Marking Rubric

Question 1

You have been appointed as an adviser in the insolvency division of Wind Up Accountants.

Your manager has asked you to prepare a presentation for an upcoming training course for new staff members.

As part of your presentation you are required to read a news article and provide a brief on the legal issues that have befallen celebrity gardener Jamie Durie.

Jamie Durie calls in lawyers to dispel insolvent trading claim

By Michael Evans

23 June 2018 — 12:01am

https://www.smh.com.au/entertainment/celebrity/jamie-durie-calls-in-lawyers-to-dispel-insolvent-trading-claim-20180622-p4zn43.html

Jamie Durie has been forced to engage lawyers to dispel claims made by the administrator of his private company that the celebrity gardener may have traded his company while it was insolvent for nearly two years.

Court documents and creditors reports shine a light on the messy fallout of the collapse of JPD Media & Design, stemming from legal action launched by Mr Durie’s former licensing agent Mike Curnow.

Mr Durie, a former Manpower dancer who became a gardening presenter on Channel Nine’s Backyard Blitz, brought in lawyers to address concerns from administrator Simon Cathro of Worrells Solvency & Forensic Accounting.

In late May, Mr Cathro wrote to creditors of Mr Durie’s JPD Media & Design that “preliminary investigations have identified a possible insolvent trading claim against the Director [Mr Durie] and potential voidable transactions”.

And in documents filed with the corporate regulator, ASIC, the administrator ticked “Yes” in a box alongside the question – “have I found any offence committed by the officers of the company”.

Mr Durie was sole shareholder and director.

Mr Curnow and Mr Durie fell out around 2012 when Mr Durie’s company was under financial pressure, court documents show.

Mr Curnow launched legal action when his services were terminated. The NSW Supreme Court ruled in Mr Curnow’s favour this year after a five-year battle, leading him to issue a demand for payment.

The day before the payment period lapsed Mr Durie put the company into voluntary administration. The company owes Mr Curnow more than $563,000 and the Australian Taxation Office as much as $215,000. Mr Curnow was later awarded costs taking his claim to more than $1 million.

The company had $1 in the bank.

Documents lodged with ASIC detail creditors’ meetings, revealing the administrator’s concerns from preliminary investigations about the business’ solvency.

Mr Cathro told creditors his initial view was the company may have been insolvent by February 28, 2018 when a tax bill fell due. But the tax office had since divulged that garnishee notices were issued on January 24, 2018.

“As such it was determined that the company may have been insolvent from as far back as September 30, 2016,” he said, cautioning that “further investigations would need to be carried out in order to definitively determine the insolvency date”.

Mr Durie’s lawyers disputed the claim, according to minutes of the June creditors’ meeting.

“Whilst the ATO payment arrangement for income taxation defaulted in September 2016, the company still had sufficient assets from the alleged default point onwards to meet the arrangement terms,” the letter from Mr Durie’s lawyers said.

“Other creditors continued to be paid during this time. Mr Durie was funding personally the company’s debts, through repayment of his director’s loan account as required.”

Mr Cathro would later tell creditors: “Accordingly, the position is unclear and creates significant doubt around the ability of successfully pursuing the director for insolvent trading.”

Mr Cathro also highlighted asset sales, including domain names, royalties and cash, from Mr Durie’s company in 2015 to another of his own companies for $10,000, noting the deal “may be considered uncommercial”.

The administrator told creditors he reviewed the company’s balance sheet which showed five months prior to the sale “the book value of the assets was approximately $278,000.”

“My preliminary view is that this transaction may be uncommercial and may have been for consideration less than market value at the time the transaction was entered into,” Mr Cathro said.

But to prove that he would need to establish the company was insolvent at the time of the transaction, cautioning “that it appeared that there would be some difficulty in proving insolvency at the time of this transaction”.

Mr Durie’s lawyer advised he “would be vigorously defending any claims made by the liquidator with respect to insolvent trading and the uncommercial transactions”.

Mr Cathro then told the meeting he “had significant concerns regarding the strength of the insolvent trading claim against” Mr Durie.

In a statement on Friday, Mr Durie repeated through his lawyers that the company was solvent and that the administrator had originally had “limited information”.

More information was presented to the second meeting along with an offer from Mr Durie and accepted by creditors and the administrator, the statement said.

The minutes show Mr Durie recently sold a property in Queensland and used the funds to repay the company’s overdraft facility to ANZ.

Required

Review the above article and discuss the corporate law issues that arise from the case study.

Your paper must include an explanation of terms used, for example: voidable transactions, insolvent trading, uncommercial, garnishee notice etc.

Refer to relevant legislation and/or case law in your analysis.

15 Marks

Question 2

Model Haircuts Pty Ltd. is a very successful hairdressing business. The company was formed with five members in 2015. The five members have an equal shareholding of 20% each.

There are two company directors Elle and Belle. The company has a constitution, which provides for the retirement of directors after 3 years. Any member may stand for election as a director. Directors may be appointed or reappointed at the annual general meeting.

Billy is a member and wants to nominate for election at the next annual general meeting. Although he is an excellent hairdresser Billy has no business or finance experience.

The two incumbent directors Elle and Belle issue additional shares to themselves prior to the general meeting. The effect of the issue is to alter the voting power and make it impossible for Billy to be elected.

REQUIRED:

Advise Billy about his legal rights. Refer to relevant statute law and case law to support your response.

15 Marks