Deck 7: Liquidation , Members Remedies, Receivership and Administration

Question 1

Buzz and Neil are the directors of Moon Pty Ltd. Moon Pty Ltd has been experiencing financial difficulty for some time. Indeed, the company received a report from its accountant stating that it was insolvent. Buzz and Neil decide to place the company into voluntary administration. Immediately prior to appointing the voluntary administrator, Buzz transferred a motor vehicle owned by the company into his own name. The company was subsequently place into liquidation. The liquidator is desirous of recovering the car or its value from Buzz. Which of the following is most accurate?

A) It is unlikely the liquidator would be able to recover the motor vehicle because directors have broad powers under section 198A of the Corporation Act and this would certainly include the power to transfer property owned by the company;
B) The liquidator may be able to recover the motor vehicle on the basis that the transfer constituted an avoidable unfair preference;
C) The liquidator may be able to recover the motor vehicle on the basis that the transfer constituted an avoidable uncommercial transaction;
D) The liquidator may be able to recover the motor vehicle on the basis that the transfer constituted an avoidable unreasonable director-related transaction;
E) All of the above;
F) (c) and (d) could both be correct.

Answer 1

(c) and (d) could both be correct.

Question 2

Insolvency is defined in section 95A to mean a company is not able to pay its debts as and when that become due and payable.

Answer 2

True

Question 3

Mega Bank Ltd is a secured creditor of Wasted Ltd. Wasted Ltd recently appointed a voluntary administrator. Mega Bank Ltd wants to enforce its security interest. Which of the following is the best answer?

A) Mega Bank Ltd cannot enforce its security interest because when a voluntary administrator is appointed proceedings against the company are frozen and there is a moratorium on civil proceedings against the company;
B) Mega Bank Ltd cannot enforce its security interest because secured creditors cannot do anything to enforce such interests until the company is out of administration unless its applies to the court for consent;
C) If Mega Bank Ltd perfected its security interest, it can enforce that interest at any time;
D) If Mega Bank Ltd had a security interest over all or substantially all of the assets of Wasted Ltd, it could enforce its security interest within 13 days after notice is given of the voluntary administrator's appointment;
E) In order to enforce the security ineptest, Mega Bank Ltd would need to get ASIC's consent to do so.

Answer 3

If Mega Bank Ltd had a security interest over all or substantially all of the assets of Wasted Ltd, it could enforce its security interest within 13 days after notice is given of the voluntary administrator's appointment;

Question 4

Lulu, Bucky and Mookie are directors of Baseball Pty Ltd. Mookie also holds 1% of the shares issued by Baseball Pty Ltd with Lulu and Bucky holding the balance of the shares. Lulu and Bucky vote Mookie off the board, increase their directors' fees, cease all dividend payments and take certain corporate opportunities belonging to Baseball Pty Ltd for their own benefit. Which of the following is correct:

A) Mookie could not commence an oppression action under section 232 because she is a director;
B) If Mookie was successful in perusing a derivative claims against Lulu and Bucky for breaches of their fiduciary duties, she would get to keep 100% of the proceeds from the lawsuit;
C) Lulu and Bucky's conduct would never be a breach of section 232 as they were acting within the scope of their power under section 198A of the Corporations Act (Cth) 2001;
D) If a court found that Lulu and Bucky breached section 232 Corporations Act (Cth) 2001, Mookie could seek to have the other directors buy out her shares in the company;
E) If a court found that Lulu and Bucky breached section 232 Corporations Act (Cth) 2001, they both could potentially go to jail.

Question 5

Roch, Paco and Talbot are the directors of Mountain Breeze Pty Ltd ("Mountain Breeze"). Roch and Paco hold all the shares issued by Mountain Breeze between them. Mountain Breeze has a significant amount of debt. Roch and Paco pass a directors' resolution approving the sale of certain assets held by Mountain Breeze to another company they control at below market prices. This is clearly a breach of Roch and Paco's duty to avoid a conflict of interest and also a breach of sections 182 and 183 of the Corporations Act 2001 (Cth). Which of the following is correct:

A) Talbot could not seek to bring a derivative action for the breaches because he is not a member of Mountain Breeze;
B) The creditors could sue the directors for breaching their fiduciary and statutory duties;
C) The creditors could seek an injunction under section 1324 preventing the company from transferring the assets on the basis that the creditors' interests would be affected Roch and Paco's breaches of the Corporations Act (Cth) 2001;
D) Talbot could bring an oppression action under section 232 of the Corporations Act (Cth) 2001 for the acts done by Roch and Paco;
E) Talbot could sue Roch and Paco for breaches of their statutory and fiduciary duties.