SAORSA
GROUP
FREQUENTLY ASKED QUESTIONS
Role of the Liquidator
Answer: The Liquidator’s role is to administer the liquidation process of a company, which involves taking possession of assets of the company, realising those assets, determining the creditors of the company, investigating the affairs of the company, reporting any breaches of the Corporations Act 2001 (Cth) (Corporations Act) to the ASIC, assessing whether any claims are available on behalf of the company and pursuing those claims (for example, preference claims, uncommercial transactions, and insolvent trading), applying the proceeds of the company’s assets towards payment of the creditors, and having the company deregistered. The above process is lengthy and usually takes approximately 2 years to complete, and in many cases, takes longer.
Except for lodging documents and reports required under the Corporations Act, a Liquidator is not required to incur an expense for the winding up unless there are enough assets to pay their costs.
Conducting the Investigation
Answer: The investigation is done for two reasons. Firstly, to ascertain whether all the assets available to creditors have been located, and if not, how they can be recovered.
Secondly, to ascertain whether, in the public interest, breaches of the law may have been committed. The investigation must be conducted at a level necessary to report to ASIC under section 533 of the Corporations Act.
Answer: The Liquidator will examine books, accounts and financial records, interview company officers and employees, and conduct searches of public records and titles, obtain documents from third parties, and potentially conduct public examinations. Given that Saorsa Group is composed of eleven (11) entities, there will be a significant volume of documentary materials that have to be examined and a number of inquiries to be undertaken to do proper forensic investigations, tracing and establishing the relevant facts to ascertain if there are possible recovery actions. This process will take many months and may extend beyond that timeframe.
Answer: The conduct of investigations into the company and its operations will depend on the available funds and the commercial decisions of the Liquidator and will vary depending on the company’s history and operations. The Liquidator will investigate the following matters:
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the assets and liabilities of the company;
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any potential actions in order to recover the assets of the company, including any unfair preference payments and uncommercial transactions;
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any offences or misconduct that have been committed by the company’s officers or employees, members or contributories, or promoters or managers;
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any possible claims against the company’s directors or officers, including insolvent trading claims and breach of fiduciary duty claims; and
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the likelihood of creditors receiving a dividend before the affairs of the company are fully wound up.
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Reporting to ASIC
Answer: Under section 533 of the Corporations Act, the Liquidator has a statutory obligation to lodge a report to ASIC if, in the investigations, the Liquidator found that:
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offences have been committed against the Commonwealth, State or Territory laws;
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officers or employees, members or contributories, or promoters or managers are guilty of improper behaviour, including misappropriation or retention of any money or property of the company and breach of duty or trust in relation to the company; or
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the company is unable to pay unsecured creditors more than 50 cents in the dollar; or
The Liquidator is also entitled to report any other matters which the Liquidator considers necessary or desirable to report to ASIC.
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Answer: The Liquidator’s report to ASIC must be lodged as soon as practicable but, in any event, within six (6) months.
Although the Liquidator is not required to report to ASIC within the above period, the Liquidator intends to expedite this process and complete and lodge his report to ASIC on 30 January 2025.
Reporting to Creditors
Answer: Within ten (10) business days after they are appointed liquidator in a creditors’ voluntary liquidation, the Liquidator must give notice to creditors of their appointment and initial information about the creditors’ rights in the liquidation.
The Liquidator must also prepare a statutory report to creditors and lodge this report to ASIC within three (3) months after their appointment, which covers:
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the estimated amounts of assets and liabilities of the company;
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inquiries relating to the winding up of the company that have been undertaken to date;
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further inquiries relating to the winding up of the company that may need to be undertaken;
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what happened to the business of the company;
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the likelihood of creditors receiving a dividend before the affairs of the company are fully wound up; and
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possible recovery actions.
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Answer: The Liquidator intends to expedite his investigations and complete and lodge his report to ASIC on 30 January 2025.
Provision of documents and information to creditors (other than statutory reports)
Answer: Creditors can ask the Liquidator for a further report if the request is reasonable.
There is no legal requirement for a liquidator to provide further reports to creditors other than the initial information and statutory creditors’ report, as discussed above. The Liquidator may provide further reports to update creditors about the liquidation if the Liquidator considers it necessary or desirable and will depend on the costs of communications relative to the assets available and the importance of the issues being communicated.
The Liquidator has already provided creditors with information, through an informal creditors’ meeting question and answer session, and has also provided a memorandum of information to creditors. The Liquidator intends to continue to provide informal avenues for information to be provided to creditors, as and when it is reasonable to do so.
Answer: Under sections 70-40(2)(c) and 70-45(2)(c) of Insolvency Practice Schedule (Corporations) 2016 of Schedule 2 of the Act (IPSC), an unreasonable request by a creditor need not be complied with.
Sections 70-10(2) and 70-15(2) of the Insolvency Practice Rules (Corporations) 2016 (IPRC) prescribed circumstances where it is unreasonable to comply with a request to give information, provide a report or produce a document to creditors. That is the case if the Liquidator, acting in good faith, is of the opinion that:
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complying with the request would substantially prejudice the interests of one or more creditors or a third party, and that prejudice outweighs the benefits of complying with the request;
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the information etc would be subject to legal professional privilege;
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disclosure of the information etc would be found an action by a person for breach of confidence;
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the company’s assets are not enough to cover the Liquidator’s remuneration and expenses in responding to the request;
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the information etc has already been provided; and
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the request is vexatious.
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Recovery of Assets
Question: Apart from the company’s existing assets, what other assets of the Company would be available to the Liquidator to realise for distributions to creditors?
Answer: The Liquidator is entitled to all the assets that belonged to the company at the commencement of liquidation, as well as any property or money that has been improperly transferred to other persons and any transactions entered into by the company prior to liquidation that are voidable under the Act. These are generally referred to as “voidable transactions”.
