Insolvency and Liquidation of Miss Stylz Pty Ltd: Legal Provisions and Actions

Issue- The given case involves insolvency conditions and liquidation of Miss
Stylz Pty Ltd, a clothing manufacturing company. The company is going
through financial disruptions and the sole director of the company is undergoing
cancer treatment. Australian Taxation Office issued statutory demand notice for
unpaid taxes and winding up in case of non-compliance. It also involves issue
appointment of alternate director Libby to control the operations of the company
in the meantime. It also includes the role of a qualified accountant in
recommending Libby about the financial condition of the business. The issue
regarding the conduct of Libby involves a conflict of interest as she issued the
fund from the overdraft facility of the company for the treatment of her mother
and breached the date for the demand for unpaid taxes. The company, due to
adverse financial conditions and pressure from the Australian Taxation Office is
undergoing liquidation process in compliance with regulatory provisions of
Australia. The other issues in the case are irresponsible conduct against the
notice by taxation authority and diversion of funds for personal interests and
placing further orders despite poor financial conditions.
Law- Under section 588G of Corporations Act 2001 of Australia, the
provisions will apply to director only if the person is the director at the time of
debt, insolvency or commencement of relevant act ("CORPORATIONS ACT 2001 -
SECT 588GDirector's duty to prevent insolvent trading by the company", 2019).
It also mentions the duty of the director to prevent possible insolvency. Also
under section 180 of the corporations’ act 2001 describe the general fiduciary
duties of the director which suggests relevant act in the best interest of the
company ("CORPORATIONS ACT 2001 - SECT 180Care and diligence civil
obligation only", 2019). Section 479(3) of the corporation’s act 2001 has
guidelines for legal action against conduct which further leads to insolvency and
Section 588g of the Act also mentions provisions for the criminal action against
a director for not acting in the best interest of the company to prevent
insolvency. It also provisions for compensation order along with adequate civil
penalties. Apart from this, section 1801 of the corporation's act directs fine
for a dishonest act of the director ("Corporations Act 2001", 2019).
Arguments- The case of Re SCW Pty Ltd NSWSC 302 in 2013 is believed to
be one of the significant cases involving appointments of the liquidator and
relevant action in case of insolvency. Another case where the liquidator is
required to advise to charge the director in case of insolvency is Valeba Pty Ltd
v Deputy Commissioner of Taxation [2012] QSC 200 ("[2012] QSC 200 -
Valeba Pty Ltd v Deputy Commissioner of Taxation", 2019). The liquidator has
following grounds of action against the director-
 Breach of adequate subsequent duties of the director.
 Inappropriate conduct leads to breach of statutory provisions.
 Overdrawing loan account as a primary debtor of the company and
diversion of fund for personal interests.
Libby, the director appointed by Alice has failed to act honestly and adequately
to prevent the liquidation of the company under section 588g of the act. She is
also liable for illegal expenditure that leads to a breach of the fiduciary duties of
the director.
Under the provisions of section 588g, Alice will be prime responsible for all the
debt incurred and the illegal acts, as she was the director at the time of the
incident. Also, the dishonest behavior of Libby can cause criminal proceedings
against her which attracts fine up to $2000 and imprisonment for up to five
years. The company can also receive s222AOE penalty notice for the unpaid.
Further, Libby used the name of the company for generating orders, being aware