winding up – ░░░ INSOLVENCY INTERFACE

Creditors’ voluntary winding up – fundamentals – flowchart

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Jun 242015

(24 June 2015: copyright P J Keenan)

OVERVIEW OF Creditors’ Voluntary Winding up IN AUSTRALIA

Resolutions by shareholders to wind up the company and to appoint a liquidator

Liquidator takes control of business, property and affairs

Liquidator prepares report of proposed remuneration

Liquidator makes declarations of indemnities, up-front payments and relevant relationships

Directors’ statement about business, property, affairs and financial circumstances of company (Report as to Affairs)

Meeting of creditors (possible committee of inspection; fix remuneration of liquidator; confirm or change liquidator; etc.)

Investigations, realisations of assets and unpaid share capital, recovery of property and (possibly) recovery of compensation	Liquidator’s statutory reporting, accounts and returns
Examination and determination of creditors claims	Payment of expenses and liquidator’s remuneration
Distribution of residual funds to creditors	Annual meeting of creditors or annual report

Final meeting of creditors and shareholders

Deregistration of the company

LAW: Corporations Act 2001, Chapter 5; Corporations Regulations 2001.
PRACTICE STANDARDS: The Third Edition of the Code of Professional Practice of the Australian Restructuring Insolvency & Turnaround Association

Employees of 19 abandoned companies rescued by ASIC. Companies named.

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May 152014

Since mid-2012, when the Australian Securities and Investments Commission (ASIC) was given the power to wind up companies that met certain criteria, ASIC has ordered the winding up of 19 companies.

In its media releases ASIC has estimated that those 19 companies have over $1.5 million in unpaid employee entitlements (wages, leave, etc.) owing to 100 workers.

As a result of the companies being wound up, those workers will be entitled to claim payment of their entitlements from the Fair Entitlements Guarantee (FEG) scheme administered by the Department of Employment.

The following chart lists the 19 “abandoned companies” wound up by ASIC. They are called “abandoned” because ASIC believes they are no longer carrying on business and that their directors have effectively walked away from them and their debts. abandon-companies

Background:

In July 2012 ASIC was given the power to order the winding up of a company in certain circumstances [Part 5.4C of the Corporations Act 2001] [Section 489EA]. In the lead up to this legislation the phrase “abandoned companies” was coined to describe such companies. Shortly after obtaining these powers ASIC decided that its primary consideration when exercising its discretion would be whether ordering the winding up of a company would facilitate employee access to funds from the government’s General Employee Entitlements Scheme (GEERS), since replaced by the Fair Entitlement Guarantee scheme (FEG). [ASIC Consultation Paper 180]. This objective had been the main reason behind introduction of the new law, which was part of the Gillard Government’s Protecting Workers’ Entitlements package of April 2012. A precondition for an employee of a company receiving a payment from GEERS/FEG is that the company be placed into liquidation.

Links:

ASIC media release 13-233MR “Workers to gain access to entitlements after ASIC employs new powers” 27 August 2013 ASIC media release 14-097MR ” ASIC wind-up actions enable access to employee entitlements” 6 May 2014

ASIC invites comment on use of its new power to wind up companies

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Jul 182012

How should the public interest test be applied?

The Australian Securities and Investments Commission (ASIC) has released a consultation paper outlining how it intends to implement its new power to wind up companies.

Recent amendments to the Corporations Act have given ASIC the power to order the wind up a company in specific circumstances and appoint a liquidator. The Corporations Amendment (Phoenixing and Other Measures) Act 2012 amends the Corporations Act to add a new part to Chapter 5 – External Administrations. The new part (Part 5.4C) – which comprises new sections 489EA, 489EB and 489EC – gives ASIC the power to wind up companies in FOUR scenarios:

SCENARIO 1:

ASIC may order a winding up if:

(a)	the response to a return of particulars given to the company is at least 6 months late; and
(b)	the company has not lodged any other documents under this Act in the last 18 months; and
(c)	ASIC has reason to believe that the company is not carrying on business; and
(d)	ASIC has reason to believe that making the order is in the public interest.

