CASE STUDY:

On reviewing all the matters, Leisel advises that the best option for the company, the creditors and the shareholders is to liquidate the company.

What is the process by which Leisel proposes her recommendation to the company?

Who decides to accept Leisel's proposal? How?

Can Leisel be the liquidator of Retrofit Pty Ltd?

What effect will Leisel's recommendation have on Julian, Bev and Samantha?

• The payment of a $150,000 bonus to Bev and Julian.
• Lisa advised her of the actions of Julian and Bev that caused the company to lose value and the misappropriation of company property.
• Suppliers are demanding cash on delivery.
• Customers are refusing to pay, as the quality of the goods has declined and is not what they were led to believe.
• Creditors are threatening to wind up the company.
• Julian authorised the payment of $9,379 to RH the cardboard supplier in preference to the other outstanding creditors.
• Julian has not drawn a wage of $25,000 which he is owed for the last 4 months.
• Julian authorised the transfer of warehouse fixtures valued in the company accounts at $4,000 to settle the amount owed to another creditor. The amount owing to the creditor was only $2,087.
• Bev has told Julian that she would like her loan of $10,000 back and that she is owed outstanding directors' fees of $4,692.
• Julian took a shortterm, unsecured loan of $15,000 from Cash Suppliers Ltd on behalf of the company at 8 per cent per month interest.

The creditors have agreed to appoint a liquidator. Retrofit Pty Ltd is coming to an end.

WORKSHOP QUESTIONS TO BE DISCUSSED IN CLASS:

1. On reviewing all the above matters, Leisel advises that the best option for the company, the creditors and the shareholders is to liquidate the company.

Required:

a. What is the process by which Leisel proposes her recommendation to the company?

b. Who decides to accept Leisel's proposal? How?

c. Can Leisel be the liquidator of Retrofit Pty Ltd?

d. What effect will Leisel's recommendation have on Julian, Bev and Samantha?

2. In general companies that are insolvent are wound up. However in some instances solvent companies are also liquidated

Required:

Discuss how and why a solvent company would be liquidated

3. Look back at the transactions that the directors of Retrofit Pty Ltd entered into:

i. A $150,000 bonus to each of Bev and Julian

ii. Payment of $9,379 to RH, the cardboard supplier, after it threatened to issue a statutory demand

iii. The transfer of warehouse fixtures valued in the company accounts at $4,000 to settle the amount owed to another creditor the amount owing to the creditor was only $2,087

iv. An unsecured loan for $15,000 obtained from Cash Suppliers Ltd at an interest rate of 8 per cent per month

Required:

As an assistant to the liquidator, look at the above and:

a. determine which of these transactions might be voidable transactions,

b. and which type they may be.

c. The relevant conditions

d. Why do you think it is important for the liquidator to look at these transactions?

4. If there is an antecedent voidable transaction and the court orders the creditor to return the goods or the cash, this can obviously cause issues for that creditor.

Required:

Consider if there are any grounds for the creditor not to hand back the goods or cash to the liquidator

5. RH, the unsecured creditor for the cardboard, is threatening Retrofit Pty Ltd with a winding up demand if the company does not pay.

Required:

i. If you were the accountant for RH and Retrofit Pty Ltd was refusing to pay the amount owing, would you recommend service of a statutory demand on Retrofit? Why? When?

ii. What are the statutory conditions for the service of a statutory demand on Retrofit Pty Ltd

6. Retrofit Pty Ltd borrowed $15,000 from Cash Suppliers Ltd unsecured at an interest rate of 8 per cent permonth.

Required:

i. Is the interest rate extortionate? Does it make any difference that no other person would lend the company money?

7. Once Retrofit Pty Ltd was put into liquidation, the liquidators carried out their duty to wind up the company by disposing of the assets.

The following creditors had notified the liquidator proof of their debts:

i. Bank of Queensland (secured fixed security over the assets and real estate) $2,853,456

ii. Chemco Pty Ltd (trade supplier) (security over inventory) $1,395,725

iii. Employees owed wages and SG contributions $85,326

iv. Julian (CEO) owed wages and bonus $34,954

v. Utility companies for power and gas (unsecured) $385,135

vi. Mitchell Pty Ltd for advertising (unsecured) $185,785

vii. Cola Ltd for consumable goods (unsecured) $184,248

viii. Bev loan of $10,000 secured over inventory.

The total funds realised by the liquidator to distribute to the above was $4,684,629

REQUIRED:

Please show and calculate how the funds of $4,684,629 will be allocated to the above creditors