Business and Company Law

Topics: Bankruptcy, Corporation, Debt Pages: 3 (708 words) Published: June 21, 2013
The problem in case 1 is Assume that Mr. Shifty's family company subsequently goes into liquidation. In her report to AS1C, the liquidator states that the secured creditors have been repaid in full, but the unsecured creditors will not receive more than 20 cents in the dollar. The liquidator does not find any evidence of wrongdoing on the part of Mr. Shifty or any of his fellow directors.

What (if any) ramifications does this have for Mr. Shifty, assuming that ASIC's records show that Mr. Shifty has, over the last nine months, had a similar track record with two other small, proprietary companies?

The liquidation is a situation where the company faces financial difficulties or realizes that they are becoming insolvent or is likely to become insolvent i.e. not able to pay the debts. [Ciro T. and Antonio, 2009, 2009][1]. When on finalization of liquidation conducted by the liquidator it was found that the company will not be able to pay the debts of unsecured creditors, the company should be deregistered because liquidation is considered as the orderly winding up of the Company. [ASIC Information Sheet, 2008] [2] The deregistration of the Company also results in the capital loss. Once the company is deregistered it no more remains the member of consolidated group as it ceases to exist. [Consolidated Reference manual, 2011] [3] Although it was find by the creditors liquidation that Mr. shifty and his company is not involved in the insolvency of the company this time but it was also found that they are engaged in similar kind of business from past 9 months. First of all it is a duty of the Director not to trade while insolvent i.e. whenever taking any new debt it is the duty of the director to check that whether his company is in insolvency or having the chance of become insolvent. There are various penalties for the directors who continue to trade while being insolvent, civil penalty or pecuniary penalty of $200,000, in addition to this, compensatory...

References: [1] Ciro T. and Antonio, 2009, ‘Corporation Law: in Principle’, 8th Edition
[2] ASIC Information Sheet, 2008, ‘Insolvency: A guide To Directors http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Insolvency_guide_for_directors
[3] Consolidated Reference manual, 2011, ‘Liquidation and deregistration’
http://www.ato.gov.au/content/downloads/bus34764crmC0701220.pdf
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