Options for External Administration Procedures under the Corporations Act

This article discusses the options available for external administration procedures under the Corporations Act for Acme Pty Ltd, a trading company facing cash flow problems. It explores the advantages and disadvantages of these procedures and their impact on Acme's creditors.

@ - Answer question topic 11 winding up
# - Tutorial Exercise 1
Eric, Mary and Mei Ling are the only shareholders and directors of Acme Pty Ltd, a trading company that supplies
food products to cafés around Brisbane. In recent times, Acme’s cash flows have been pressured because several
large customers including CafeNow (a large franchise coffee shop with hundreds of outlets) have been late in paying
their invoices. This has meant that on several occasions Acme has not had sufficient funds to pay its bills, particularly
rent. The owner of its warehouse ( Leaseco Ltd) has written several letters warning that if Acme is late in paying its
rent, it will be evicted from the premises. At the same time as the company’s cash flow troubles, the employees take
industrial action in an attempt to receive a pay increase. This strike stops deliveries from the warehouse for two days,
with several customers cancelling their supply contracts with Acme. The cash flow problems are increased when the
company’s bank, Eastbank Ltd, threatens to appoint a receiver over the company if it does not pay its monthly
interest within two weeks. Eric, Mary and Mei Ling convene a board meeting to consider their options. Eric and Mei
Ling would like to negotiate with their creditors to restructure the company’s debts. Mary, however, would like to sell
out and change industries. a) Advise Eric, Mary and Mei Ling as to their options under the external administration
procedures under the Corporations Act, including the advantages and disadvantages of such procedures. b) What
impact would the procedures have on Acme’s creditors?
# - Answer 1
# - Issues :
1- is the company ( Acme ) unable to pay its debts and it is concerned as insolvency
2- whether the meeting between the creditors and directors constituted agreement to
restructure their debts by external administration and what kind of external administration is
suitable in this case
3- what is function , duty and responsibility could the ( administrator ,receiver and Liquidator )
incurred in this case .

# - Application : when the company is unable to pay its debt on due time ,so the company is
insolvency position relating to s 95A and also s 459C( 2 ) referred for the presumption of
insolvency , so the creditors must required the company to pay the debt within 21 days
relating to s 459E and if the company ( Acme ) failed to pay the creditors then the creditors
have the power for external administration , the question raises is what kind of external
administration in this case ,
# - Part 1 :
Administrator # - V/A appointment : this form is likely the best form so the directors could
appoint administrator relating to s 436A also relating to case ( Re Lime Gourmet Pizza Bar ) or
the secured creditors could appoint administrator relating to s 436C , and then the directors
lose all the power to mange the company relating to s 437A so the first meeting of creditors
to appoint committee relating to s 439E and the voluntary Administrator provide financial
report to the committee to assess the current status of the company relating to s 438A ( a ) so
then the creditors should decide if the company has ability to continue or decide for
liquidation that will be occur at the second meeting under s 439C .
# - function and power of Voluntary administration : the main role of the administrator to
maximise the chance of an insolvent company’s business continuing in existence relating to
s 435A ( a ) and relating to case ( Lehman Brothers Holding Inc v City of Swan ) The
administrator has the power to control the company business as remove directors , appoint
officer , manage the business plan relating to s 437A . and he works the best to return

creditors and members if the company will winding up relating to s 435A ( b )
# - duties and liability of VA : the administrator is acting as agent of the company s 437B .
administrator owes duty of diligence and good faith s 180 and s 184 . also he must lodge a
notice of the appointment relating to s 450A . also has duty to investigate the company affairs
and consider the course of action relating to s 438A , also duty to report all the issues of the
company as the past officers and employees may could committed an offence relating to
s 438D , and also he is responsible for all the debt that occurred during his appointing relating
to s 443A .
# advantage : voluntary administrator is better form than the receiver to avoid failing the
company against wishes of its directors . so also could the administrator manage the company
for rehabilitation and continue in the business and avoid the wind up relating to s 435A ( a ),
also VA give the company respite from claim of creditors , so he could investigate the company
affairs and then consider what is the fate of the company must be . but if no chance for the
company to continue so he do the best to return for the creditors and members from form of
liquidator relating to s 435A ( b )
# - Part 2
# -Receiver and appointment : he is a person appointed to collect and receive the debts and
other property belonging to another person that in common law relating to case
Re Manchester and Milford Railway per Lord Jessel .so relating to s 90 and s 434E the
receiver is also a manager to manage affairs of the company however the receiver could be

