Question

QUESTION 2 10 MARKS Sean has taken over his father’s home loans business, Auzzie Loans Pty Ltd. There are three directors (Sean and his parents), who are also members of the company. When the global financial crisis hit, it was hard to persuade people to purchase new homes and his company was running at a loss for several months. Sean’s creditors, namely Dud Bank Ltd and its landlord, GFC Ltd, are nervous about their prospects of recovering monies owed to them. Dud Bank has the security over the loan of the building that is owned by Auzzie Loans Pty Ltd. Assume that the company is not insolvent as yet. Answer the following questions (each) a. Advise Sean on what external administration procedures/options might be available to Auzzie Loans Pty Ltd. Explain how each of the procedures would apply to Auzzie Loans Pty Ltd and how it would impact on its creditors and Board of Directors. 2 marks b. A few months later the company is now hopelessly insolvent and placed under voluntary administration? What are the effects on creditors, including secured creditors – Dud Bank Ltd during .voluntary administration? 2 marks c. If Auzzie Loans Pty Ltd were to enter into a Deed of company arrangement, what matters does it cover? Explain what is a deed of company arrangement and what are its objectives? 2 marks d. Dud Bank Ltd had appointed a receiver to recover the money owed by Auzzie Loans Pty Ltd. The appointed receiver took control of the building and placed it on the market for sale by tender. Dumbster Ltd, a related entity of the receiver was tipped off the prices submitted by other prospective buyers and won the tender. Dumster Ltd secured ownership of the building a few months later and is over the moon with the deal while Auzzie Loan debt were discharged by Dud Bank Lld. Explain the role and duties of the receiver and whether the receiver has discharge it duties in accordance with the law. 2 marks e. The appointed liquidator for Auzzie Loans Pty Ltd has identified the following transactions and wishes to know if they are voidable: (in your answer, explain why the transactions are/not voidable). i. A payment was made to GFC Ltd for $15,000 of rent. GFC Ltd (the landlord) is a company owned and run by a close friend of one of the directors who admits that he paid more than market value for rent and GFC Ltd is likely to have obtained less if it had to prove in a winding up. 1 mark ii. A loan was given by Dud Bank to the company at market interest rates. 1 mark   .

Answer 1

Answer:-

Introduction

Auzzie Loans Pty Ltd is a home loans business run by Sean and his parents as the directors. Due to the financial crisis, the company was running at a loss for months, as such, its creditor Dud Bank and Landlord GFC limited are concerned about their prospects of recovering the monies owed to them.

The provided answers further expound on Auzzie Loans Pty Ltd situation

(a) The external administration options include

Voluntary administration

A qualified and independent administrator takes full control of the company to try to formulate an approach to rescue either the company or the business.

The creditors have the option to end the voluntary administration and return the company to its directors, approve a deed of the company which would allow the company to pay its debts or wind up the company and appoint a liquidator.

Receivership

An independent and qualified receiver is appointed by a secured creditor to take control of some or all of the company's assets.

The receiver has no obligation to report to an unsecured creditor. Unsecured creditors are not entitled to see the receivers reports sent to the secured creditor.

Liquidation

Liquidation of an insolvent company enables a qualified and independent liquidator to take control of the company so that its affairs can be concluded in a fair manner beneficial to all the creditors.

A liquidator acts for all the secured and unsecured creditors

(b) During voluntary administration, the voluntary administrator aims to administer the company's affair to obtain a better return to creditors than if the company had immediately wound up.

(c) A deed of company arrangement is a binding agreement between a company and its creditors governing how the company's affairs will be handled. It is agreed to after a company enters voluntary administration.

Deed of company arrangement aims to maximize the chances of the company or its business continuation or to provide better returns for creditors than an immediate wound up

(d) A receiver is required to carry out duties with the interest of the company, its creditors and shareholder in mind.

It is the duty of a receiver as an agent to act with reasonable caution in dealing with the company's assets to manage the best possible price.

In this case, the receiver did not act with the interest of the company or creditor in mind. It was illegal.

(e)

The payment made to the GFC ltd (landlord) was avoidable. The company was being run by a close friend to one of Azzie Pty Ltd, who admits that he paid more than the market value for rent. GFC was likely to receive less if it had no proof of winding up.

The loan given to Azzie ltd at market interest rate was not avoidable.

Reference

External Administration. (2019). Australian Securities and Investment Commission. Retrieved from; https://asic.gov.au/for-business/small-business/closing-a-small-business/external-administration/

Staatz, s. (2019). Examining the Deed of Company Arrangement. Vincents. Retrieved from; https://vincents.com.au/deed-of-company-arrangement/#:~:text=Aim%20of%20a%20Deed%20of,of%20the%20company%2C%20or%20both.

Please upvote, if your satisfied with this answer, it supports us a lot. Thank you.