Notes Take For BSL201 Physical Class On 12

Notes take for BSL201 physical class on 12.06.
2024 (Chapter 5, 6 & 14)
Quote Section number and case name in exam points will be awarded
Chapter 5 - Corporate Insolvency
 Corporate Insolvency is the financial problem of a company

 Bankruptcy is the financial problem of an individual
 Individual who does business such as sole proprietor/partnership is not a company therefore a
partner in a partnership and sole proprietorship can go bankrupt
 Insolvency:
Finance law theory - the company is unable to pay its debts
Accounting theory - when the liabilities of the company is greater than the asset
 Solvency (shareholder is not in the equation):
Company is able to pay its creditor
A company is solvent if it is able to pay all debts as and when they become due and payable:
Corporations Act 2001 (Cth) s 95A(1) > legal explanation. A company who cannot do this is
insolvent: s 95A(2) > legal explanation
 Determining a company is insolvent: test using cash flow but the company’s situation must be
considered in entirety (Sandell v Porter) (cannot automatically decide company is insolvent just
by looking at balance sheet)
Overview: Statutory Demand - is a demand to make payment by the creditor (when it is present to
the court, court will presume it is insolvent) - can be issued so long there is outstanding debt (of at
least $2,000)
 Presumption of insolvency: a court must presume (unless proven by evidence otherwise) the
company is insolvent for the purposes of an application to wind up the company > provided that
under s459C CA that the following event occurred in the three months before the application -
failure to comply to statutory demand for payment > application made by creditor > so he can
get payment from the company by liquidating the asset of the company > court will appoint a
person as a liquidator
 When statutory demand can be served: a creditor can serve it on the company in relation to any
overdue debt of at least $2,000 (s459E). When a demand is served without legal justification,
court can impose legal court fees (both urs and the other party’s law fee).
 Statutory demand is a formal prescribed form, have to be in writing, signed and served on the
company. Where and who to serve it to?
 The demand can be set aside by a court if it:
(1)does not exactly conform to those formalities or is
(2)improperly served on the company and
(3)if the company have a genuine dispute about the existence debts
 Creditor who uses a statutory demand when there is a geninue dispute risk a court order to pay
increased costs if the SD was inappropriate (Rite Flow Pty Ltd vs Nahas Constructions)
Voluntary Administration - the company deciding that we are in financial trouble and something
has to be done (winding up or trying rescue the company > VA)
 In-between winding up and insolvency, there is a saving grace - voluntary administration

 Company under VA is said to be “under administration (“UA”) and is controlled by an
administrator who is appointed by the board of directors.
 why directors cannot continue running the company? --> directors may conduct insolvent
trading
 Legal Effect of company UA:
1) shareholders cant sell = transfer their shares
2) Protection of company property = shield from secured creditors on the company’s assets
preventing them from appointing liquidator to liquidate the assets to take money -
purpose is for the administrator to negotiate of compromise with the creditor to see if can
rescue the company.
3) Protecting directors from liability (to protect themselves and they have no other choice) =
putting company in VA removes the directors’ personal liabilities for the company’s debt
under s588G and also from the company’s future debts when it may be insolvent.
Powers Of Administrator
A takes control of company’s business, property and affairs. Power to remove and appointment of
director
While CO is UA, director’s powers are suspended. Prohibited to manage.
Winding Up - terminating the company
1) Voluntarily
a) members (can be done even when solvent) - done in a general meeting thru a special resolution of
at least 75% votes > appoint liquidators because it is a company’s assets not personal (company is a
separate legal entity)
b) creditors + members - insolvency > separate meeting done special resolution of 75%
2) Court Winding Up (Involuntarily)

- a)insolvency leading to b)statutory demand winding up happens
Creditor’s meeting - inform them, negotiate with them and see if anything can be done.
After winding up, govt gets the taxes first, secured creditors, liquidators, employees, unsecured
creditors, preference shareholder/normal shareholder (usually will not get anything)
Chapter 14 - Bankruptcy - deals with individual nothing to do with company - any natural person
even if under 18 years old or not an Australian citizen can be made bankrupt
Bankruptcy - satisfy demands of creditors by distributions of debtor’s assets.
Bankruptcy Proceeding: individual will be declared bankrupt as a result of either a creditor’s petition
or a debtor’s petition.
Creditor’s Petition: creditor files a petition with the court claiming the debtor has committed an act of
bankruptcy (owes money but don’t want to pay) and that the debt exceeds $5,000
Debtor’s Petition: There is no minimum amount of debt but the debtor must provide the Official
Receiver a Statement of Affairs which sets out the debtor’s financial circumstances.
Chapter 6 - Managed Investment Scheme - a scheme offered to any client for financial benefits -
someone else manage your funds
Your funds are iliquid in a MIS and it is stuck there. Its good if u earn money but if u need money, u
cannot get it out.
Characteristic :
1) people contribute money to acquire rights (interests) from a scheme
2) Contributions are pooled or used in a common enterprise to produce financial benefits
3) Members do not have day-to-day control over the operation of the scheme
MIS must have a manager and an entity. Cannot be done by an individual.

1) MIS entity must be a public company
2) Company must be registered under ASIC - and given a title “Responsible Entity”
3) Investor is called Member (he is not a shareholder) as he is buying rights (interests) in a scheme of
his choice --> funds are usually illiquid
4) Register a scheme - must have 2 very impt documents to show ASIC to show they are responsible
a) Constitution
Scheme constitution which is a contract between the Responsible Entity and the Investors (Scheme
Members - they are not a shareholder and is not a member of the company, only interested in their
own scheme) - Investors to look at scheme constitution to know if the funds if liquid or not liquid etc -
directors must act in the best interest of scheme members
Safeguards for Investors
1) Responsible Entity
2) Compliance Plan
3) 3 x Directors (1 Exec D, 2 NED)
4) Must appoint a Trust Company who behaves like a Trustee (act in the best interest of someone that
place trust in you) - to make sure the directors act in the best interest of the scheme members
Corporate Governance Public Company - the more NED in the company, the more corporate
governance in the company. - so more RE
1) 3 Board of Directors (all must comply to 180, 181, 182, 588G) (1 Exec Dir - dependent on the
company, 2 Non-Exec Independent Dir - not employee, not staff, no salary, no benefit, no bonus -
there to impart their skills to the company i.e law, finance, accounting etc)
b)Compliance Plan

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Notes take for BSL201 physical class on 12.06.

2024 (Chapter 5, 6 & 14)

Chapter 5 - Corporate Insolvency

 Corporate Insolvency is the financial problem of a company

 In-between winding up and insolvency, there is a saving grace - voluntary administration

While CO is UA, director’s powers are suspended. Prohibited to manage.

Winding Up - terminating the company

2) Court Winding Up (Involuntarily)

Bankruptcy - satisfy demands of creditors by distributions of debtor’s assets.

MIS must have a manager and an entity. Cannot be done by an individual.

Safeguards for Investors

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