DSG Australia Insolvency Case Analysis

This assignment delves into the insolvency case of DSG Australia, examining the legal framework surrounding its liquidation. It analyzes the voidable transaction with Lounge Lizard, the impact on unsecured creditors, and the recommendations provided by the appointed administrators. The assignment highlights relevant sections of the Corporations Act and evaluates the likely outcomes for creditors based on the administrator's report.

Business structure: accounting and legal issue

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1..................................................................................................................................3
a. Identifying the date of commencement in relation to the winding up of Lounge Lizards.......3
b. Assessing ‘relation back day’ and applies it to Lounge Lizards.............................................3
c. Evaluating whether transaction is voidable or not...................................................................4
QUESTION 2..................................................................................................................................4
Purpose of the report....................................................................................................................4
Identifying the date of second Creditors meeting........................................................................4
Concluding the selling aspect of Dick Smith Group as going concern.......................................5
Assessing whether administrator should consider DSG as insolvent or not...............................5
Defining any kind of transaction which is voidable....................................................................5
Recommendations........................................................................................................................5
Evaluating the likely outcome for unsecured creditors on the basis of recommendations
provided by administrator............................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Laws and legislation introduced by Australian government is high significant that
provides guidance to the individuals in which they need to take action. Section 588 FA and FB
of Corporation Act 2001 clearly presents that liquidator can recover certain transactions which
are made by the firm within specified time frame. Hence, voidable transactions are those that
made within the period of liquidation commencement. This report is based on the case situation
which will develop understanding about the sections related to voidable transaction and
voluntary administration.
QUESTION 1
a. Identifying the date of commencement in relation to the winding up of Lounge Lizards
Given case situation entails that one of the creditors of Lounge Lizards Pty Ltd such as
Small Guys Pty Ltd has applied for winding up the business operations on 12 December, 2016.
In accordance with the Companies Act (1965) date of winding up is the one which is ordered by
the court. Hence, section 219 presents that date of compulsory winding up is highly influenced
from the court’s order. The given case scenario clearly presents that on 14th February curt placed
order for the liquidation of Lounge Lizard’s Pty Ltd. Hence, it can be concluded that data of
commencing winding up business is 14th February 2017.
b. Assessing ‘relation back day’ and applies it to Lounge Lizards
Corporation Act 2001, section 513 defined relation back day as voidable transaction in
which company enters during prescribed period prior to the commencement of liquidation.
Hence, such period which is determined by the Act is called as ‘Relation back day (Insolvency
under section 459a and the relation-back day, 2016).’ By considering the given case situation it
can be said that application was filed by one of the creditors namely Small Guyz Pty Ltd on
December 2017. In this, issue is that on 30th November 2016, furniture was sold by Lounge
Lizards to Dodgy Brothers. On the other side, date on which order was placed by court is 14th
February 2017. Hence, by considering all such aspects it can be presented that Relation Back
Day not applies to Lounge Lizards. Moreover, such transaction was not made by Lounge Lizard
within the prescribed time period.

c. Evaluating whether transaction is voidable or not
Case scenario entails that on 30th November 2016, furniture worth of Australian $100000
sold to Dodgy Brothers. Hence, by referring the section 292 of liquidation and 588 FB it can be
presented that transaction is voidable when it was made within the two years prior to the
liquidation. Further, if transaction made within the duration when application is for liquidation
considered as voidable. In the current situation, transaction was made on 30th November, whereas
application for the purpose of liquidation filed on December 2016. However, laws and legislation
presents that unreasonable director related transaction are recognized as voidable transactions
(Osborne, 2016). It is clearly mentioned in the case study that 60% shares held by Steve, director
of Dodgy Brothers, is the husband of one of the directors of Lounge Lizard. Thus, by keeping
such aspect in mind it can be articulated that transaction is voidable. Moreover, 5.7 (B) presents
that payment which is related to director and the one who is near to the Director is recognized as
voidable.
QUESTION 2
Purpose of the report
Purpose of the report prepared by DSG (Dick Smith Group), an Australian public
company, is to furnish details to the creditors regarding the financial and non-financial aspects of
business. Further, report will also provide deeper insight to creditors about the opinions of
administrator that they can present in the second meeting.
Identifying the date of second Creditors meeting
Second creditors meeting were held by DSG on Monday, 25 July 2016 at 11 am.
Resolving all the issues related to future of entities is one of the main objectives behind
conducting meeting in accordance with voluntary administration. Section 439A entails that
meeting must be held organized before or within 5 business days at the end of convening period.
Along with this, rules and regulations regarding this clearly present that information regarding
the meeting must be published within 5 business days (Legg, Day and Emmerig, 2017). On the
basis of 439 A notices regarding the meeting must be accompanied with administrator’s report.
This section clearly exhibits that convening period is 20 days after the commencement of
administration.

