Insolvency

Alan Adams was a director of "Pies for Me", a manufacturer and distributor of over 20 different type of pies. The other director was his wife, Penny Adams. Penny had very little to do with the day-to-day running of the business. The General Manager was Harry Hotchins, who was not a director but had a say on most of the operating decisions of the business.

Before the Covid pandemic hit Victoria, the Pies for Me turnover was over $1.5m per month. They employed 5 full-time and 10 casual staff. In December 2019, the business leased new plant and equipment valued at $650,000 and expanded their factory and cold storage facilities. The expansion was financed with a loan of $2.3m from the PayNow Bank. Lease payments were $16,230 per month and the loan payments were $28,200 per month. Your major customer was CG Foods and they were beginning to be late with their payments just as the pandemic hit. The General Manager was concerned about the monthly commitments of the lease, loan, rent, utilities and salaries and wages. He approached Alan who stated, "Don't worry - we have money in the bank!"

Over the last 12 months turnover has reduced to $0.6m per month, customers are late in paying their accounts, and suppliers are demanding past accounts be paid before supplying materials. Harry approaches the accountant to enquire about the financial position of the business. The accountant informs Harry that he is leaving at the end of the week and says, "it is not my problem."

A staff member approached Harry with a letter from the staff member's superannuation fund indicating that the employer contributions had not been paid for over 8 months. Harry again went to see Alan but he was playing golf. He noticed a document on Alan's desk with the words in bold print, Statutory Demand, dated 14 days prior. He read no further.

As he left Alan's office, the phone rang. He answered because the phone number indicated it was CG Foods. The call was from the liquidator of CG Foods, Petra Diche, who indicated that CG Foods was in liquidation and the expected dividend was zero. Harry knew that CG Foods owed Pies for Me nearly $820,000.

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