appointed by the Court , also the secured creditors appoint the receiver according to the
instrument under s 418(1-d ) also the ASIC could apply to the court to appoint receiver relating
to s 1323 (1 )
# - function and power of the receiver : he has power to manage the company and control all
the affairs of the company relating to s 420 and s 434F and he is working vafour to the
secured creditors relating to case ( Re north City Development pty ltd ) as the plaintiff
proposed to deal with the asset of the company . also to protect the interest of aggrieved
person by the company relating to s 1323( h) also has the power to carry on any business of
the company as to borrow money , enter in the possession etc .
# - receiver duty and responsibility : has duty to balance between the secured creditors and
mortgagor’s interest . also relating to s 420A imposes a duty of care to exercise his authority to
sale the property according to the market price relating to s 420A ( 1-a ) also relating to case
GE Capital Australia v Davis . also s 422 imposes a duty to report misconduct of the company
activities to the ASIC and also relating to case ( Barns v Queensland National Bank ) so s 421
imposes for maintaining account record and pay the unsecured creditors under priority of
rules so if any surplus must to be given back tom the company relating to s 433 . also the
receivers have liability for the debt and expenses incurred by them during of the receivership
under s 419 (1) , also receivers have liability for managing the lease or contract of hire relating
to s 419A .also the receivers have the duty to act in good faith and they are liable for willfully
or recklessly sacrificing the mortgagor’s interest relating to case ( Forsyth v Blundell )that the
defendant sold the mortgaged for less than the market price so Mackenzie J mentioned that

mortgagee had not been exercising his power of sale in good faith .
# - Part 3 :
# - Liquidators and appointment : if the company failed to repay creditors debt on the duty
time so the creditors send notice and give 21 days for repay relating to s 459F ( 2 – b ) then
the company is insolvent and could be subject for winding up so that mean the process to the
dissolution of the company and there are two main categories of liquidation firstly is the court
make order as compulsory liquidation relating to s 459A and s 472 ,secondly is voluntary by
the members and directors relating to s 495 , or by creditors relating to 496(5) and s 499(1) .
# - Function of liquidators : collect company ‘s assets and control over the property of the
company relating to s 474(1) , lodge report to the ASIC with notice of the appointment of
liquidators relating to s 537 , also liquidators must work for the benefit of the creditors relating
to case ( Hall v Poolman ) .also liquidators are officers to manage the company affairs relating
to s180 – s 184 . however the liquidators have the power to change the board of the directors
of the company relating to s 198G and they owe duty to manage all the company business
during winding up relating to s 477(1 -a ) so they must pay all the class of creditors relating to
s 556 and must pay unsecured creditors according to priority rules relating to s 477 ( 1-b)
and make coincide between the creditors relating to s 477 ( 1-c ).
# - liquidators’ duties and responsibility : they owe fiduciary duties and duty of care to the
company relating to s180 (1) and also relating to case ( Pacev v Antlers ) so they must act
impartially during the liquidation relating to cas (Commissioner of Corporate Affairs v Harvey)

also liquidators owe duty to avoid conflict of interest or any advantage relating to s 60 ,and
duty to pay all the money that they received to administration account relating to s65 ( 5 )( 1 )
# - Part 4 :
# - Deed of company arrangement : the administrator may propose a DOCA with the the
company creditors relating to s 438 ( b ) and the administrator organize the deed of the
creditors relating to s 439A and the terms of the deed are set out in s 444A ( 4 ) so when the
creditor resolve that company execute the DOCA then the administrator ends .
# - Part 5 : schemes of arrangement and appointment : this form referred in section 411 – s
415 . so the creditors appoint administrator or manager to run and manage the company’s
business and the members must vote for this form by 75% of the votes relating to s 411( 4 ,a
ii) and that administrator must notify the ASIC relating to s 415 ( 1 ) so the creditors must
apply to the court for order to obtain schemes of arrangement relating to s 411 ( 1 ) and must
the criditors must to vote 75% favour for this scheme relating to s 411 ( 4 -a,i ) .this form is a
moratorium scheme that the debt could defer for certain of time , so when the company has
financial problem could adopt this form to carry on its business
# - Advantage : in this form the creditors accept less payment of the amount of money owed
so when the company paid , so it will be released . also by reorganization scheme that member
could consolidate of different classes of shares into different classes . by merger scheme under
s 413 so could some companies agree to merge by transferring their asset to new company