Page 17 - MPA

Plumbers have had enough
Types of INSOLVENCY
The three most common types of corporate insolvency are voluntary administration, liquidation and receivership.
(a) What is a voluntary administration?
Voluntary administration is where the directors of a financially troubled company or a secured creditor with a charge over most of the company’s assets appoint an external administrator called a ‘voluntary administrator’.
The role of the voluntary administrator is to investigate the company’s affairs, to report to creditors and to recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.
(b) What is a receivership?
A company most commonly goes into receivership when a receiver is appointed by a secured creditor who holds security or a charge over some or all of the company’s assets. The receiver’s primary role is to collect and sell enough of the company’s charged assets to repay the debt owed to the secured creditor.
(c) What is Liquidation?
A process which results in a company being shut down (wound- up). All the company’s assets are sold, and the money raised is used to repay its debts.
What are the different types of liquidation?
There are four types of liquidation:
(i) Creditors Voluntary Liquidation
(ii) Members Voluntary Liquidation
(iii) Official Liquidation
(iv) Provisional Liquidation
Creditors Voluntary Liquidation
• most commonly used.
• initiated by the directors and shareholders.
• the Board of Directors will resolve that the company is insolvent.
• the Board of Directors, with the help of a Liquidator, will call an EGM for the shareholders to pass a Special Resolution to wind up the company.
Members Voluntary Liquidation
• available only to solvent companies.
• a liquidator is appointed to a solvent company to return capital to the shareholders and to finalise the company’s affairs.
Official “Court” Liquidation
• ordered by a Court. This is usually done on the application of a creditor of the company when the company fails to meet a statutory demand.
Provisional Liquidation
• The appointment of a Provisional Liquidator can be made by a Court upon the application of the company, its directors, or its creditors.
• In making an application to the Court, evidence is put forward as to the financial state of the company and
the reasons for the need to remove the directors from their positions.
• The most common two reasons given to a Court are that there is a shareholders’ dispute relating to the management of the company and/or the directors are not acting in the interests of the company.
• The primary role of the Provisional Liquidator is to take control of the company and to preserve its assets. That
is, to maintain the “status quo” until the Court can hear an application to wind up the company.
• During the period of Provisional Liquidation, the director’s powers are suspended.
Preferential Payment – is VOIDABLE
Any payments or transfers made to an unsecured creditor within six (6) months period before a company is placed into liquidation, may in certain circumstances be recovered by a liquidator. This is important for subcontractors to be aware of as it could mean you need to pay back any payments to the liquidators who may then pass onto secured creditors like a bank.
What is ‘unfair preference’?
Provided for under Section 588FA of the Corporations Act, 2001.
(3) Poor Payment Practices
Delayed payment, and undervalued payments, are also seen as contributing to construction insolvency. The Security of Payments Act (the Building and Construction Industry Security of Payment Act) is designed and intended to address this issue, however it is not the complete answer, nor is it working in a practical sense.
Issue 2 - Security of Payment Legislation
Currently, the South Australian Government is reviewing the legislation as are the Federal Government.
There has been many reports written but the probably the best one is the “Murray Review 2017”
Part of the Executive Summary is stated on the following page:
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