This is a case study

Nemo and Dory are the only directors and shareholders of Big Tank Pty Ltd ("BT"), a company which runs an aquarium manufacturing business.

In January 2020, BT is starting to run into financial troubles.BT's suppliers were on supplying COD, BT was bouncing cheques, and other creditors had taken legal action to recovery outstanding amounts. About two months earlier Crazy Fins Ltd had served a statutory demand on BT for unpaid bills which BT ignored.Crazy Fins Ltd has not taken any further steps in connection with the statutory demand.

On January 2, 2020 Nemo got a phone call from a representative of Little Fish Pty Ltd ("Little Fish") complaining that BT had not paid a $15,000 bill that had been outstanding for several months.The Little Fish representative threatened to not make any further supplies to BT if the bill was not paid immediately.That afternoon, BT paid the bill in full.

Knowing that BT was desperately in need of cash, Dory decided to sell two motor vehicles owned by BT.The vehicles had recently been appraised at $50,000, but Dory was so desperate for cash she sold them to her friend, Peach, for $12,500.The proceeds of the sale were deposited into Dory's personal bank account and she used the money to buy a new car for her daughter. Peach was a used car dealer and sold the cars for $55,000 within two days. As a result of not having the vehicles, BT's sales people could not travel to see clients and sales further deteriorated.

1.The directors are getting desperate as they are concerned that Big Tank Pty Ltd is insolvent. What are the directors' options? Advise 4 marks

2.Big Tank Pty Ltd went into court-ordered liquidation in March 2020.It is apparent that the liquidators will not have sufficient funds to meet the claims of unsecured creditors.

Advise the liquidator of any potential avoidance actions and the defences which may be available to the defendants as per the following scenarios: 4 marks

a.On January 20, 2020, Big Tank Pty Ltd granted Nemo a mortgage over office buildings its owned to secure a $1,000,000 loan which Nemo had provided to the company many years earlier.

b.Still desperate for money, Dory entered into a $100,000 loan agreement with Bad Bank Ltd on behalf of Big Tank Pty Ltd.The conditions of the loan included 55% interest and a $20,000 closing fee. The loan was secured by equipment which had a value of $200,000 and was for a 6 month term.

.3. Advise the directors of Big Tank Pty Ltd whether they have beached their duties to avoid "insolvent trading" and if so can they rely on any defences?