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Corporations Bill 2001

Part 5.7B Recovering property or compensation for the benefit of creditors of insolvent company

Division 1 Preliminary

588D   Secured debt may become unsecured

                   For the purposes of this Part, a secured debt becomes an unsecured debt to the extent that the creditor proves for the debt as an unsecured creditor.

588E   Presumptions to be made in recovery proceedings

             (1)  In this section:

recovery proceeding , in relation to a company, means:

                     (a)  an application under section 588FF by the company’s liquidator; or

                     (b)  proceedings begun under subsection 588FH(2) by the company’s liquidator; or

                     (c)  proceedings, in so far as they relate to the question whether a charge created by the company is void to any extent, as against the company’s liquidator, because of subsection 588FJ(2); or

                     (d)  proceedings begun under subsection 588FJ(6) by the company’s liquidator; or

                     (e)  proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt by the company (including proceedings under section 588M in relation to the incurring of the debt but not including proceedings for an offence); or

                      (f)  proceedings under section 588W in relation to the incurring of a debt by the company.

             (2)  Subsections (3) to (9), inclusive, have effect for the purposes of a recovery proceeding in relation to a company.

             (3)  If:

                     (a)  the company is being wound up; and

                     (b)  it is proved, or because of subsection (4) or (8) it must be presumed, that the company was insolvent at a particular time during the 12 months ending on the relation-back day;

it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.

             (4)  Subject to subsections (5) to (7), if it is proved that the company:

                     (a)  has failed to keep financial records in relation to a period as required by subsection 286(1); or

                     (b)  has failed to retain financial records in relation to a period for the 7 years required by subsection 286(2);

the company is to be presumed to have been insolvent throughout the period.

             (5)  Paragraph (4)(a) does not apply in relation to a contravention of subsection 286(1) that is only minor or technical.

             (6)  Subsection (4) does not have effect, in so far as it would prejudice a right or interest of a person for the company to be presumed insolvent because of a contravention of subsection 286(2), if it is proved that:

                     (a)  the contravention was due solely to someone destroying, concealing or removing financial records of the company; and

                     (b)  none of those financial records was destroyed, concealed or removed by the first-mentioned person; and

                     (c)  the person was not in any way, by act or omission, directly or indirectly, knowingly or recklessly, concerned in, or party to, destroying, concealing or removing any of those financial records.

             (7)  If the recovery proceeding is an application under section 588FF, subsection (4) of this section does not have effect for the purposes of proving, for the purposes of the application, that an unfair preference given by the company to a creditor of the company is an insolvent transaction, unless it is proved, for the purposes of the application, that a related entity of the company was a party to the unfair preference.

             (8)  If, for the purposes of another recovery proceeding in relation to the company, there has been proved:

                     (a)  if the other proceeding is of the kind referred to in paragraph (1)(a) of this section—a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2); or

                     (b)  if the other proceeding is of the kind referred to in paragraph (1)(b) of this section—a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2) or 588FH(1), or a defence under subsection 588FH(3); or

                     (c)  if the other proceeding is of the kind referred to in paragraph (1)(c) or (d) of this section—a matter of the kind referred to in subsection 588FJ(3); or

                     (d)  if the other proceeding is of the kind referred to in paragraph (1)(e) of this section—a matter of the kind referred to in a paragraph of section 588G, or a defence under section 588H; or

                     (e)  if the other proceeding is of the kind referred to in paragraph (1)(f) of this section—a matter of the kind referred to in a paragraph of subsection 588V(1), or a defence under section 588X;

it must be presumed that that matter was the case, or that the matters constituting that defence were the case.

             (9)  A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the proceeding concerned.

588F   Certain taxation liabilities taken to be debts

             (1)  For the purposes of this Part, a company’s liability under a remittance provision to pay to the Commissioner of Taxation an amount equal to a deduction made by the company, after 1 July 1993, from a payment:

                     (a)  is taken to be a debt; and

                     (b)  is taken to have been incurred when the deduction was made.

             (2)  In this section:

remittance provision means any of the following provisions of the Income Tax Assessment Act 1936 :

                     (a)  section 221F (except subsection 221F(12)) or section 221G (except subsection 221G(4A));

                     (b)  subsection 221YHDC(2);

                     (c)  subsection 221YHZD(1) or (1A);

                     (d)  subsection 221YN(1);

or any of the provisions of Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 .

