On 13 October 2010 ASIC released the National Insolvent Trading Program (NITP) Report, which sets out key messages, promoting greater director responsibility by encouraging directors to remain properly and fully informed about a company’s financial affairs, and to be aware of the implications of insolvent trading; and to seek (timely) professional advice from accountants, lawyers and insolvency practitioners.
After consulting over 1500 companies displaying solvency concerns, ASIC has identified several possible insolvency indicators including:
In State of Victoria v Goulburn Administration Services (In Liquidation) & Ors [2016] VSC 654, the Victoria Supreme Court appointed two partners of Ernst & Young (EY) as special purpose liquidators (SPLs) of two companies, despite EY's involvement in carrying out contractual compliance audits before those companies went into liquidation.
The decision in In the matter of Independent Contractor Services (Aust) could mean more reliance upon fair entitlements guarantee funding provided by the Commonwealth in relation to the liquidation of trading trusts.
When insolvency practitioners consider who may be held accountable for corporate failures, auditors are often near the top of the list. It is easy to see why. From a practical perspective, auditors are relatively likely to be able to meet good claims, and from a legal perspective it is easy to identify the duties that the auditors owed and, in an unfortunate number of cases, breached.
Recent decisions from the courts have raised the legal risk for directors and underlined the exposure to third party liability of auditors, trustees and promoters.
As a result, we can probably expect this year to have more claims made by receivers, liquidators and out-of-pocket investors against those involved in:
Court’s power to summon persons connected with company in liquidation
Under section 285 of the Companies Act of Singapore (Cap 50, 2006 Rev Ed), when a company is in liquidation, the Court may summon before it any person whom the Court considers capable of giving information concerning the promotion, formation, trade dealings, affairs or property of the company. Such person may be examined on oath regarding the above-mentioned matters and the Court may also require him to produce any books or papers in his custody or power relating to the company.
In order to prevent the expense of annual 2018 government registration fees, an appointed liquidator will be required to hold the final general meeting for a company or file the final dissolution notice for an exempted limited partnership on or before 31 January 2018.
The drafting changes just discussed are primarily intended to ensure that funds do not become embroiled in contractual disputes, but in a global recession more and more funds are finding themselves in disputes that threaten to end up, and sometimes do end up, before the courts. In this chapter we analyse the legal issues surrounding key matters in the current litigious environment and cover the following:
Hong Kong's highest court has considered for the second time in recent years the conduct of examinations under section 221 of the Companies Ordinance. That section enables (amongst other things) a court to compel any persons whom it believes may have information concerning the affairs or dealings of a company in liquidation to be examined in private under oath.
Ernst & Young ("E&Y") has settled the Akai Holdings ("Akai") case with Akai’s liquidator, Borrelli Walsh. In this case, E&Y was accused of negligence for failing to avert Akai’s collapse in 2004.
E&Y had been Akai’s auditor prior to the collapse, which remains Hong Kong’s biggest ever insolvency. The terms of the settlement are confidential.
On 24 September 2009, the South China Morning Post reported that new evidence had come to light which suggested that E&Y’s staff had tampered with or faked hundreds of documents relating to its audit of Akai.