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?
Summary
In this eBulletin we discuss a recent Supreme Court of NSW decision: In the matter ofGreat Wall Resources Pty Limited (In Liq) [2013] NSWSC 354. This decision provides useful insight into the scope of unreasonable director-related transactions.
Like the mythical bird that dies and then resurrects, phoenixing is the deliberate liquidation of a company to avoid paying tax, creditors or employees and then the ‘resurrection’ of the business through a different entity.
It is illegal and particularly prevalent in the construction sector. It’s time for the states to take action against phoenixing through better licensing of builders.
BACKGROUND
The company P Hindle & Co Pty Ltd (WA) was placed in liquidation in 2008. Mr Huxtable was appointed as liquidator of the company (Liquidator). The Liquidator acted as chairperson at a meeting of creditors in late 2010 where 4 out of a potential 161 creditors attended.
The recent decision of the Federal Court of Australia in Australian Securities and Investments Commission v Dunner [2013] FCA 872 has resulted in an order that Melbourne insolvency practitioner Andrew Dunner repay over
$600,000.00 in remuneration and be prohibited from practicing as a liquidator for a period of five years.
In the matter of Dalma No 1 Pty Ltd (in liquidation) (ACN 111 772 260)1 (Dalma) acts as a cautionary warning to third party donors of liquidated companies that pay amounts to creditors on behalf of the liquidated company and then seek to be subrogated to a priority position under the Corporations Act 2001 (Cth) (CA
Morgan, in the matter of Brighton Hall Pty Ltd (in liq) [2013] FCA 970 considered whether a liquidator can claim remuneration in preference to third parties who would otherwise be given priority under s 562 of the CorporationsAct 2001 (Cth) (CA).
After nearly 20 years, the long running Bell litigation is almost over, with the Supreme Court of Western Australia having approved the settlement between the liquidators of the Bell group of companies and the syndicate of banks involved in the litigation (Re Bell Group (In Liq); Ex Parte Antony Leslie John Wooding as Liquidator of the Bell Group Ltd (In Liq) [2013] WASC 409).
BACKGROUND
In a decision handed down earlier today, in Willmott Growers Group Inc v Willmott Forests Limited (Receivers and Managers appointed) (in liquidation) [2013] HCA 51, the majority of the High Court upheld the Victorian Court of Appeal’s conclusion that the liquidators of an insolvent landlord can disclaim a lease, thereby extinguishing the tenant’s leasehold interest.
The Full Court of the Federal Court has recently confirmed that the “slip rule” can be used to retrospectively extend the life of a creditor’s petition, but has highlighted that the rule only applies if certain conditions are met.
The law