             (3)  This section is not intended to limit the generality of a reference in this Act to a debt or to incurring a debt.



 

Division 2 Voidable transactions

588FA   Unfair preferences

             (1)  A transaction is an unfair preference given by a company to a creditor of the company if, and only if:

                     (a)  the company and the creditor are parties to the transaction (even if someone else is also a party); and

                     (b)  the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;

even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

             (2)  For the purposes of subsection (1), a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security.

             (3)  Where:

                     (a)  a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and

                     (b)  in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

then:

                     (c)  subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and

                     (d)  the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference.

588FB   Uncommercial transactions

             (1)  A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:

                     (a)  the benefits (if any) to the company of entering into the transaction; and

                     (b)  the detriment to the company of entering into the transaction; and

                     (c)  the respective benefits to other parties to the transaction of entering into it; and

                     (d)  any other relevant matter.

             (2)  A transaction may be an uncommercial transaction of a company because of subsection (1):

                     (a)  whether or not a creditor of the company is a party to the transaction; and

                     (b)  even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

588FC   Insolvent transactions

                   A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:

                     (a)  any of the following happens at a time when the company is insolvent:

                              (i)  the transaction is entered into; or

                             (ii)  an act is done, or an omission is made, for the purpose of giving effect to the transaction; or

                     (b)  the company becomes insolvent because of, or because of matters including:

                              (i)  entering into the transaction; or

                             (ii)  a person doing an act, or making an omission, for the purpose of giving effect to the transaction.

588FD   Unfair loans to a company

             (1)  A loan to a company is unfair if, and only if:

                     (a)  the interest on the loan was extortionate when the loan was made, or has since become extortionate because of a variation; or

                     (b)  the charges in relation to the loan were extortionate when the loan was made, or have since become extortionate because of a variation;

even if the interest is, or the charges are, no longer extortionate.

             (2)  In determining:

                     (a)  whether interest on a loan was or became extortionate at a particular time as mentioned in paragraph (1)(a); or

                     (b)  whether charges in relation to a loan were or became extortionate at a particular time as mentioned in paragraph (1)(b);

regard is to be had to the following matters as at that time:

                     (c)  the risk to which the lender was exposed; and

                     (d)  the value of any security in respect of the loan; and

                     (e)  the term of the loan; and

                      (f)  the schedule for payments of interest and charges and for repayments of principal; and

                     (g)  the amount of the loan; and

                     (h)  any other relevant matter.

588FE   Voidable transactions

             (1)  Where a company is being wound up, a transaction of the company that was entered into on or after 23 June 1993 may be voidable because of any one or more of the following subsections.

             (2)  The transaction is voidable if:

                     (a)  it is an insolvent transaction of the company; and

                     (b)  it was entered into, or an act was done for the purpose of giving effect to it:

                              (i)  during the 6 months ending on the relation-back day; or

                             (ii)  after that day but on or before the day when the winding up began.

             (3)  The transaction is voidable if:

                     (a)  it is an insolvent transaction, and also an uncommercial transaction, of the company; and

                     (b)  it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day.

             (4)  The transaction is voidable if:

                     (a)  it is an insolvent transaction of the company; and

                     (b)  a related entity of the company is a party to it; and

                     (c)  it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day.

             (5)  The transaction is voidable if:

                     (a)  it is an insolvent transaction of the company; and

                     (b)  the company became a party to the transaction for the purpose, or for purposes including the purpose, of defeating, delaying, or interfering with, the rights of any or all of its creditors on a winding up of the company; and

                     (c)  the transaction was entered into, or an act done was for the purpose of giving effect to the transaction, during the 10 years ending on the relation-back day.

             (6)  The transaction is voidable if it is an unfair loan to the company made at any time on or before the day when the winding up began.

             (7)  A reference in this section to doing an act includes a reference to making an omission.

588FF   Courts may make orders about voidable transactions

             (1)  Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:

                     (a)  an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;

                     (b)  an order directing a person to transfer to the company property that the company has transferred under the transaction;

                     (c)  an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;

                     (d)  an order requiring a person to transfer to the company property that, in the court’s opinion, fairly represents the application of either or both of the following:

                              (i)  money that the company has paid under the transaction;

                             (ii)  proceeds of property that the company has transferred under the transaction;

                     (e)  an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction;

                      (f)  if the transaction is an unfair loan and such a debt, security or guarantee has been assigned—an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;

                     (g)  an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;

                     (h)  an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;

                      (i)  an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time;

                      (j)  an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.

