Insolvency - Week 1 and 2 PDF

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Weekly course notes. These notes capture every important legislation and statute mentioned in the class for the week....

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Week 1 Insolvency definition: S95(1): a person is solvent if they are able to pay all debts when they are due and payable. S95(2): if they are not solvent, they are insolvent

Week 2: Voluntary and compulsory winding up Voluntary winding up  Initiated by members via special resolution: S491-9 – although creditors are involved in the process  Liquidator administers winding up

Restrictions S490(a): if application has already been filed to wind up on the basis of insolvency, the company cannot wind up voluntarily without leave of court S490(b): cannot voluntarily wind up if already ordered by a court to do so S44A(1): Cannot voluntarily wind up if subject to voluntary administration S494(1): Directors can declare solvency to prevent winding up, but if not able to declare solvency, no option but to wind up

Process 1. Resolution for voluntary winding up 2. S500: Stay on proceedings 3. S499(4): Resolution for appointment of registered liquidator (Directors powers cease) 4. Within 7 days, directors must give liquidator statement about company business, property, financial affairs and such 5. Within 11 days of winding up, liquidator must convene a meeting of creditors. 7 days notice. In effect, meeting is held within 7 days.

6. S497(11): At creditors meeting, creditors may remove liquidator and appoint another liquidator 7. Liquidator must then begin administering the company 8. Creditors voluntary winding up terminates with realisation of assets and distribution to claimants

Compulsory winding up: S459A: made by a court S462(1)(b): usually initiated by creditor S462(a): company can initiate, or members per S462(1)(c) or liquidators per S462(1)(d) S459A: insolvency is a ground for compulsory winding up S461(1)(k): ‘just and equitable ground’ – where directors have been highly dishonest. Eg: companies with a poor history of paying tax: DCT v Casualife Furniture International Pty Ltd 2004

Creditor application S459P: creditor must be owed a valid debt capable of enforcement even if time for payment not arisen. Debt must be unpaid – Re Aquaqueen [2014] S459C: presumption of insolvency where company failed to comply with statutory demand

Statutory Demand per S459E S459C(2): Creditor should make application within 3 months of last date for compliance with demand - Only creditor with ‘due and payable’ debt’ can apply - Minimum of $2000 - Can be set aside if creditor taking proceedings against directors for the same debt - Affidavit must be supplied stating creditor believes no genuine dispute (not required if court specifies the debt) S459C: insolvency presumed if no compliance with notice or extension within 21 days of service. If application for winding up filed before 21 day

period through miscalculation, insolvency may be presumed provided demand remains unpaid at trial: DG Haulage 2017

Application to set Demand aside S459H-J: Can apply if a genuine despite, demand is defective, or substantial injustice caused if not set aside.

Genuine dispute Graywinter Properties v Gas 1996 – mere assertion of a dispute insufficient - Court will not examine merits of dispute – merely needs to genuinely exist Postnet Australia 2017 – Former director loaned company money. The money was owed, but a genuine dispute as to when it was due and payable existed. Held: can set aside if satisfied a genuine dispute as to whether the debt is due and payable

Other reasons for setting aside S459H(5): questions regarding genuine counter claim/set off. Date for assessment the amount of claim is the date of hearing to have demand set aside – Pravenkav Group Pty Ltd S459J(1)(a): defect, ie failure to specify the amount required S459(1)(b): where creditor refuses company offer to meet debt

Winding up on grounds of insolvency S459R(1): Application must be determined by court within 6 months S532(9): Liquidator must state not aware of a conflict of interest or duty – See also Re Pinklillies; Northwest v Huxtable 2011 S474: once winding up order made, liquidator gains control of company and acts as agent for company....