South Pacific Shipping Co Ltd (SPS) was formed in January 1992 to operate on the trans-Tasman shipping routes. Mr Klaus Lwer, who is a German businessman, became a director of SPS on 20 May 1992. By June 1993 Mr Lwer was the controlling shareholder of SPS, holding 85.5% of its share capital. Eventually he became the sole shareholder. He was the only shareholder of any financial substance. He continued to be a director of the company until shortly before it was placed in liquidation on 19 February 1998. Mr Lwer ran a successful and continuously expanding multi-million dollar shipping business for the first four years until certain laws concerning this particular trading route were implemented. The proposed laws were well discussed in shipping circles for two years prior and it was well known that if implemented, shipping on this particular route would be adversely affected. He continued to purchase ships for charter.

SPS's income of $42.3m in the financial year to 30 June 1993 rose to $90.9m for the year to 30 June 1996 reflecting the company's expansion of shipping capacity. Income fell to $82.5m in the following year and was only $34.5m for the final six months to 31 December 1997. However, SPS traded at a loss throughout. Its cumulative losses rose from $2.3m at the end of its initial six months trading period to 31 June 1992 to be $39.6m at 31 December 1997. During its period of trading, there was a growing shortfall between current assets and current liabilities of SPS. For the 30 June 1994 year this was $4.4m and the following years it was respectively $6.2m, $7.4m and $8.9m. SPS was able to continue to trade, despite its consistently deteriorating financial position, because of its liquidity. It was able to collect its trade debts within 14 days, while enjoying extended credit of between 30 and 90 days from its trade creditors. This was its method of financing its operations. On 18 February 1998, having failed over a six month period to negotiate a merger of SPS with Union Direct line, which operated a shipping route not affected by the laws implemented, Mr Lwer resigned as a director of SPS and terminated several vessel charters. The company was placed in liquidation the following day. Its total liabilities were $41m. It was found that while trade creditors would be aware of industry risks they were not fully informed at any stage concerning the SPS financial situation. No accounts were filed with the Companies Office before May 1994 (when the 1992 accounts were submitted). The accounts for the years ended 30 June 1993 and 1994 were not lodged until August 1995. It was inferred that management was reluctant to let the SPS financial position become widely known in the market as it would then face difficulty in getting credit. A Group of SPS's creditors has come to you for advice on how to recoup their monies. Please advise based on current laws