Company liquidation

An important task for a liquidator, once appointed, is to see whether there are any transactions of the company that are ‘voidable’, and can be clawed back for the purposes of distribution to creditors.

If a liquidator is appointed to an insolvent company, and believes assets have been depleted due to fraud, what can they do? Even if the crime of fraud can be proven, this does not necessarily aid the liquidator in recovering assets. Here we look at the option for liquidators to use the concepts of ‘knowing receipt’ and ‘knowing assistance’ established in the 19th century English case of Barnes v Addy to recover from third parties in cases of fraud. It is a difficult claim to defend because it is vague and open to broad interpretation when a director fails to keep adequate books and records before winding up.

Many businesses supply goods to other businesses on credit. In many cases, this inventory is covered by a so-called ‘Retention of Title’ clause in favour of the supplier. Here we assess the consequences of liquidation on a Retention of Title claim, the impact of the Personal Properties Securities Act 2009 (Cth) and whether a liquidator might ever be permitted to ignore such a claim (the answer, generally speaking, is no – they cannot ignore it).

Directors often fail to pay themselves a salary before winding up. Instead, many small and medium-sized enterprise (SME) directors pay themselves throughout the lifetime of a company by withdrawing cash that is accounted for in a company loan account. In doing so, directors often seek to delay the payment of the income tax (PAYG) that they would have to pay if they drew a salary.

The dynamics of liquidations can quickly turn toxic. Directors initially see the liquidator as a savior from tax debts and creditor actions and then when the investigations begin the directors see the liquidator as their enemy.

In this article we explain when a transaction might be voidable under that section, how these transactions differ from another type of voidable transaction, uncommercial transactions, and how liquidators pursue claims under this section.

Liquidators have a set of powers under the Corporations Act 2001 (Cth) (the Act) known as ‘voidable transactions’ (sometimes also known as ‘avoidance provisions’), which allow the liquidator to ‘claw back’ certain transactions in the case of an insolvent winding-up.

In insolvency, a liquidator sometimes seeks to recover money from a creditor on the grounds that the creditor has received an ‘unfair preference’ in a payment from the debtor company. Here we explain how the ‘running account’ principle can be used by a creditor to push back against a liquidator’s claim of unfair preference.

In this article, we look at the definition of ‘unfair preference’ claims — a mechanism used by liquidators to claw back some prior payments to creditors. We also look at the available defences for an unfair preference claim, and how the new ‘simplified liquidation’ procedure for small businesses deals with unfair preference claims.

In article: Summary: the ROCAP targets phoenix activity Starting in 2018, there have been new reporting requirements in place for companies that are going through an ‘external administration’ process (i.e. where a receiver or liquidator has been appointed). Directors and…

Pursuant to section 459C(2) of the Act, an application to wind up a company in insolvency must be done within 3 months of the date that a company is presumed to be insolvent.