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8.2 Liquidation

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Queensland University of Technology

Liquidation  Process whereby— o Affairs are wound up; o property sold & distributed  between creditors  surplus to members o Deregistration of the company  Two types— o Compulsory winding up (by court) due to:  Insolvency (Part 5.4); and  Other grounds (Part 5.4A): see s461K CA o Voluntary winding up by:  Members  Creditors M ETHODS OF W INDING UP Winding up in insolvency: s459A On an application under section 459P, the Court may order that an insolvent company be wound up in insolvency.  May also wind up where no members | oppression | ASIC investigation etc: s459B [→remedies] Application Standing to make Application Only (s459P(5)) the following people apply under s459A— (s459P):  Company: s459P(1)(a)  Creditor—secured, contingent or prospective: s459P(1)(b) o Contingent or prospective → must get leave of court: s459P(2)(a)  Contingent creditor = payment only due on a particular event happening  Prospective creditor = debt due but not immediately payable  Contributory: s459P(1)(c) o Includes— (s9)  current or past member who must contribute funds to the company where it is wound up; or  Shareholder (where fully paid);  Or person alleged to be a member or shareholder. o Require leave of court: s459P(2)(b)  Director: s459P(1)(d) (where worried about liability for insolvent trading) o Require leave of court: s459P(2)(c)  Liquidator or Provisional Liquidator: s459P(1)(e) (where voluntary members winding up in solvency & liquidator becomes aware that is insolvent)  ASIC: s459P(1)(f) o Require leave of court: s459P(2)(d) Leave  May grant leave where prima facie case that the company is insolvent: s459P(3) o Won‘t be granted if just trying to wind up as a threat  May impose conditions: s459P(4)  Failure to get leave → court can be flexible to repair defects—eg leave afterwards: s1322(4) (court may rectify irregularities) Emanuele v ASC (1997) (ASC (modern day ASIC) failed to get Andrew Trotter LWB334 Corporate Law leave  procedural not substantive requirement—validity not affected | ASC could get leave after the fact) Proving insolvency: s95A (1) 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. (2) A person who is not solvent is insolvent. Generally—Insolvent if unable to pay all debts as and when they become payable: s95A(1) Tests  Balance sheet test—where liabilities exceed the assets of the corporations o Equation of assets & liabilities not conclusive either way: Re Tweeds Garage  Cash flow test (preferred)—Q of fact consider as a whole: Sandell v Porter (1966) per Barwick CJ; Lewis v Doran o Temporary lack of liquidity therefore does not exclude the corporation‘s ability to pay its debts: Sandell v Porter (1966) (time allowed to organise finance, realise assets etc) o ―Debts due‖ does not mean legally due—consider if indulgent creditors: Re Newark Pty Ltd (in liq) o Considerations— (Sandell v Porter)  If company can get the money from a third party: Lewis v Doran; Duncan v FCT  Money obtainable by unsecured borrowing: Lewis v Doran  Whether property can be readily realised  Resources other than cash are realisable by borrowing upon security or sale: Standard Chartered Bank of Australia Ltd v Antico & Ors  Ready realisation = selling or mortgaging but not ceasing business: Re Timbatec Pty Ltd  nature of the business and assets: Rees v Bank of NSW per Barwick CJ  Anticipated debts: Duncan v FCT (2006) (Company operating at loss since 1999 | operating revenue not meeting costs | net asset deficiency of >$1M—argued that another company in group would pay debts—cited agreement showing would not assume debts til 2002  insolvent since 1999 → payments to Cmmr Tax after 1999 were unfair preferences)  Contingent & Prospective liabilities: s459D o Generally insolvent if operating funds not sufficient to meet business costs: Duncan v FCT (2006) Statutory Demand May serve when combined debts total to more than statutory minimum ($2000: s9): s459E(1)(a) (single debt) | s459E(1)(b) (two or more debts) Requirements  Specify debt & total amount: s459E(2)(a) (single debt) | s459E(2)(b) (two or more debts) o Including specify amount of interest: Topfelt v State Bank of NSW (failure to specify amount of interest grounds for setting aside—Colin says ‗inclusive of interest‘ etc not sufficient, must specify exact amount)  Require payment or security to their satisfaction within 21 days: s459E(2)(c)  In writing: s459E(2)(d)  in prescribed form (form 509H) : s459E(2)(e)  Signed by, or on behalf of, creditor: s459E(2)(f)  Unless a judgment debt—be accompanied by an affidavit verifying debt & complying w rules: s459E(3) Andrew Trotter LWB334 Corporate Law Service  Methods of service— o Leaving it at, or posting to, company‘s registered office: s109X(1)(a)  Registered office = office stated