NOTE: Disclaimer doesn’t take away from prior claims of creditors; if they claim for loss but Future rent;
must be discounted by chance of re-‐letting plus the fact get rent earlier then normally would.
6. PROCEEDINGS
Liquidator can take or defend proceedings in name of company – s477(2)
Summary power to take proceedings against directors and officers for fraud, negligence, breach of duty or trust – s598
Proceedings for insolvent trading – 588G
Recovery for Voidable Transactions – Part 5.7B
7. EFFECT OF LIQUIDATION
Company still exists when liquidator present (personality not affected)
s471 – Order made in favour of all creditors; so company can’t get rid of assets when liquidator in place (I.e. Director can’t sell their company car without getting liquidators approval).
s468 – Dispositions of property void without court approval (with exceptions)
ss495, 499 – Directors powers suspended, unless liquidator exempts.
Employment contracts terminated. – Re General Rolling Stock (liq can reemploy)
s468A(1) – Transfer of shares Void without court order.
S471B – No proceeding (court case) can be commenced or continued without court leave. (trial wont continue once company in liquidation).
8. DISTRIBUTION OF ASSETS
Liquidator has duty to distribute assets:
In accordance with ‘provable debts’ claimed
– s553o Liquidator has to call for proof of debts from creditors
o Liquidator may accept, reject, or put a value on a claim (either for voting or for distribution purposes or both) – appeal to court if aggrieved.
o Provable debts are those owing at time of commencement -‐ If VA (creditors voluntary) – When creditors decide to wind up;
-‐ If Court Appointed Liquidator – then date court made appointment of liquidator
Priority Payments – s556
-‐ Expense incurred in preserving, realising property – s556(1)(a) (Auctioneer to sell factory) -‐ Applicant’s taxed costs – s556(1)(b) (Creditor has gotten lawyer to argue case)
-‐ Administrator’s debts – s556(1)(c) (Administrator running company prior) -‐ Costs and expenses of RATA – s556(1)(da) (Reports prepared; audit also priority)
-‐ Costs of audit of liquidator’s account – s556(1)(db) (Liq not paid first, but do have a priority) -‐ Other expenses – s556(1)(dd)
-‐ Deferred expenses – s556(1)(de) (the liquidator’s fees / wage)
-‐ Committee of inspection expenses –s556(1)(df) (Creditors who offer advice on how to sell things) -‐ Wages, superannuation contributions and SGC – s556(1)(e) (limit on excluded employee to $2000)
-‐ Compensation-‐ s556(1)(f) (Annual leave; long service leave) -‐ Leave of absence – s556(1)(g) (Cap $1,500)
-‐ Retrenchment and redundancy s556(1)(h) (limit on excluded employee = $1500)
-‐ Section 560 allows subrogation for GEERS/FEG Act payments (Government will pay employees) -‐ NO TAX PRIORITY
Employee entitlements – s561
(Priority to give priority to employees; over floating Charge) Pari Passu Rule –
All other unsecured debts must be paid equally in proportion to the size of the claim‘rateably’ –
ss 501, 555
o Proportionate share (by ‘divdidend’) to unsecured creditors o Only applies to property of the company
9. SUMMARY OF DISTRIBUTION
1. Proprietary and secured claims over property, met out of that property Available pool is then applied
2. To priority Creditors – s556 (In full order of hierarchy) 3. Then Pari Passu amongst other unsecured creditors
-‐ Taking into account any set-‐off 4. Shareholders come last
10. ASSETS AVAILABLE FOR DISTRIBUTION
-‐ Property of the company-‐ Does NOT include Retention of Title (Particular company retains title until paid in full (i.e. Harris Scarf;
retention of title of perfume on bottom floor).
-‐ Does not include property held on trust