             (2)  Nothing in subsection (1) limits the generality of anything else in it.

             (3)  An application under subsection (1) may only be made:

                     (a)  within 3 years after the relation-back day; or

                     (b)  within such longer period as the Court orders on an application under this paragraph made by the liquidator within those 3 years.

588FG   Transaction not voidable as against certain persons

             (1)  A court is not to make under section 588FF an order materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that:

                     (a)  the person received no benefit because of the transaction; or

                     (b)  in relation to each benefit that the person received because of the transaction:

                              (i)  the person received the benefit in good faith; and

                             (ii)  at the time when the person received the benefit:

                                        (A)  the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

                                        (B)  a reasonable person in the person’s circumstances would have had no such grounds for so suspecting.

             (2)  A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company and it is proved that:

                     (a)  the person became a party to the transaction in good faith; and

                     (b)  at the time when the person became such a party:

                              (i)  the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

                             (ii)  a reasonable person in the person’s circumstances would have had no such grounds for so suspecting; and

                     (c)  the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.

             (3)  For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to pay tax, the discharge is valuable consideration provided:

                     (a)  by the person to whom the tax is payable; and

                     (b)  under any transaction that consists of, or involves, the payment or application.

             (4)  In subsection (3):

tax means tax (however described) payable under a law of the Commonwealth or of a State or Territory, and includes, for example, a levy, a charge, and municipal or other rates.

             (5)  For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to the Commonwealth, or to the Commissioner of Taxation, that arose under or because of an Act of which the Commissioner has the general administration, the discharge is valuable consideration provided by the Commonwealth, or by the Commissioner, as the case requires, under any transaction that consists of, or involves, the payment or application.

             (6)  Subsections (3) and (5):

                     (a)  are to avoid doubt and are not intended to limit the cases where a person may be taken to have provided valuable consideration under a transaction; and

                     (b)  apply to an amount even if it was paid or applied before the commencement of this Act.

588FGA   Directors to indemnify Commissioner of Taxation if certain payments set aside

             (1)  This section applies if the Court makes an order under section 588FF against the Commissioner of Taxation because of the payment of an amount in respect of a liability under any of the following provisions of the Income Tax Assessment Act 1936 :

                     (a)  section 221F (except subsection 221F(12)), section 221G (except subsection 221G(4A)) or section 221P;

                     (b)  subsection 221YHDC(2);

                     (c)  subsection 221YHZD(1) or (1A);

                     (d)  subsection 221YN(1);

                     (e)  section 222AHA;

or under a provision of Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 .

             (2)  Each person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order.

             (3)  An amount payable to the Commissioner under subsection (2):

                     (a)  is a debt due to the Commonwealth and payable to the Commissioner; and

                     (b)  may be recovered in a court of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.

             (4)  The Court may, in the proceedings in which it made the order against the Commissioner, order a person to pay to the Commissioner an amount payable by the person under subsection (2).

             (5)  A person who pays an amount under subsection (2) has the same rights:

                     (a)  whether by way of indemnity, subrogation, contribution or otherwise; and

                     (b)  against the company or anyone else;

as if the payment had been made under a guarantee:

                     (c)  of the liability referred to in subsection (1); and

                     (d)  under which the person and every other person who was a director of the company as mentioned in subsection (2) were jointly and severally liable as guarantors.

588FGB   Defences in proceedings under section 588FGA

             (1)  This section has effect for the purposes of:

                     (a)  proceedings to recover from a person an amount payable under subsection 588FGA(2); and

                     (b)  proceedings under subsection 588FGA(5) against a person of the kind referred to in paragraph 588FGA(5)(d).

             (2)  The time when the payment referred to in subsection 588FGA(1) was made is called the payment time .

             (3)  It is a defence if it is proved that, at the payment time, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it made the payment.