SCENARIO 2:

ASIC may order a winding up if the company’s review fee in respect of a review date has not been paid in full at least 12 months after the due date for payment.

SCENARIO 3:

ASIC may order a winding up if

(a)	ASIC has reinstated the registration of the company under subsection 601AH(1) in the last 6 months; and
(b)	ASIC has reason to believe that making the order is in the public interest.

SCENARIO 4:

ASIC may order a winding up if

(a)	ASIC has reason to believe that the company is not carrying on business; and
(b)	at least 20 business days before making the order, ASIC gives to:
	(i)	the company; and
	(ii)	each director of the company;
	a notice:
	(iii)	stating ASIC’s intention to make the order; and
	(iv)	informing the company or the director, as the case may be, that the company or the director may, within 10 business days after the receipt of the notice, give ASIC a written objection to the making of the order; and
(c)	neither the company, nor any of its directors, has given ASIC such an objection within the time limit specified in the notice.

Comments on Consultation Paper 180 are due by Friday 10 August, 2012.

Click here to download Consultation Paper 180. (PDF format.)

The following is ASIC’s media release of 12 July 2012:

ASIC today released a consultation paper outlining how it intends to implement its new power to wind up abandoned companies under the Corporations Act 2001 (Corporations Act) to facilitate greater access to the General Employee Entitlements Redundancy Scheme (GEERS).

Consultation Paper 180 ASIC’s power to wind up abandoned companies outlines how ASIC intends to exercise this new power, and how it will prioritise matters for winding up

‘When using this power, our first consideration will be if an order to wind up the company would facilitate employee access to GEERS’, Commissioner John Price said.

GEERS is a scheme funded by the Australian Government to assist employees of companies that have gone into liquidation and who are owed certain employee entitlements. However, companies are sometimes abandoned by their directors without being put into liquidation. This has previously resulted in employees of the company who are owed employee entitlements being unable to access GEERS.

Consistent with the new law, ASIC is proposing to apply a public interest test when deciding whether to wind up a company. This public interest test will consider factors like the cost of winding up, the amount of outstanding employee entitlements and how many employees are affected.

‘ASIC needs to consider the broader public interest when deciding which abandoned companies with outstanding employee entitlements will be wound up’, Mr Price said.

ASIC is proposing not to reinstate companies that have already been deregistered in order to wind them up later. Among other reasons, there are already court processes in place to facilitate the reinstatement of a company where that is needed.

ASIC intends to commence using this new power to wind up abandoned companies in the final quarter of 2012.

Comments on Consultation Paper 180 ASIC’s power to wind up abandoned companies are due by Friday 10 August, 2012.

Background

One of the measures of the Australian Government’s Protecting Workers’ Entitlements Package (announced July 2010) is to assist employees of abandoned companies to access the General Employee Entitlements and Redundancy Scheme when they are owed certain employee entitlements.

When the employer is a corporation, it must be in liquidation before GEERS can assist an employee.

Amendments to the Corporations Act have given ASIC the power to wind up an abandoned company in specific circumstances.

ASIC may appoint a registered liquidator over a company when exercising its power to wind up an abandoned company.

Parliament debates the proposed new liquidation and “phoenixing” laws

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Mar 092012

Although it started out with a dream run, the Bill to allow ASIC to order the winding up of companies has been the subject of considerable debate in the House of Representatives.

The government had hoped to get the Corporations Amendment (Phoenixing and Other Measures) Bill 2012 through quickly. It was introduced in the House on 15 February 2012. A day later it was referred to the House Standing Committee on Economics. The Committee met via a telephone conference – which lasted less than a minute – on 21 February 2012 and resolved to discharge the reference. The Committee issued a statement of explanation on 27 February 2012, saying:

“….the committee considers that the Bill comprises uncontroversial measures that will assist in curbing the amoral practice of phoenixing.”

The Committee quoted from a briefing issued by the law firm Minter Ellison, which expressed the view that the Bill “contains some reasonable measures for facilitating the protection of workers’ entitlements. These measures are unlikely to affect the position of the majority of directors.”

