1. Chapter 18 Administration of Companies in Financial Difficulties
Corporate Governance

2. Insolvency
Insolvency is when a company becomes unable to pay its debts as and when they become due. Debts may be paid to secured or unsecured creditors. A secured creditor has protection for his debt. When a company becomes insolvent it will enter administration

3. Insolvency
Corporate Governance

4. Receivership
In a receivership, a receiver is appointed to take control of all the company’s assets. Generally the receiver will have the power to manage the company’s business and is sometimes known as a receiver and manager. Qualifications A registered liquidator may be appointed a receiver.
Corporate Governance

5. Appointment
A receiver may be appointed by: The court. An example of this is when the court considers the assets have been put at risk by oppressive conduct. A secured creditor where the charge instrument gives the creditor the power to appoint a receiver and they wish to enforce this charge.
Corporate Governance

6. Power The receiver’s power is derived from:
The instrument of charge or the court order.
S420 give the receiver wide powers to do all things necessary or convient to achieve the objectives of receivership.
Corporate Governance

7. Duties
General Law
The receiver has duties under contract and tort law and under fiduciary principles.
Statutory Law
The receiver is an officer within the S9 definition and must comply with directors’ duties to:
Act with care and diligence
Act in good faith in the interests of the company
Avoid making improper use of the position
Corporate Governance

8. Voluntary Administration
Voluntary administration is when directors of an insolvent company appoint an external administrator to investigate the company’s affairs, report to creditors and create recommendations as to the future viability of the company.
A company is under administration until one of these three events occurs:
Winding up of the company begins
Control of the company returns to the board of directors
A deed of company arrangement is executed
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9. Appointment
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10. Powers
Under S437B, the administrator is treated as an agent of the company, with wide powers to control business, property and affairs of the company. Outsiders dealing with the administrator enjoy the usual protective assumptions under S128 and S129: S4427.
Administrators cannot sell company property unless:
The asset is sold in ordinary business with a floating charge.
The chargee consents.
Court permission is received.
Corporate Governance

11. Responsibilities to Investigate the Business
As soon as practicable, an administrator should investiagte the business, property, affairs and finances of a company, so as to best decide how to act.
Protection of Property
Winding up can only be upon decision of creditors in the second creditors’ meeting
Secured creditors cannot enforce their security unless permission of the administrator or court is granted
Owners and lessors of property used by the company are restricted from recovering property unless administrator or court permission exists
Initiation and continuation of legal proceedings against the company are restricted unless permission is granted
Initiation and continuation of the enforcement processes are restricted unless permission is granted
Members cannot transfer shares unless permission is granted
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12. Deed of Company Arrangement Phase
If in the second creditors’ meeting a decision is made for a deed of company arrangement, the administrator must prepare an instrument setting out the terms of the deed and execute it within 15 days.
This is binding on:
All creditors
The company
The administrator
Parties bound by the deed cannot
Start legal proceedings against the company
Initiate enforcement processes against the company
Apply for winding up
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13. Deed of Company Arrangement
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14. Winding Up
Also known as liquidation, it involves a liquidator selling off the company’s assets, repaying debts and distributing excess.
Four types:
Members voluntary winding up (solvent)
Creditors voluntary winding up (insolvent)
Compulsory winding up in insolvency
Compulsory winding up on other grounds
Corporate Governance

15. Statutory Demands
A creditor can issue a statutory demand for payment of any debt that is over $2000 and due. A company that cannot comply within 21 days is assumed to be insolvent.
The two main grounds for having a statutory demand set aside are:
That it contains a major defect
That there is a genuine dispute about the existence of debt
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16. Challenging a Statutory Demand
A company must apply to the court to challenge a statutory demand within 21 days.
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17. Just and Equitable Ground for Winding Up
Situations leading to a court order for winding up: Deadlock is causing the company to be unable to operate effectively as members are equally divided. Fraud or misconduct.
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18. Qualifications
A registered liquidator may act in voluntary winding up. An official liquidator may act in a compulsory winding up.
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19. Functions Liquidators functions are to:
Take possession of the company’s assets
Sell or otherwise dispose of the company’s assets either individually or as a business
To calculate debts payable by the company
To distribute proceeds from realised assets
To distribute surplus funds, if any
To deregister the company
Corporate Governance

20. Powers
A liquidator’s powers include: Carrying on the business to the extent that is necessary Bringing or defending legal proceedings Making calls on partly paid shares Obtaining certain information about the company
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21. Order of Priority In general, funds will be distributed as follows:
Secured creditors
Expenses of winding up
Employee entitlement
Unsecured creditors
Members
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22. Duties
A liquidator has a fiduciary relationship to the company similar to an agent or director. The liquidator is an officer under S180-S183.
Corporate Governance