             (4)  Without limiting the generality of subsection (3), it is a defence if it is proved that, at the payment time, the person:

                     (a)  had reasonable grounds to believe, and did believe:

                              (i)  that a competent and reliable person ( the other person ) was responsible for providing to the first-mentioned person adequate information about whether the company was solvent; and

                             (ii)  that the other person was fulfilling that responsibility; and

                     (b)  expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it made the payment.

             (5)  It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at the payment time.

             (6)  It is a defence if it is proved that:

                     (a)  the person took all reasonable steps to prevent the company from making the payment; or

                     (b)  there were no such steps the person could have taken.

             (7)  In determining whether a defence under subsection (6) has been proved, the matters to which regard is to be had include, but are not limited to:

                     (a)  any action the person took with a view to appointing an administrator of the company; and

                     (b)  when that action was taken; and

                     (c)  the results of that action.

588FH   Liquidator may recover from related entity benefit resulting from insolvent transaction

             (1)  This section applies where a company is being wound up and a transaction of the company:

                     (a)  is an insolvent transaction of the company; and

                     (b)  is voidable under section 588FE; and

                     (c)  has had the effect of discharging, to the extent of a particular amount, a liability (whether under a guarantee or otherwise and whether contingent or otherwise) of a related entity of the company.

             (2)  The company’s liquidator may recover from the related entity, as a debt due to the company, an amount equal to the amount referred to in paragraph (1)(c).

             (3)  In deciding what orders (if any) to make under section 588FF on an application relating to the transaction, a court must take into account any amount recovered under subsection (2) of this section.

             (4)  If the liquidator recovers an amount under subsection (2) from the related entity, the related entity has the same rights:

                     (a)  whether by way of indemnity, subrogation, contribution or otherwise; and

                     (b)  against the company or anyone else;

as if the related entity had paid the amount in discharging, to the extent of that amount, the liability referred to in paragraph (1)(c).

588FI   Creditor who gives up benefit of unfair preference may prove for preferred debt

             (1)  This section applies where:

                     (a)  a transaction is an unfair preference given by a company to a creditor of the company after 23 June 1993; and

                     (b)  at the request of the company’s liquidator, because of an order under section 588FF, or for any other reason, the creditor has put the company in the same position as if the transaction had not been entered into.

             (2)  A court must not make under section 588FF, on an application relating to the transaction, an order prejudicing a right or interest of the creditor.

             (3)  The creditor may prove in the winding up as if the transaction had not been entered into.

588FJ   Floating charge created within 6 months before relation-back day

             (1)  This section applies if:

                     (a)  a company is being wound up in insolvency; and

                     (b)  the company created a floating charge on property of the company at a particular time that is at or after 23 June 1993 and:

                              (i)  during the 6 months ending on the relation-back day; or

                             (ii)  after that day but on or before the day when the winding up began.

             (2)  The charge is void, as against the company’s liquidator, except so far as it secures:

                     (a)  an advance paid to the company, or at its direction, at or after that time and as consideration for the charge; or

                     (b)  interest on such an advance; or

                     (c)  the amount of a liability under a guarantee or other obligation undertaken at or after that time on behalf of, or for the benefit of, the company; or

                     (d)  an amount payable for property or services supplied to the company at or after that time; or

                     (e)  interest on an amount so payable.

             (3)  Subsection (2) does not apply if it is proved that the company was solvent immediately after that time.

             (4)  Paragraphs (2)(a) and (b) do not apply in relation to an advance so far as it was applied to discharge, directly or indirectly, an unsecured debt, whether contingent or otherwise, that the company owed to:

                     (a)  the chargee; or

                     (b)  if the chargee was a body corporate—a related entity of the body.

             (5)  Paragraphs (2)(d) and (e) do not apply in relation to an amount payable as mentioned in paragraph (2)(d) in so far as the amount exceeds the market value of the property or services when supplied to the company.

             (6)  If, during the 6 months ending on the relation-back day, or after that day but on or before the day when the winding up began, a debt secured by the charge was discharged, out of the company’s money or property, to the extent of a particular amount (in this subsection called the realised amount ), the liquidator may, by proceedings in a court of competent jurisdiction, recover from the chargee, as a debt due to the company, the amount worked out in accordance with the formula:

where:

realisation costs means so much (if any) of the costs and expenses of enforcing the charge as is attributable to realising the realised amount.

unsecured amount means so much of the realised amount as does not exceed so much of the debt as would, if the debt had not been so discharged, have been unsecured, as against the liquidator, because of subsection (2).



