Professional Documents
Culture Documents
Lecture 11 - Chapter 16 Insolvency and Liquidation: ©2018 John Wiley & Sons Australia LTD
Lecture 11 - Chapter 16 Insolvency and Liquidation: ©2018 John Wiley & Sons Australia LTD
Lecture 11 - Chapter 16 Insolvency and Liquidation: ©2018 John Wiley & Sons Australia LTD
3
Introduction
4
Introduction
5
Insolvency and administration
7
Insolvency and administration
8
Insolvency and administration
9
Insolvency and administration
10
Insolvency and administration
13
Insolvency and administration
14
Insolvency and administration
15
Insolvency and administration
17
Winding up in insolvency and by the court
18
1) Winding up in insolvency and by the
court
• A contributory is defined in s. 9 and basically refers to the
holders or immediate past holders of shares in the
company.
• Once an application is made, the court may order the
insolvent company to be wound up (s. 459A).
• The Court may order the winding up of a company if:
i. The company has by special resolution resolved that it
be wound up by the Court
ii. The company does not commence business within
one year from its incorporation or suspends its
business for a whole year
19
1) Winding up in insolvency and by the
court
iii. The company has no members
iv. The Court is of opinion that it is just and equitable
that the company be wound up.
• Once a company commences winding up, be it by a court
order or voluntarily, the company is required in every public
document and in every negotiable instrument of the
company to include the words ‘in liquidation’ after its name
(s. 541).
20
1) Winding up in insolvency and by the
court
• The liquidator’s task is as follows:
̶ Take possession of the company’s assets under s. 474(1)
̶ Realise the assets or carry on business as necessary for
the beneficial disposal of the assets (s. 477(1))
̶ Determine the creditors and order of priority of
payment
̶ Pay the creditors
̶ Bring about the dissolution of the company.
21
1) Winding up in insolvency and by the
court
• The aim of the report as to affairs is to provide information
concerning the company’s estimated realisable values of
assets and any expected surplus or deficiency of assets
after deducting creditors’ claims.
• Once the liquidator has received the report as to affairs, he
or she is required under s. 476 to lodge a preliminary report
with ASIC, normally within 2 months, containing the
following details:
̶ In the case of a company having a share capital — the
amount of capital issued, subscribed and paid up
22
1) Winding up in insolvency and by the
court
̶ The estimated amounts of assets and liabilities of the
company
̶ If the company has failed — the causes of the failure
̶ Whether, in the liquidator’s opinion, further enquiry is
desirable regarding the promotion, formation or
insolvency of the company or the conduct of the
business of the company.
• When the order is made that the company be deregistered
under s. 481(5), ASIC must deregister the company and the
company ceases to exist (ss. 601AC and 601AD).
23
2) Voluntary winding up
24
2) Voluntary winding up
25
2) Voluntary winding up
26
Powers of the liquidator
27
Powers of the liquidator
28
Powers of the liquidator
29
Powers of the liquidator
• The liquidator must then pay the debts of the company and
sort out the rights of the contributories (s. 506(3)).
• The liquidator is required as well to keep proper records in
which entries and details of proceedings of meetings must
be made.
• Creditors and contributories, or their agents, are entitled to
inspect these records, unless the court orders otherwise (s.
531).
30
The liquidator’s accounts
31
The liquidator’s accounts
32
The liquidator’s accounts
33
Proof of debts
1) Secured creditors
• In effect, two types of secured creditor are recognised
under the Act, namely:
̶ A creditor secured by a non-circulating security
interest (formerly known as a specific charge), such as
a mortgage, lien, or bill of sale.
̶ A creditor secured by a circulating security interest
(formerly known as a floating charge), which commonly
occurs with debentures.
36
Priority of payment of debts
1) Secured creditors
̶ Creditors secured by a non-circulating security interest
• The advantage to a secured creditor of choosing the
second option is that the property covered by the non-
circulating security interest does not pass through the
liquidator.
̶ Creditors secured by a circulating security interest
• The security in this case does not relate to a specific
item of property but relates to all assets of the
company; that is, it ‘floats’ over whatever assets the
company has at a particular time.
37
Priority of payment of debts
38
Priority of payment of debts
39
Priority of payment of debts
4) Deferred creditors
• Deferred creditors are, in effect, certain debts payable to
the contributories of the company ahead of repayments of
capital to those contributories.
• Depending on the constitution of the company, arrears of
preference dividends whether declared or otherwise, any
ordinary dividends payable, and any calls paid in advance
by contributories may be paid ahead of any returns of
capital.
40
Priority of payment of debts
41
Rights of contributories
42
Rights of contributories
44
Rights of contributories
46
Rights of contributories
A surplus of funds
• As with the sharing of any deficiency and repayment of
funds to contributories, the rights of contributories to
participate in a surplus of funds should be specified in the
constitution.
• Preference shareholders may or may not be entitled to
share in a surplus with ordinary shareholders, depending
on the constitution.
• Any provision in the constitution that gives preference
shareholders a prior claim as to return of capital does not
automatically give them a right to participate in a surplus.
47
Rights of contributories
48
Rights of contributories
49
Accounting for liquidation
51
Accounting for liquidation
52
Accounting for liquidation
53
Accounting for liquidation
54
Accounting for liquidation
55
Accounting for liquidation
56
Accounting for liquidation
57
Accounting for liquidation
/ FVC by acquirer
59
Receivership
60
Receivership
61
Receivership
62