Concluding the selling aspect of Dick Smith Group as going concern
From assessment, it has been identified that DSG could not be sold as a going concern
business. Hence, to offer satisfactorily solution to the stakeholders such as employees and
secured creditors receivers of embark took decision in relation to winding up the business
operations and functions.
Assessing whether administrator should consider DSG as insolvent or not
Through the means of investigation, it has been identified that on 23rd December 2015
DSG became insolvent. Administrator has identified that DSG became insolvent before the time
of 23rd December; 2015.This aspect clearly shows that DSG was considered as insolvent during
the period of 2015. On the basis of 588E (4) if business unit failed to maintain proper financial
records in accordance with 286 (1) or (2) then it is considered as insolvent.
Defining any kind of transaction which is voidable
According to the Liquidation Act, voidable transaction is the one that occurred prior to
the appointment of administrator. In this, according to 5.7B of the Act liquidator has right to
recover the amount of related transaction. Hence, transactions which were made by DSG before
the appointment of administrator includes unfair preference payment and loan, uncomnmercial
transaction as well as unreasonable director related transaction (Leshinsky and Leshinsky, 2016).
Recommendations
There are several recommendations which are provided by administrator are enumerated
below:
 Deed of company arrangement (DOCA): It is binding arrangement that takes place
between the company and its creditors. By undertaking DOCA creditors can assess the
manner in which financial aspects will be dealt.
 Administration to end: By ending the administrations and returning the control of DS
Australia to the current directors business unit can wind up the business operations more
effectually (Butler, Mason and Murray, 2016).
 Company to be wound up: By resolving all the financial aspects DSG can wind up
business activities.

Hence, by presenting all the alternative course of actions provided by administrator creditors
of DSG can generate high return. Section 440 A (1) shows that business unit does not have right
to wound up voluntarily if creditors want to resolve issues in second meeting. In addition to this,
section 440 D (1) exhibits that unsecured creditors cannot take action in against to the company.
Hence, legal administrator offers benefit to both organization and creditors to the significant
level.
Evaluating the likely outcome for unsecured creditors on the basis of recommendations provided
by administrator
By making in-depth evaluation of Administrators report to Creditors pursuant to s 439A
it can be depicted that there will be no recoveries are available for unsecured creditors.
Moreover, there is no material asset that is out of the bank security. In the case of liquidation net
recoveries would exceed $26.7 million if any dividends are provided to unsecured creditors
(Administrators Report to Creditors pursuant to s 439A, 2017). This aspect shows that
administrators recommendation has significant impact on the decision making aspect.
CONCLUSION
From the above report, it has been articulated that transaction made by Lounge Lizard
with Dodgy Brothers is voidable. Besides this, it can be inferred that liquidation Act clearly and
related sections help in identifying the period within which meeting to be held. Hence, by
complying with the all the legislation meeting has been organized by DSG.

REFERENCES
Books and Journals
Butler, S., Mason, R. F. and Murray, M., 2016. Recent developments: Maritime law and
insolvency law: Averting collisions?. Insolvency Law Journal. 24(1). pp.70-75.
Legg, M., Day, J. and Emmerig, J., 2017. Corporate law: High court of Australia determines
extent to which class members are bound by class action judgment. Governance
Directions. 69(2). p.114.
Leshinsky, R. and Leshinsky, R., 2016. Touching on transparency in city local law making:
Experiences from waking up each day in City of Melbourne, Australia. International Journal
of Law in the Built Environment. 8(3). pp.194-209.
Osborne, M., 2016. Bankruptcy administration in Australia. Australian Restructuring Insolvency
& Turnaround Association Journal. 28(2). p.22.
Online
Insolvency under section 459a and the relation-back day. 2016. Online. Available through: <
http://www.corrs.com.au/publications/tgif/insolvency-under-section-459a-and-the-relation-back-
day/ >. [Accessed on 17th April 2017].
Administrators Report to Creditors pursuant to s 439A. 2017. Pdf. Available through: <
https://www.ferrierhodgson.com/au/-/media/ferrier/files/documents/corp-recovery-matters/
keeforce/final-s439a-report--keeforce-group.pdf >. [Accessed on 17th April 2017].