INSOLVENCY & Solvency

Bill and Bob are the directors and shareholders of a very small company which imports soft toys from overseas for sale to various retail outlets. The company has a small warehouse where it keeps its goods, and from which all products are distributed.
The company recently entered into a contract to supply a large chain with soft toys, and they accordingly ordered large amounts of goods from overseas. The company ordered four shipments of goods from a supplier and have paid them a large deposit. However, after only one delivery to the retailing chain, a defect is discovered and the government puts a banning order on the sale of the toys, the retailer cancels all further orders.
The company now has no future revenue; there are stocks of goods which cannot be sold. The shipping company which brings the goods into Australia for Bill and Bob is now waiting for payment. There are also various bills to the tax office, employees and others who have provided services to be paid.
Bill and Bob are desperate. Advise what they need to do. Is the company insolvent, and if it is, what must Bill and Bob do?
1000 words




Answer Hint
Definition of solvency sec 95A,
Section 95A of the corporation act 2001 (cth) states
ISSUE
Is the company insolvent, if it is, what must bill and bob do?
RULE
-            Insolvency definition
-            A person includes a company……..
-            Under section 588G, a director has a duty to prevent insolvent trading.
-            A director face civil and criminal liability for breach of section 588G. This can include civil penalties  under subsection1317E(1)
-            Reason why they were worried?
-            Voluntary administration, winding up / Liquadition (the options available to the directors include)
-            Liquidation is a drastic option-shouldn’t be the 1st option if the company Is viable
-            Sect 435A of the act states that “the object of {Voluntary administration} is to provide immediate winding up of the company.”
-            The aim is to rehabilitate the company s435A. 3 option ----s439C
o   End the administration
o   DOCA (Deed of company arrangement) explain
o   Place company in liquataion
-            What happens with voluntary administration
o   Moratorium (explain)
o   Director- guarantees
o   Deed of company Arrangement or any other options
APPLICATION
There is no income just outgoing. This means the company is insolvent
 
CONCLUSION