 

Division 3 Director’s duty to prevent insolvent trading

588G   Director’s duty to prevent insolvent trading by company

             (1)  This section applies if:

                     (a)  a person is a director of a company at the time when the company incurs a debt; and

                     (b)  the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

                     (c)  at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

                     (d)  that time is at or after the commencement of this Act.

          (1A)  For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.

 

When debts are incurred

 

[operative table]

 

Action of company

When debt is incurred

1

paying a dividend

when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared

2

making a reduction of share capital to which Division 1 of Part 2J.1 applies (other than a reduction that consists only of the cancellation of a share or shares for no consideration)

when the reduction takes effect

3

buying back shares (even if the consideration is not a sum certain in money)

when the buy-back agreement is entered into

4

redeeming redeemable preference shares that are redeemable at its option

when the company exercises the option

5

issuing redeemable preference shares that are redeemable otherwise than at its option

when the shares are issued

6

financially assisting a person to acquire shares (or units of shares) in itself or a holding company

when the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided

7

entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into

when the transaction is entered into

             (2)  By failing to prevent the company from incurring the debt, the person contravenes this section if:

                     (a)  the person is aware at that time that there are such grounds for so suspecting; or

                     (b)  a reasonable person in a like position in a company in the company’s circumstances would be so aware.

Note:          This subsection is a civil penalty provision (see subsection 1317E(1)).

             (3)  A person commits an offence if:

                     (a)  the person is a director of the company when it incurs a debt; and

                     (b)  the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

                     (c)  the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and

                     (d)  the person’s failure to prevent the company incurring the debt was dishonest.

             (4)  The provisions of Division 4 of this Part are additional to, and do not derogate from, Part 9.4B as it applies in relation to a contravention of this section.

588H   Defences

             (1)  This section has effect for the purposes of proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt).

             (2)  It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

             (3)  Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person:

                     (a)  had reasonable grounds to believe, and did believe:

                              (i)  that a competent and reliable person (the other person ) was responsible for providing to the first-mentioned person adequate information about whether the company was solvent; and

                             (ii)  that the other person was fulfilling that responsibility; and

                     (b)  expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

             (4)  If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company.

             (5)  It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt.

             (6)  In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to:

                     (a)  any action the person took with a view to appointing an administrator of the company; and

                     (b)  when that action was taken; and

                     (c)  the results of that action.



 

Division 4 Director liable to compensate company

Subdivision A Proceedings against director

588J   On application for civil penalty order, Court may order compensation

             (1)  Where, on an application for a civil penalty order against a person in relation to a contravention of subsection 588G(2), the Court is satisfied that:

                     (a)  the person committed the contravention in relation to the incurring of a debt by a company; and

                     (b)  the debt is wholly or partly unsecured; and

                     (c)  the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency;

the Court may (whether or not it makes a pecuniary penalty order under section 1317G or an order under section 206C disqualifying a person from managing corporations) order the first-mentioned person to pay to the company compensation equal to the amount of that loss or damage.

             (2)  A company’s liquidator may intervene in an application for a civil penalty order against a person in relation to a contravention of subsection 588G(2).

             (3)  A company’s liquidator who so intervenes is entitled to be heard:

                     (a)  only if the Court is satisfied that the person committed the contravention in relation to the incurring of a debt by that company; and

                     (b)  only on the question whether the Court should order the person to pay compensation to the company.

588K   Criminal court may order compensation

                   If:

                     (a)  a court finds a person guilty of an offence under subsection 588G(3) in relation to the incurring of a debt by a company; and

                     (b)  the court is satisfied that:

                              (i)  the debt is wholly or partly unsecured; and

                             (ii)  the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency;

the court may (whether or not it imposes a penalty) order the first-mentioned person to pay to the company compensation equal to the amount of that loss or damage.

Note:          Section 73A defines when a court is taken to find a person guilty of an offence.

588L   Enforcement of order under section 588J or 588K

                   An order to pay compensation that a court makes under section 588J or 588K may be enforced as if it were a judgment of the court.

