Options for External Administration Procedures under the Corporations Act

@ - 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