Question One

Three years ago Jack and Jill incorporated JJ Internet Pty Ltd to take advantage of the boom in electronic commerce. Their business was to set up home pages for businesses on the Internet. Jack was the computer expert and Jill the marketing guru.

Due to poor cash management, JJ Internet have been struggling to pay its debts. Yesterday the company received a statutory demand from an unsecured creditor, OfficeLinks, demanding payment of an outstanding debt of $3500 for office supplies purchased monthly over the last 6 months.

Jack and Jill approach their bookkeeper, a final year student and a university friend, who advised them to quickly borrow $50,000 from Comm Bank so that Jack and Jill could purchase a luxury motor vehicle. The vehicle was owned by the company and had recently been valued at $150,000.

Within a few weeks of the borrowing however, the company was unable to pay the interest to Comm Bank and placed the company into voluntary administration. Soon after, the company was wound up. The realised assets were enough to pay Comm Bank, but $80,000 owed to unsecured creditors, including OfficeLinks remained unsatisfied.

Required:

1. Describe the procedure that OfficeLinks must follow to correctly serve the statutory demand on JJ Internet Pty Ltd and what JJ Internet should do with the statutory demand. Does OfficeLinks gain priority over other unsecured creditors in a winding up given that they have issued the demand before winding up commenced? (3 marks)
2. Advise the unsecured creditors if they have a claim against Jack and Jill personally, including any defences or safe harbours that Jack and Jill may have (4 marks)
3. Describe the procedures under the CA relating to both voluntary administration and winding up in insolvency, including the powers of the liquidator (3 marks)