But back in the House of Reps heated debate ensued. A total of seventeen speeches for and against the Bill were made by MPs. Naturally MPs took the view of their party, but nevertheless the debate did explore many of the issues involved. Those who spoke were:

Joe Hockey (LP) (Opposition); Julie Owens (ALP) (Government); Scott Buchholz (LP); Bernie Ripoll (ALP); Paul Fletcher (LP); Gai Brodtmann (ALP); Deb O’Neill (ALP); Steven Ciobo (LP); Sharon Grierson (ALP); Steve Irons (LP); Kelvin Thompson (ALP); Bruce Billson (LP); Mike Symon (ALP); Bert Van Manen (LP); Tony Zappia (ALP); Stuart Robert (LP); David Bradbury (ALP).

All the speeches may be seen at the following link:

http://parlinfo.aph.gov.au/parlInfo/search/summary/summary.w3p;query=BillId_Phrase%3A%22r4753%22%20Dataset%3Ahansardr,hansards%20Title%3A%22second%20reading%22;rec=0

The main protagonists were David Bradbury (for) and Joe Hockey (against). The speech on 1 March 2012 by David Bradbury will be found by following this link:

http://parlinfo.aph.gov.au/parlInfo/genpdf/chamber/hansardr/bda27a36-a8b5-4e6a-a64f-6084b2c53511/0059/hansard_frag.pdf;fileType=application%2Fpdf

The speech on 1 March 2012 by Joe Hockey will be found by following this link:

http://parlinfo.aph.gov.au/parlInfo/genpdf/chamber/hansardr/89274c8f-2468-4c73-b7cf-69715d12aa15/0167/hansard_frag.pdf;fileType=application%2Fpdf

_______________________________________________________

None of the debate touches on the technical issues that I pondered in my post entitled Questions concerning new power for winding up by ASIC.

Questions concerning new power for winding up by ASIC

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Feb 272012

New laws have been drafted to give the Australian Securities and Investments Commission (ASIC) power to wind up companies. But what mode of winding up will these liquidations be? Creditors’ voluntary liquidation, or failed members’ voluntary liquidation? And will there be any requirement that directors prepare a statement of assets and liabilities?

The focus in this post is on a proposed new section of the Corporations Act 2001, namely section 489EB — “Deemed resolution that company be wound up voluntarily”.

The section seems, at the beginning, to be proposing that the winding up proceed as a creditors’ voluntary winding up. Subsections 489EB(a) and (b) state:

“(a) the company is taken to have passed a special resolution under section 491 that the company be wound up voluntarily; and

(b) the company is taken to have passed the special resolution:

(i) at the time when ASIC made the order under section 489EA; and

(ii) without a declaration having been made and lodged under section 494; ”

In other words, it is deemed to be a creditors’ voluntary liquidation because the deemed resolution to wind up the company is deemed to have not been accompanied by a declaration of solvency under section 494.

But then in subsection 489EB(c) reference is made to section 496: a section that only applies where a declaration of solvency has been made under section 494.

Section 496 – Duty of liquidator where company turns out to be insolvent – applies in a members’ voluntary liquidation. But how could section 496 have any application?

To me the reference to section 496 seems to be in direct conflict with (proposed) subsections 489EB(a) and (b).

If section 496 does somehow have some application as (proposed) section 489EB(c) seems to suggest, then it would appear that the winding up by the ASIC is to be a members’ voluntary winding up where a company turns out to be insolvent.

If section 496 (for members’ voluntary liquidations) does apply, then section 496(2) – notice to creditors, section 496(4) – liquidator to lay before meeting a statement of assets and liabilities, and section 496(5) – replacement of liquidator, and the other subsections in 496, would be brought into play, wouldn’t they? Is this intentional or are these oversights or unintended consequences?

If section 496 is to have some application in a winding up by the ASIC, does that mean that the liquidator may choose a path other than the winding up of the company? I ask this because section 496(1) gives the liquidator the option to apply under section 459P for the company to be wound up in insolvency, or appoint an administrator of the company under section 436B, or convene a meeting of the company’s creditors? Is this intentional or are these oversights or unintended consequences?