588M   Recovery of compensation for loss resulting from insolvent trading

             (1)  This section applies where:

                     (a)  a person (in this section called the director ) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and

                     (b)  the person (in this section called the creditor ) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and

                     (c)  the debt was wholly or partly unsecured when the loss or damage was suffered; and

                     (d)  the company is being wound up;

whether or not:

                     (e)  the director has been convicted of an offence in relation to the contravention; or

                      (f)  a civil penalty order has been made against the director in relation to the contravention.

             (2)  The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.

             (3)  The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.

             (4)  Proceedings under this section may only be begun within 6 years after the beginning of the winding up.

588N   Avoiding double recovery

                   An amount recovered in proceedings under section 588M in relation to the incurring of a debt by a company is to be taken into account in working out the amount (if any) recoverable in:

                     (a)  any other proceedings under that section in relation to the incurring of the debt; and

                     (b)  proceedings under section 596AC in relation to a contravention of section 596AB that is linked to the incurring of the debt.

588P   Effect of sections 588J, 588K and 588M

                   Sections 588J, 588K and 588M:

                     (a)  have effect in addition to, and not in derogation of, any rule of law about the duty or liability of a person because of the person’s office or employment in relation to a company; and

                     (b)  do not prevent proceedings from being instituted in respect of a breach of such a duty or in respect of such a liability.

588Q   Certificates evidencing contravention

                   For the purposes of this Part, a certificate that:

                     (a)  purports to be signed by the Registrar or other proper officer of an Australian court; and

                     (b)  states:

                              (i)  that that court has declared that a specified person has, by failing to prevent a specified company from incurring a specified debt, contravened subsection 588G(3) in relation to the company; or

                             (ii)  that a specified person was convicted by that court for an offence constituted by a contravention of section 588G in relation to the incurring of a specified debt by a specified company; or

                            (iii)  that a specified person charged before that court with such an offence was found in that court to have committed the offence but that the court did not proceed to convict the person of the offence;

is, unless it is proved that the declaration, conviction or finding was set aside, quashed or reversed, conclusive evidence:

                     (c)  that the declaration was made, that the person was convicted of the offence, or that the person was so found, as the case may be; and

                     (d)  that the person committed the contravention.

Subdivision B Proceedings by creditor

588R   Creditor may sue for compensation with liquidator’s consent

             (1)  A creditor of a company that is being wound up may, with the written consent of the company’s liquidator, begin proceedings under section 588M in relation to the incurring by the company of a debt that is owed to the creditor.

             (2)  Subsection (1) has effect despite section 588T, but subject to section 588U.

588S   Creditor may give liquidator notice of intention to sue for compensation

                   After the end of 6 months beginning when a company begins to be wound up, a creditor of the company may give to the company’s liquidator a written notice:

                     (a)  stating that the creditor intends to begin proceedings under section 588M in relation to the incurring by the company of a specified debt that is owed to the creditor; and

                     (b)  asking the liquidator to give to the creditor, within 3 months after receiving the notice:

                              (i)  a written consent to the creditor beginning the proceedings; or

                             (ii)  a written statement of the reasons why the liquidator thinks that proceedings under section 588M in relation to the incurring of that debt should not be begun.

588T   When creditor may sue for compensation without liquidator’s consent

             (1)  This section applies where a notice is given under section 588S.

             (2)  The creditor may begin proceedings in a court under section 588M in relation to the incurring by the company of the debt specified in the notice if:

                     (a)  as at the end of 3 months after the liquidator receives the notice, he or she has not consented to the creditor beginning such proceedings; and

                     (b)  on an application made after those 3 months, the court has given leave for the proceedings to begin.

             (3)  If:

                     (a)  during those 3 months, the liquidator gives to the creditor a written statement of the reasons why the liquidator thinks that such proceedings should not be begun; and

                     (b)  the creditor applies for leave under paragraph (2)(b);

then:

                     (c)  the creditor must file the statement with the court when so applying; and

                     (d)  in determining the application, the court is to have regard to the reasons set out in the statement.

588U   Events preventing creditor from suing

             (1)  A creditor of a company that is being wound up cannot begin proceedings under section 588M in relation to the incurring of a debt by the company if:

                     (a)  the company’s liquidator has applied under section 588FF in relation to the debt, or in relation to a transaction under which the debt was incurred; or

                     (b)  the company’s liquidator has begun proceedings under section 588M in relation to the incurring of the debt; or

                     (c)  the company’s liquidator has intervened in an application for a civil penalty order against a person in relation to a contravention of subsection 588G(2) in relation to the incurring of the debt.