in ASIC: s142 o Delivering document personally to a director who resides in Australia or an external territory: s109X(1)(b) o Liquidator appointed → leaving it at or posting to address of liquidator‘s office: s109X(1)(c) o Administrator appointed → leaving it at or posting to address of administrator‘s office: s109X(1)(d)  Methods are facultative—may serve by other means— o Original rather than a copy: Emhill v Bonsoc (2007) (original handed to director—s209 states a ‗copy‘ so not technically compliant  good service) o To incorrect office if received notice anyway: Carlino Enterprises Pty Ltd v Donnybrook Holdings Pty Ltd [2000] (served at old office—not a prescribed method of service— forwarded to the company & came to their attention  service sufficient)  Test—whether it has come to the attention of the company: Howship Holdings Pty Ltd v Leslie (1996) o If has come to attention of party = attention of company: Carlino Enterprises Pty Ltd v Donnybrook Holdings Pty Ltd [2000] (served at old office—not a prescribed method of service—forwarded to the company & came to their attention  service sufficient) Setting aside the demand  Company can apply to set aside: s459G(1) o Time—must make application within 21 days of service: s459G(2)  Court has no power to extend under s1322(4) (correcting irregularities): David Grant & Co Pty Ltd (receiver appt) v Westpac Banking Corporation o Must—  File affidavit in support: s459G(3)(a)  Serve application and affidavit: s459G(3)(a)  Grounds for setting aside o Possibly no debt—  Genuine dispute about existence or amount: s459H(1)(a)  Company has offsetting claim: s459H(1)(b)  Debt less offsetting claim less than $2000: s459H(3) & s9 o Defect in demand causing substantial injustice— (s459J(1)(a))  Not just any defect sufficient—must cause substantial injustice: s459J(2)  Not sufficient if so devoid of substance that no further investigation is warranted: Roadships Logistics Ltd v Tree  Must be bona fide: Spencer Constructions Pty Ltd v G &M Aldridge Pty Ltd  Defect—irregularity or misdescription of amount, debt, person or entity: s9  Inclusive definition only: Topfelt Pty Ltd v State Bank of NSW Ltd  Substantial injustice  Not a ‗substantial injustice‘— o Appealing against tax assessment: DCT v Broadbeach Properties Pty Ltd (2008) o Misdescription of registered office: Spencer Constructions Pty Ltd v G &M Aldridge Pty Ltd (1997) o Wrong name but correct ACN: B&M Quality Constructions v WG Brady Andrew Trotter LWB334 Corporate Law o Name but no ACN: Scandon Pty Ltd v Power Mate Pty Ltd  includes— o Company doesn‘t know who to pay (name & ACN wrong): Cf. B & M Quality Constructions Pty Ltd v W G Brady Pty Ltd (WNJ Brady not WG Brady—WNJ Brady didn‘t exist  can‘t set aside || may have been different if ACN & name wrong & didn‘t know who to pay) o failure to specify why interest claimed & explain rate set: Topfelt Pty Ltd v State Bank of New South Wales o Some other reason— (s459J(1)(b))  ← Reason other than defect in demand: Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd  Abuse of process  Service deficiencies  Ulterior motive: Gribbles Pathology  Court can— o Grant application & set aside: s459H&J  May have costs implications: s459N o Grant application subject to conditions: s459M o Reject application: s459L  Effect— o Application rejected—time to pay postponed  Court may extend: s459F(2)(a)(i)  Otherwise—to 7 days from day application rejected: s459F(2)(a)(ii)  Creates presumption of insolvency—but rebuttable o Granted & statutory demand set aside—statutory demand has no effect: s459K Failure to comply w demand  Failure to comply = failure to pay within time-limit: s459F(1) o Generally → 21 days after service: s459F(2)(b) o Extension granted by court → that period: s459F(2)(a)(i) o Application to set demand aside rejected → 7 days after application rejected: s459F(2)(a)(ii) o Cannot be rectified by the court: Aussie Vic Plant Hire Pty Ltd v Esanda Finance Ltd [2008]  Effect—Company presumed insolvent if fails to comply with a statutory demand within 3 months after application: s459C(2)(a) → can be wound up o ← Rebuttable presumption: s459C(3) (presumptions apply except so far as the contrary is proved) Other Presumptions Company presumed insolvent if within 3 months of order being made—  Execution on a judgment in favour of a creditor, returned wholly or partly unsatisfied: s459C(2)(b)  Receiver/manager appointed relating to a floating charge on property: s459C(2)(c)  Order for enforcing a floating charge: s459C(2)(d)  Possessing, or assuming control over charged property to enforce the charge (―for such a purpose‖) : s459C(2)(e)  Appointed to possess or control charged property (whether as chargee‘s agent or not): s459C(2)(f) Andrew Trotter LWB334 Corporate Law Discretion  Court may order a winding up of an insolvent company: s459A  Winding up based on statutory demand → Company can‘t