If the winding up is a creditors’ voluntary winding up, then it appears that — unlike in an ordinary creditor’ voluntary winding up — there will be no requirement of directors to submit a Report as to Affairs (RATA). This is so because the section that does require a RATA from the directors — section 497(5) — seems, along with all other parts of section 497, to have been made inapplicable by the following words of (proposed) subsection 489EB(d), “section 497 is taken to have been complied with in relation to the winding up”.

The same would be true of section 497(2)(b)(i), which requires the liquidator to send creditors a summary of affairs (Form 509). It too would be “taken to have been complied with in relation to the winding up”.

Which suggests that when a company is wound up by the ASIC there will be no requirement on the part of directors to prepare and submit a statement about the company’s business, property, affairs and financial circumstances.

This seems strange given that in the other two types of insolvent winding up – court-ordered winding up and creditors’ voluntary winding up– such a statement is required. Is this an oversight or an unintended consequence?

Also, the removal of a duty to do a RATA would be extraordinary when liquidators say – as made clear in my recent IPA sponsored survey of official liquidators – that a RATA from directors is a very valuable tool for the efficient conduct of a winding up.

This is all that the official Explanatory Memorandum says about proposed section 489EB:

“If ASIC exercises its powers to wind up a company under the new law, the company is deemed to have passed a special resolution under existing section 491 of the Corporations Act that the company be wound up voluntarily. The resolution is deemed to have been made on the day that ASIC uses its administrative power to order the winding up and does not require a declaration of solvency to have been made under existing section 494 of the Corporations Act. A meeting of creditors under existing subsection 497(1) of the Corporations Act is not required where the winding up has been ordered by ASIC. “

The peculiar phrase “The resolution … does not require a declaration of solvency to have been made under existing section 494” suggest to me a lack of understanding of the law.

And the reference to subsection 497(1) is odd given that the proposed law refers to section 497 as a whole, not just subsection 497(1). Has there been a mistake in drafting subsection 489EB(d)? Should it refer more narrowly to subsection 497(1) rather than to the whole section?

New Bill proposes changes to liquidation and deregistration of companies

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Feb 202012

A Bill just released by the Australian Government’s Treasury department (17/2) contains amendments to the winding up of companies, a new duty for external administrators of companies that are “paid parental leave employers”, changes to requirements regarding the publication of notices, and changes to laws governing deregistration of companies.

The Bill is titled the Corporations Amendment (Phoenixing and Other Measures) Bill 2012 and is described, officially, as follows:

“The Bill amends the Corporations Act 2001 (Corporations Act) to: introduce an administrative process for compulsory external administration to facilitate payment of employee entitlements and address phoenix company activity; include a regulation making power to prescribe methods of publication of notices relating to events before, during and after the external administration of a company; and to make other miscellaneous, minor and technical amendments.”

There is plenty in the Bill that Australian insolvency practitioners will need to be aware of.

The first part of the Bill is titled “Winding up by the ASIC”. It includes the following new and amended sections:

Section 489EA – ASIC may order the winding up of a company
Section 489EB – Deemed resolution that company be wound up voluntarily
Section 489EC – Appointment of liquidator
Section 601AA (6) & (7)
Section 601AB (6) & (7)
Section 1317C (ca).

Part two is titled “Publication requirements” and has the following new and amended sections:

412(1)(b)
412(4)
436E(3)(b)
439A(3)(b)
446A(5)(b)
449C(5)(b)
450A(1)(b)
465A(c)
491(2)(b)
497(2)(d)
498(3)
509(2)
568A(2)
589(3)(a)
601AA(4)
601AB(1)
601AB(3)
601AB(4)
601AB(5)
1351(4)(a)(i)
1367A

Part 3 is titled “Miscellaneous amendments” and contains the following new and amended sections:

Section 9 – (New) Definition of “paid parental leave employer”;
Section 600AA – (New) Duty of receiver, administrator or liquidator—parental leave pay;
Section 601AH(3)

There are also extensive transitional provisions.

OVERVIEW OF Creditors’ Voluntary Winding up IN AUSTRALIA

Background:

Links:

How should the public interest test be applied?

To see the Bill and the Explanatory Memorandum click this link to the Australian Government Com Law website.