Approximately 11 years ago, largely as a result of public resentment of bonuses being paid to directors of insolvent companies, the Corporations Act was amended by the Corporations Amendment (Re-Payment of Director’s Bonuses) Act 2003. The amendment made it possible for liquidators to not only seek to recover director bonuses but to also recover any “unreasonable director-related transactions” pursuant to the newly added section 588FDA of the Corporations Act.
Legislation
When a company is placed into liquidation, the company’s available funds are paid to general unsecured creditors on a pro rata basis by way of a dividend payment. However, certain classes of creditors are given priority in the payment of dividends, including employees who are owed wages and other employment entitlements by the company.
What is the position if a person advances money to a company, after it has been placed into external administration, to allow the company to pay wages or other entitlements to employees?
Upon appointment, a liquidator will generally exercise control of as much of the company’s property as is available, so that it can be realised for the benefit of creditors. However, in some cases, a liquidator may not wish to retain certain property if it is unlikely that such property will provide a return to the liquidation.
On the occurrence of bankruptcy, the trustee must take immediate possession or control of the bankrupt’s property, as that property is now “available” to the trustee for the benefit of creditors generally and vests in the trustee for that purpose. However, a bankrupt may not always co-operate with his or her trustee and will often refuse to deliver up property to the trustee or even allow the trustee on to the premises where the property is held.
A relevant example
On the occurrence of bankruptcy, the trustee must take immediate possession or control of the bankrupt’s property, as that property is now “available” to the trustee for the benefit of creditors generally and vests in the trustee for that purpose. However, a bankrupt may not always co-operate with his or her trustee and will often refuse to deliver up property to the trustee or even allow the trustee on to the premises where the property is held.
A relevant example