Background
Pursuant to Sec. 15 para. 1 of the German Insolvency Code (lnsolvenzordnung, lnsO) the managing directors of a company may individually file a request to open insolvency proceedings on behalf of the company, even if they only have joint power of representation together with other managing directors. This special right to file the request on behalf of the company prevails over the general or agreed provisions regarding the power of representation of the directors.
The Rules
Based on a referral by the German Federal Court of Justice (BGH) the ECJ held that provisions such as § 64 of the German Limited Liability Companies Act (GmbHG) which regulates the personal liability of German GmbH directors in cases of insolvency, can be regarded as an insolvency law rule by virtue of Art. 4 para. 1 European Insolvency Regulation. The provision can therefore be applicable to a UK limited company (having its centre of main interest in Germany) and its director respectively, in accordance with European law: according to Art. 4 para.
Where a court has ordered the winding-up of a company, a shareholder may be able to have the winding up terminated under section 482 of the Corporations Act 2001.
Relevant factors
The power of the court to terminate a winding-up is discretionary. Relevant factors to be considered, which are not exhaustive, include the following:
Minor instalment payments alone – also in the event of late payments – may not be sufficient to trigger knowledge of the debtor’s imminent illiquidity within the meaning of section 133 German Insolvency Act
Overview
If a director can exercise a right of set-off against a company in liquidation for a debt owed to the director or for a liability of the company to the director (which may be unascertained in amount or contingent), it may help to cancel out or significantly reduce the director’s liability to the company for insolvent trading.
In Allco Funds Management Limited v Trust Co (Re Services) Ltd [2014] NSWSC 1251, an inter-company loan transaction was challenged by a receiver appointed by the secured creditor to one of the companies. Common directors were involved in the transaction. The issue was whether the directors breached their fiduciary duties entitling the company via the receiver to have the transaction set aside.
The background to the case
A debtor company can seek to have a statutory demand set aside if there is a genuine dispute as to the existence or amount of the debt, or the company has an offsetting claim.
Because the threshold for contesting a statutory demand is relatively low, a creditor may decide it is better to issue the statutory demand for the undisputed portion of the total debt after making an appropriate allowance for the amount of the total debt in dispute or the amount of the alleged offsetting claim.
When a company is facing short term financial difficulties the directors or shareholders may decide to make a loan to the company to pay wages.
Debts claimed in statutory demands must be due and payable to the creditor named in the statutory demand.
When disputing statutory demands it is common for debtor companies to argue an offsetting claim, so as to reduce or extinguish the amount claimed in the statutory demand.
For there to be a valid offsetting claim there must be ‘mutuality’, meaning that the legal capacities in which both the offsetting claim and the statutory demand debt are each claimed and owed must align.