Monthly Archives: July 2012

The position of Directors in a Failed Company: Between a Rock and a Hard Place

Liability of Directors of a Failed Company

Rock and Hard Place

Limited Liability Companies have been existence for well over 100 years. They arose out of the need to give limited liability to persons whom were interested in investing in a business, but whom did not wish to be exposed to unlimited liability of being a partner in the business.

Generally, the limited liability afforded to shareholders also applies to the directors of the company, but there are exceptions. Whilst most of the exceptions arise when a company is insolvent, directors also have liabilities when the law imposes parallel obligations upon directors to ensure compliance by the company of its obligations, for example Occupational and Health Safety Obligations. Directors also have fiduciary obligations to the company to act in the company’s best interest.

A company is insolvent, when the company is not able to pay its debts when they become due.

  • A company will be insolvent even where its assets greatly exceed its liabilities, if it is not able to utilise those assets to meet its current obligations.
  • A company is solvent, even if its liabilities exceed its assets, provided that it is able to meet its current obligations, and there is no expectation that it will cease trading.

When a company fails because of insolvency, a liquidator is appointed to it so that the failed company may be wound up. Generally in any winding up there are a number different persons and groups that have d competing and different interest. They are:

The Liquidator, who is appointed by the court, or whose appointment is confirmed by the creditors of the company to wind up the affairs of the company.

The Secured Creditor who may hold fixed and floating charges over the assets and undertaking of the failed company, and often collateral mortgages over the directors home.

The Employees who were employed by failed company and who may be owed wages and other entitlements.

The Ordinary Unsecured Creditors who have supplied goods and services to the failed company, and who are owed money.

The Australian Taxation Office who is often the failed company’s largest creditor. It is also represents claims of employees for unpaid superannuation contribution.

Workcover for unpaid Worker Compensation Insurance Payments.

Debtors of the Company, companies who owe the failed company debts for work and services provided by the failed company to them.

GEERS the government organisation who will meet and advance unpaid employee wages and entitlements where the failed company is unable to meet those obligations.

The Receiver, who may be appointed by the Secured Creditor to take possession of the assets and undertaking of the failed company. The Receiver has a similar role to the Liquidator, has a higher claim to the failed company’s assets and is only interested in recovering money and assets for the secured creditor.

The Director, of the failed company who everyone else blames.

DIRECTORS LIABILITIES

A Directors Liability Mud Map

INSOLVENT TRADING CLAIMS AGAINST THE DIRECTOR
The appointment of a liquidator to the failed company, automatically gives rise to some claims by the liquidator against the Director, if the director allowed the company to incur a debt, when the company is insolvent and the director had reasonable grounds for so suspecting. The liquidator is able to bring proceedings against the director and recover as damages the amount of each debt that was incurred whilst the company was insolvent that had not been paid when the company was wound up.

DIRECTOR LIABILITES OWED TO THE AUSTRALIAN TAXATION OFFICE

As of 29 June 2012, a director of the Company is liable to pay the Australian Taxation Office, any liability owed by the failed company to the Taxation office:

  • that is older than 3 months and which has not been reported
  • any liability subject to a Director Penalty Notice that has not been complied with

A director is also liable to indemnify the Australian Taxation Office against any unfair preference claim made against it by the liquidator in respect to any payment made by the company to the office in the 6 months preceding the winding up.

These liabilities really place a director in a very difficult position upon realising that his company may be failing. It is in most case already too late for him to avoid liability.

LIABILITY FOR UNPAID WORKER COMPENSATION PREMIUMS
In 2008 amendments were made to the Workcover Legislation that imposes liability on directors for any unpaid Worker Compensation Premiums owed by the failed company. Those amendments until recently were not well known, but are now very hard to escape.

LIABILITY UNDER GUARANTEES
It is unnecessary to say, that any liability under guarantees given to creditors on behalf of failed company, immediately arise on winding up, if they have not arisen at an earlier time. A liquidator is also able to commence proceedings against a director under a guarantee given to a creditor, where prior to the winding up, that creditor received a preference payment from the failed company.

