1) In mid-2016 Technologies Ltd a high profile electronics company with 15 stores in Singapore and 5 stores in Malaysia issued a notice to the Singapore Stock Exchange down grading the profits based on weaker sales and higher inventory costs. In addition the high cost of staff, online competitors and other established electronics stores cut into the company's profitability.

The directors approached the company's banks for additional funds to support the company hoping that the Christmas sales would support the company.

The banks had already loaned the company $140m and were not keen on extending further funds to Technologies Ltd.

They therefore refused the company further funds and wanted to put the company into receivership, wanting to get their money back.

The accounting practice that you work for has been appointed the receiver of the Technologies Ltd.

When the receivers reviewed the assets of the company which were given to the banks as security for the loan, the estimated value was only $20m. Therefore there was a shortfall of $120m.

In reviewing the documents you note the following issues:

1. the directors had not personally guaranteed the loans of the company.

2. Some of the directors had received various electronic equipment from the company at no cost. If they had been sold to the directors the company would have received $85,000 for the items. These transactions took place within 5 months of the company going into receivership.

3. In discussion with the suppliers of the electronic items, they are no longer prepared to sell good on credit terms and want their outstanding invoices paid. This totals $65m. Their only security is the inventory. Estimated market value of these items is $18m.

4. You also note that the employees have not had contributions made to the CPF and the company will struggle to pay the wages owing for last two weeks.

In a meeting with the directors of the company they seek your advice.

REQUIRED:

a) Advise the directors as to whether they should appoint a judicial manager or put the company into liquidation. (5 marks)

b) Explain to the directors the consequences of your choice on them. (3 marks)

c) In relation to the issues you discovered above (points 1-4) explain to the directors the consequences for them and the company. (7 marks)

GUIDE

(A) DISCUSS THE MEANING OF INSOLVENT AS PER THE COMPANIES ACT AND COMPARE TO LIQUIDITY. THE ABOVE INFORMATION WOULD APPEAR TO INDICATE THAT IT IS NOT A CASH FLOW ISSUE BUT THAT THE COMPANY CAN NOT PAYS ITS DEBTS WHEN DEMANDED BY THE CREDITORS.

THEREFORE THE RISK TO THE DIRECTORS IS THAT IF THE COMPANY WAS INSOLVENT BEFORE THEN ANY DEBTS INCURRED AFTER THAT DATE UNDER S 339 WOULD MEAN THEY ARE GUILTY OF FRAUDULENT TRADING AND PERSONALLY LIABLE.

(B ) JUDICIAL MANAGEMENT

S 227C

JM HAS 60 DAYS TO GIVE PROPOSALS TO CREDITORS

COMPANY COULD TRADE ON

SOLD TO ANOTHER AS PART OF A SCHEME OF ARRANGEMENT

ANY PERSONAL LIABILITIES FROZEN IE PERSONAL GUARANTEES NOT TRIGGERED

NO ONE CAN SUE THE COMPANY

COMPANY CAN NOT SUE ANY ONE

ASSETS CAN BE SOLD IN ORDERLY FASHION AND DIRECTORS MAY GET SOMETHING BACK

INSOLVENCY

EVERYTHING GOES

NO ASSETS LEFT

NO BUSINESS

COMPANY DE REGISTERED

BETTER OPTION WOULD BE JM AS GIVES THE COMPANY AND DIRECTORS AN OPPORTUNITY FOR BUSINESS TO SURVIVE OR BE SOLD.

(C ) IF NO PERSONAL GUARANTEE THEN NO PERSONAL LIBAILITY AND THE CORPORATE VEIL CAN NOT BE REMOVED.

RECEIPT OF GOODS BY THE DIRECTORS ANTECEDENT VOIDABLE TRANSACTION?

VOIDABLE TRANSACTIONS SEE S 329 AND S 227T. EXPLAIN WHAT THIS IS AND POWERS OF THE COURT TO UNDO THE TRANSACTION AND ORDER THE MONEY BE PAID TO THE COMPANY. MENTION RELATION BACK DAY. WAS THE COMPANY SOLVENT OR INSOLVENT AT THE TIME OF THE TRANSACTIONS? CONDITIONS AND TIME FRAME. REFER TO UNDERVALUE

TRANSACTION S 98 BANKRUPTCY ACT. ALSO MENTION UNFAIR PREFERENCE S 99 OF BANKRUPTCY ACT. MENTION DATE AND TIME FRAME. IN BOTH THEY SHOULD MENTION HOW MUCH THE LIQUIDATOR WOULD GET BACK.

NON PAYMENT OF SUPER EMPLOYEES WILL GET SUPER UNDER S 328

Total 15 marks

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