argue except by leave of court, same ground it— o Actually relied on in application to set aside demand: s459S(1)(a) o Could have relied on to set aside demand (whether it made one or not): s459S(1)(b) o ← can only dispute winding up on basis that they are solvent Effect  Commences o When winding up order made: s513A o Where voluntary administration had already occurred—on the day set out in s513C— (s513A(b))  either when the administration began: s513C(b); or  when a winding up of company in progress, when taken in division to have begun: s513C(a)  Company loses beneficial ownership of property: s474(1)  Directors—persons must stop performing functions of officers: s471A(1) (Person cannot perform or exercise and must not purport to perform or exercise, a function or power as an officer of the company)  Employees—all dismissed by notification of winding up order  Members— o Disposition of property prohibited: s468(1) o transfer of shares to another is void: s468A  Cannot commence proceedings— o in relation to property of the company: s471B(1)(a); or o to enforce process in relation to property: s471B(1)(b) Voluntary winding up Two Types Members’ voluntary winding up (company solvent)  By special resolution: s491(1) o = at least 75% of all votes cast by members entitled to vote on the resolution: s9 o Lodge within 7 days: s491(2)(a) o Publish in gazette within 21 days: s491(2)(b)  Majority of directors may write up declaration of solvency—stating will be able to pay debts within 12mths of winding up: s494(1) o Must appoint a liquidator: s495(1) o May commence voluntary creditors‘ winding up if cannot make declaration of solvency: s497 o Where liquidator thinks the company is insolvent, must do one of— (s496(1))  Apply for the company to be wound up in insolvency  having standing under s459P(1)(e)  Appoint an administrator under s436B  Convene a meeting of creditors under s496 – to make it a creditors‘ voluntary winding up Andrew Trotter LWB334 Corporate Law Creditors’ voluntary winding up (company insolvent) Can come about by—  Failed voluntary administration where one of the following happens— o Creditors resolve to wind up company as allowed in s439C(c), under meeting called in s439A of company‘s creditors: s446A(1)(a) o Company under administration does not execute a deed of company arrangement in contravention of s444B(2): s446A(1)(b) (ie directors of coy fail to execute deed that was approved by creditors) o Company‘s creditors pass a resolution terminating a deed of company arrangement in a s445F meeting (convened b administrator under deed of company arrangement), and stating that they want the company to be wound up: s446A(1)(c)  Failed member‘s voluntary winding up—where liquidator thinks company is actually insolvent & a meeting of creditors is convened: s496(1)(c) o Liquidator must convene meeting of creditors within 11 days: s497(1) Effect  Winding up commences when o special resolution passed: s513B o voluntary administration commenced—date the administration commenced: s513C  Company—must cease business, except that needed to wind up the company: s493  Directors—power cease unless— o Members‘ winding up— (s495(2))  the liquidator agrees, or  the company in general meeting and with consent of liquidator approves continuing powers: o Creditors‘ winding up—where continued by either a committee of inspection, or by the creditors: s499(4)  Employees—Unclear  Members—transfers of shares void unless sanctioned by liquidator: s493A  Proceedings: o Any attachment, sequestration, distress or execution in force against the property is void after passing of resolution of voluntary winding up: s500(1) o No action or civil proceeding is to commence except by leave of court, with conditions the court imposes: s500(2) Andrew Trotter LWB334 Corporate Law T HE LIQUIDATOR Appointment Appointment by—  Compulsory winding up → official liquidator appointed by court: s472(1)  Member‘s voluntary winding up → company in general meeting: s495(1)  Creditors voluntary winding up → creditors can appoint → o From failed members‘ voluntary winding up (under s496(1)(c)) →  a different liquidator to that appointed by the members—in meeting convened by liquidator: s496(5)  Otherwise—same liq remains: s496(8) o From failed voluntary administration (under s446A(1)) →  Administrator taken to be liquidator unless creditors appoint someone else: s499(2A) Eligibility  Voluntary winding up → must be a registered liquidator, and registered as a liquidator under s1282(3): s532(1)  Registered liquidator = someone registered under s1282(2): s9  Requirements— (s1282(2)) o Educated  member of the Institute of Chartered Accountants in Australia or the Australian Society of CPAs (or equivalent to satisfy ASIC): s1282(2)(a)(i);  university qualifications (or equivalent to satisfy ASIC): s1282(2)(a)(ii);  eq
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