They contended that claims under section W of the Act should not be reduced by the repayment of the obligations that arose from acts of insolvent trading. If this argument was correct, then the statutory liability for insolvent trading by a parent company would remain at full value even if the obligations that gave rise to it were discharged in whole or part.
Octaviar's liquidators sought judicial advice and applied for orders under section 1 of Schedule 2 to the Act that they were justified to reject OINL and OIBL's proofs of debt because they were double proofs. The Court considered the steps taken by Octaviar's liquidators in considering the proofs of debt and the relevant circumstances.
The Court was satisfied that the liquidators' process of reviewing and considering the proofs was comprehensive and included a careful consideration of OINL and OIBL's legal arguments, along with seeking specific independent legal advice from counsel with relevant experience. In doing so, the Court addressed the following:.
Decision The Court considered the steps taken by Octaviar's liquidators in considering the proofs of debt and the relevant circumstances. In doing so, the Court addressed the following: The Court held that this was an appropriate case to give judicial advice because it involved a legal question and not a commercial decision. This question involved the application of the complex area of law concerning double proofs and its interaction with section W of the Act.
The Court also noted that the law regarding double proofs had not been considered by an intermediate appellate court or the High Court since the commencement of the insolvent trading provisions relevant to OINL and OIBL's claims. There was a real legal controversy, the Court noted, about the proofs of debt. While the Court's role was not to decide the underlying dispute, Octaviar's liquidators would be assisted by judicial advice.
The Court noted that the existence of such a controversy about the subject matter for judicial advice does not automatically bar the Court from giving advice. Two Key Takeaways Liquidators should be alert to potential double proofs, especially when dealing with large numbers of proofs of debt and when appointed to parent entities in corporate groups.
Liquidators should proceed carefully and seek independent legal advice when considering whether to accept or reject potential double proofs. If in doubt, liquidators can seek judicial advice about their proposed decision. Send Print Report. Jones Day. Roger Dobson. Katie Higgins. The relevant principle in respect of future liabilities may be summarised as follows: a company is solvent only if the circumstances presently existing disclose that it will be, or will be likely to be, able to pay those debts when they fall due in the future, either from cash resources, by selling assets, by raising funds from debt or equity markets, or from any other source that is likely to be available to the company when the obligation to make payment arises.
In making that assessment, again regard is to be had to commercial realities. Director's duty to prevent insolvent trading by a company. The next section I would like to discuss is s. This section is quite impenetrable, so I will endeavor to break it down to some essential elements. These sanctions are in addition to any other liability the director may have for breaches of duty.
It is instructive to look at a recent example where the Court has considered s. He held a Bachelor of Commerce degree and had commenced his professional life as an accountant. He had also been a member of many government and non-government advisory boards, and had been awarded the Australia Medal. Mr Irving was appointed a non-executive director of Wines and Vineyards on 10 September and had held the position of Chairman of the Boards of both companies until the appointment of the administrators on 4 August The claim against Mr Poolman and Mr Irving was for loss and damage suffered by creditors as a result of Wines and Vineyards trading while insolvent.
In the course of his reasons for judgment, Palmer J made a number of observations about the requirement of s. The principal points can be summarized as follows:. In other words, it is sufficient that a reasonable person in a like position in a company in the company's circumstances would suspect. Suspicion is a positive feeling of apprehension, an admittedly tentative belief, without sufficient evidence to form a concluded and supportable opinion. There is a defence to directors provided by s.
They provide:. The defence requires an actual expectation that the company was and would continue to be solvent, and that the grounds for so expecting are reasonable. A director cannot rely on a complete ignorance of or neglect of duty and cannot hide behind ignorance of the company's affairs which is of their own making or, if not entirely of their own making, has been contributed to by their own failure to make further necessary inquiries.
It is a defence under s. It is also a defence under s. In order for the defence to succeed, there must be an expectation, held on reasonable grounds, that recourse to assets will enable debts to be paid, not at some indefinite time in the future, but so as to keep the companies solvent according to the definition in s.
The question is whether the company at the relevant time is able to pay its debts as they become due not whether it might be able to do so in the future if given time to trade profitably The law recognises that there is sometimes no clear dividing line between solvency and insolvency from the perspective of the directors of a trading company which is in difficulties. Where a company has assets which, if realised, will pay outstanding debts and will enable debts incurred during the period of realisation to be paid as they fall due, the critical question for solvency is: how soon will the proceeds of realisation be available.
The position becomes murkier the less certain are the outcomes. The market value of the asset may not be ascertainable until the market is tested, so that it is not certain that the realisation will pay in full both existing debts and those to be accrued during the realisation period. The time at which the proceeds of realisation become available may depend upon the state of the market and the complexity of the transaction. Is that outcome certain, probable, more likely than not, possible, possible with a bit of luck, possible with a lot of luck, remote, or is there is no real way of knowing?
He emphasized that each case depends on its particular facts. In addition to s. The sections confer a very wide discretion. To obtain relief under these sections it is ordinarily necessary for the director to show at least that he or she acted honestly and acted bona fide in the interests of the company, including its unsecured creditors. Previous Issue.
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Decrease text size Increase text size Printer friendly format Email this page. The purpose of the meeting s is to consider: to receive and consider a report from the liquidator s to consider a summary of the receipts and payments of the liquidator s to fix or determine the remuneration of the liquidator s. Members of the committee wishing to attend by telephone are advised they can utilise the following conference facility: Telephone number: Password: Members of the committee wishing to participate in the meeting by telephone must return to the convenor of the meeting not later than the second last working day before the day of the meeting, a written statement setting out the name of the person and of the proxy or attorney, if any , an address to which notices to the person, proxy or attorney may be sent, a telephone number at which the person, proxy or attorney may be contacted and any facsimile number to which notices to the person, proxy or attorney may be sent.
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