 

JDC updated 24 Feb 2014

What is in a Corporations Name?

In Australia most companies are now incorporated under the Corporations Act, 2001 (“The Act“)

Section 112 of the Act provides for the incorporation of the following 6 types of Companies.

Proprietary companies 1)      Limited by shares
2)      Unlimited with share capital
Public companies 3)      Limited by shares
4)      Limited by guarantee
5)      Unlimited with share capital
6)      No liability company

No Liability Companies can only be registered in certain circumstances for mining purposes.

Section 148 of the Act provides that when a company is registered its name must include:

  • Limited” (or an approved abbreviation) if is a limited company.
  • Proprietary”  (or an approved abbreviation) if it is a Proprietary Company
  • No Liability” (or an approved abbreviation) if it is a No Liability Company.

Section 148 also provides that a Public Company must not include in its name “Proprietary” ( but excepts from that exclusion Public Companies that had “Proprietary” as part of its name before 1 July 1998).

Section 149, allows for the following approved abbreviations.

Proprietary Pty
Limited Ltd
No Liability NL

So that a proprietary limited company may be registered with the names

  • XYZ Pty Ltd
  • XYZ Proprietary Ltd
  • XYZ Pty Limited; or
  • XYZ Proprietary Limited

A proprietary company that is unlimitedmay be registered with the names

  • XYZ Pty; or
  • XYZ Proprietary

A public limited company may be registered with the names

  • XYZ Limited; or
  • XYZ Ltd

A public no liability company may be registered with the names

  • XYZ NL ; or
  • XYZ No Liability

In all cases, the correct name of the company, is the name it is registered with. For example

  • A company  registered with the name “ABC Pty Ltd” should only be called that “ABC Pty Ltd”.
  • A company registered with the name “DEF Proprietary Limited”, should not be called “DEF Pty Ltd”, as that is not its registered name.

My first experience with Windows 8

Back in April, my wife and I were going overseas to New Zealand for a short holiday. I needed a new laptop in case my wife or I needed address some matter while we were away. My old Sony Vaio Laptop was nearing the end of its useful life. After a bit of a review, and relying almost entirely upon recommendations from Tim, my middle son, I selected the ASUS ZenBook UX21. I was sufficiently compact, light, and powerful enough for my needs, and I got it for the right price.

My only complaint was that it came installed only with Windows 7 Home Premium. I needed Professional to join it to the office domain.

Ever since purchasing it I have debated with myself whether I should:

  • upgrade to professional now;
  • wait for Windows 8 to come out; or
  • more recently, whether I should install the Preview Version of Windows 8;

Last weekend I chose the later.

The Installation was remarkably easy. All programs and settings (including WIFI access codes etc, user details for iCloud, dropbox, skydrive) were transferred automatically.

The new user interface takes a bit to get to use to. My first impression was, “what have I done, where is the control panel?, why doesn’t the right mouse click work?

However after the initial shock, once you find the Desktop, the Search and Setting options on the right side of the screen, things start to become a lot more familiar. You eventually learn that:

  • right clicking in Metro does not do anything;
  • there are hot zones in the screen corners, and to the left and right sides.
  • once you configure the “People, Messaging, Mail etc.” tiles, they become live…

Once you work out how to find things become a lot easier (Move the mouse to the top right had corner, and the settings and search menu displays down the right side).

Once you work out that you can add your favourite desktop programs as tiles to the home page you even start to appreciate the Metro UI.

I am really surprised how well the Metro UI works with a mouse without a touch screen. It is just as functional as Windows 7. For small screen computers like the UX21, the ability to switch between applications on the left hand side of the screen is a great convenience.

After I found out where “System” was in the Settings it was even easy to join the laptop to a SBS2011 domain.

While I am still new to Windows 8, I am already an advocate. I really like the live tiles.

As an added bonus I have now learned that I will be able to upgrade the old Windows 7 Home Premium to Windows 8 Professional for less than $40 when Windows 8 is released.

My only complaint so far is that Metro Internet Explorer 10 does not have book marks. Please Microsoft that has to change.