Answer: The voidable transactions under the Act are as follows:
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unfair preference payments;
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uncommercial transactions;
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transactions with the purpose of obstructing creditor’s rights;
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unfair loans to the company;
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unreasonable director-related transactions; and
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creditor-defeating dispositions (i.e. illegal phoenix activity)
Those voidable transactions are complex and can be difficult to understand. If voidable transactions are identified during investigations, they will be explained in the creditors’ statutory report.
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Answer: The recovery process for voidable transactions is complex, time consuming and can be expensive. This requires forensic investigations of the company’s affairs, including examining a significant volume of documentary materials, conducting a number of inquiries and obtaining a legal analysis to ascertain whether such transactions fit within the provisions of voidable transactions under the Act. These investigations will take many weeks or months.
After the Liquidator completes the investigations and has identified any voidable transaction under the Act, subject to the availability of funds from the company and/or funding from creditors or third-party to cover the Liquidator’s costs and the legal costs and commercial decisions, the Liquidator may commence legal proceedings to recover assets from voidable transactions. The legal proceedings could take several months or years if defended. If successful, enforcing the orders could also take several weeks or months.
Answer: During the course of the administration of the winding up, the Liquidator will realise company assets and declare an interim distribution to unsecured creditors as soon as practicable, except when funds are needed to administer the liquidation. A final distribution will be paid to unsecured creditors once all assets have been realised and after the priority payments are made.
Unsecured creditors will only receive distributions if the Liquidator has admitted their proof of debts and after paying the following priority payments from the company’s funds in the following order:
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secured creditors;
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costs and expenses of the liquidation, including Liquidators’ fees and costs;
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outstanding employee wages and superannuation;
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outstanding employee leave of absence (including annual leave and long service leave);
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employee retrenchment pay; and
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unsecured creditors.
Each category must be paid in full before the next category is paid. If there are insufficient funds to pay a category in full, the available funds are paid on a pro-rata basis (and there will be no distributions for the next category or categories).
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Answer: An unsecured creditor must prove their debts to the Liquidator by providing information about the debt or claim before an unsecured creditor becomes entitled to any funds available for distributions.
The Liquidator will provide creditors with a formal proof of debt form. The completed proof of debt form must be delivered or posted to the Liquidator.
Freezing the assets
Answer: A freezing order is an order from the Court that prevents a party from disposing of assets to frustrate the enforcement of a judgment. Where asset preservation orders are made against a party to the proceedings, the Court’s focus is on the frustration of the Court’s process. An asset preservation order directed at a non-party, by contrast, is directed at the administration of justice.
Answer: In liquidation, a freezing order can be sought by the following the party:
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a party (called an “aggrieved party”) claiming that another party (called a “respondent”) is liable in debt damages or for compensation or otherwise; and
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ASIC.
The aggrieved party includes the Liquidator and creditors who have a valid claim against a director.
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Question: What does the Liquidator or an aggrieved party have to prove to the Court for an application for a freezing order?
Answer: The Liquidator or an aggrieved party must demonstrate to the Court the following:
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a good arguable legal cause of action;
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that there is a risk the respondent will either abscond or dissipate its assets; and
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solid evidence that there exists a real risk that the respondent will abscond or dissipate their/its assets, particularly in circumstances where the “good arguable case” is one involving serious dishonesty or fraud.
The Court will also take into account, in the exercise of its discretion to make a freezing order, the adequacy of the aggrieved party’s undertaking to satisfy losses caused by the Court’s order preserving the respondent’s assets. If the Court is not satisfied with the undertaking, the Court may require a security for costs.
If the Liquidator wishes to make an application for a freezing order, the Liquidator has to provide evidence by way of Affidavit and documentation, demonstrating and proving the cause of action and the other factors above that the Court considers. This means that the Liquidator has to undertake proper investigations and obtain proper evidence before the Liquidator can make any application to the Court. These investigations must be detailed and can take many weeks and months to complete.
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Answer: There are two preconditions to an application by ASIC for freezing orders. Firstly, ASIC must be conducting an investigation under the Corporations Act or the ASIC Act in relation to an act or omission by a person that constitute a breach of the Corporations Act. Secondly, it must be demonstrated that it is “necessary and desirable to make an order”, in order to protect a party that may have a claim for compensation because of the breach of the Corporations Act.
If ASIC is applying for a freezing order, ASIC must present evidence to the Court by Affidavit and documentation, verifying the above matters and setting out sufficient information to prove these matters to the Court. This therefore requires a significant amount of investigation by ASIC before an application is made to the Court.
The decision as to whether ASIC will make an application for a freezing order solely rests with ASIC. The Liquidator does not have the power to require ASIC to make an application for a freezing order.
Question: Can the assets of the directors be frozen so that they are available for recovery of any claims the liquidator has against directors?
Answer: Yes, provided the liquidator can prove relevant matters to a Court and the Court agrees to make the freezing orders.
Creditor’s personal claim against third-party (e.g. directors or financial adviser)
Answer: Creditors need to obtain their own legal advice if they believe they have a claim against a director personally or third-party (such as financial adviser). It is not the role of the Liquidator to pursue personal claims of creditors.
Answer: Seek legal advice from your own solicitor.
Disclaimer: The above information is general in nature and is provided for the purposes of information to creditors regarding frequently asked questions. It is not intended to be in the nature of professional advice or legal advice, or specific advice about a creditor’s particular circumstances. Creditors should obtain their own professional advice in respect of their particular circumstances and should not rely on this general information set out above.
ARITA Information on a company's insolvency
ASIC information sheets
ASIC have regulatory resources and useful information sheets on their website.