Question 7 (20 points)

Twyla and Mutt are the directors and shareholders of Oh Baby! Pty Ltd, a very small company which imports baby products from Portugal for sale to various retail outlets in Australia. The company has a small warehouse in Hobart where it keeps its goods, and from which all products are distributed. Oh Baby! Pty Ltd recently entered into a large contract to supply Babies r Us, Australia's largest retailer of baby beds, with cot mattresses printed with farm animals and cartoon characters. Accordingly, Oh Baby! Pty Ltd ordered four shipments of mattresses from their supplier in Portugal, paying a large deposit. After only one delivery to Babies r Us, a defect is discovered in the cot mattresses supplied by Oh Baby! Pty Ltd. Babies r Us cancels all further orders from Oh Baby! Pty Ltd. The Australia government bans the sale of these mattresses, and undertakes a product recall.

Oh Baby! Pty Ltd now has no future revenue. There are stocks of mattresses which cannot be sold. The shipping company needs to be paid, and there are also various other bills due to the tax office. Employees and others who have provided services have to be paid. Twyla and Mutt still owe money to their supplier in Portugal.

Twyla and Mutt are desperate and seek your advice. They want to know how to proceed. Specifically, they want to know:

a. Is Oh Baby! Pty Ltd insolvent? b. If it is, what must Twyla and Mutt do?

Please refer to relevant legislation and/or case law to illustrate your answer.