             (2)  Subsection (1) has effect despite sections 588R and 588T.



 

Division 5 Liability of holding company for insolvent trading by subsidiary

588V   When holding company liable

             (1)  A corporation contravenes this section if:

                     (a)  the corporation is the holding company of a company at the time when the company incurs a debt; and

                     (b)  the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

                     (c)  at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

                     (d)  one or both of the following subparagraphs applies:

                              (i)  the corporation, or one or more of its directors, is or are aware at that time that there are such grounds for so suspecting;

                             (ii)  having regard to the nature and extent of the corporation’s control over the company’s affairs and to any other relevant circumstances, it is reasonable to expect that:

                                        (A)  a holding company in the corporation’s circumstances would be so aware; or

                                        (B)  one or more of such a holding company’s directors would be so aware; and

                     (e)  that time is at or after the commencement of this Act.

             (2)  A corporation that contravenes this section is not guilty of an offence.

588W   Recovery of compensation for loss resulting from insolvent trading

             (1)  Where:

                     (a)  a corporation has contravened section 588V in relation to the incurring of a debt by a company; and

                     (b)  the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and

                     (c)  the debt was wholly or partly unsecured when the loss or damage was suffered; and

                     (d)  the company is being wound up;

the company’s liquidator may recover from the corporation, as a debt due to the company, an amount equal to the amount of the loss or damage.

             (2)  Proceedings under this section may only be begun within 6 years after the beginning of the winding up.

588X   Defences

             (1)  This section has effect for the purposes of proceedings under section 588W.

             (2)  It is a defence if it is proved that, at the time when the debt was incurred, the corporation, and each relevant director (if any), had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

             (3)  Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the corporation, and each relevant director (if any):

                     (a)  had reasonable grounds to believe, and did believe:

                              (i)  that a competent and reliable person was responsible for providing to the corporation adequate information about whether the company was solvent; and

                             (ii)  that the person was fulfilling that responsibility; and

                     (b)  expected, on the basis of the information provided to the corporation by the person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

             (4)  If it is proved that, because of illness or for some other good reason, a particular relevant director did not take part in the management of the corporation at the time when the company incurred the debt, the fact that the director was aware as mentioned in subparagraph 588V(1)(d)(i) is to be disregarded.

             (5)  It is a defence if it is proved that the corporation took all reasonable steps to prevent the company from incurring the debt.

             (6)  In subsections (2), (3) and (4):

relevant director means a director of the corporation who was aware as mentioned in subparagraph 588V(1)(d)(i).



 

Division 6 Application of compensation under Division 4 or 5

588Y   Application of amount paid as compensation

             (1)  An amount paid to a company under section 588J, 588K, 588M or 588W is not available to pay a secured debt of the company unless all the company’s unsecured debts have been paid in full.

             (2)  Where:

                     (a)  under section 588J or 588K, or in proceedings under section 588M or 588W, a court orders a person to pay to the company compensation, or an amount, equal to the amount of loss or damage suffered by a person in relation to a debt because of the company’s insolvency; and

                     (b)  the court is satisfied that, at the time when the company incurred the debt, the person who suffered the loss or damage knew that the company was insolvent at that time or would become insolvent by incurring the debt, or by incurring at that time debts including the debt, as the case requires;

the court may order that the compensation or amount paid to the company is not available to pay that debt unless all the company’s unsecured debts (other than debts to which orders under this subsection relate) have been paid in full.

             (3)  Subsection (2) does not apply in relation to proceedings under section 588M in relation to the incurring of a debt by a company if the proceedings are begun by a creditor of the company (as provided for in Subdivision B of Division 4).

             (4)  Subsection (2) does not apply in relation to a liability that is taken to be a debt because of section 588F.



 

Division 7 Person managing a corporation while disqualified may become liable for corporation’s debts

588Z   Court may make order imposing liability

                   Where:

                     (a)  a company is being wound up; and

                     (b)  on or after 23 June 1993 and within 4 years before the relation-back day, a person contravened section 206A by managing the company;

the Court may, on the application of the company’s liquidator, order that the person is personally liable for so much of the company’s debts and liabilities as does not exceed an amount specified in the order.