Corporations Act 2001

CHAPTER 5 - EXTERNAL ADMINISTRATION  

PART 5.7B - RECOVERING PROPERTY OR COMPENSATION FOR THE BENEFIT OF CREDITORS OF INSOLVENT COMPANY  

Note: This Part applies to a sub-fund of a CCIV in a modified form: see Division 3 of Part 8B.6 (for provisions relating to Division 2B ), Division 5 of Part 8B.6 (for provisions relating to Divisions 2 and 2A ) and Division 6 of Part 8B.6 (for provisions relating to Divisions 3 , 4 , 5 and 6 ).

Division 1 - Preliminary  

SECTION 588C  

588C   MEANING OF PROPERTY  


In this Part:

property
of a company includes PPSA retention of title property, if the security interest in the property is vested in the company because of the operation of any of the following provisions:


(a) section 267 or 267A of the Personal Property Securities Act 2009 (property subject to unperfected security interests);


(b) section 588FL of this Act (collateral not registered within time).

Note: See sections 9 (definition of property ) and 51F (PPSA retention of title property).

SECTION 588D  

588D   SECURED DEBT MAY BECOME UNSECURED  
For the purposes of this Part, a secured debt becomes an unsecured debt to the extent that the creditor proves for the debt as an unsecured creditor.

SECTION 588E   PRESUMPTIONS TO BE MADE IN RECOVERY PROCEEDINGS  

588E(1)    


In this section:

recovery proceeding
, in relation to a company, means:


(a) an application under section 588FF by the company ' s liquidator; or


(aa) action by ASIC under section 588FGAA ; or


(ab) proceedings under section 588FGAE ; or


(b) proceedings begun under subsection 588FH(2) by the company ' s liquidator; or


(c) proceedings, in so far as they relate to the question whether a security interest created by the company is void to any extent, as against the company ' s liquidator, because of subsection 588FJ(2) ; or


(d) proceedings begun under subsection 588FJ(6) by the company ' s liquidator; or


(e) proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt by the company (including proceedings under section 588M in relation to the incurring of the debt but not including proceedings for an offence); or


(ea) proceedings for a contravention of subsection 588GAB(2) or 588GAC(2) in relation to a disposition of property of the company (including proceedings under section 588M in relation to the disposition but not including proceedings for an offence); or


(f) proceedings under section 588W in relation to the incurring of a debt by the company.


588E(2)    
Subsections (3) to (9), inclusive, have effect for the purposes of a recovery proceeding in relation to a company.

588E(3)    
If:


(a) the company is being wound up; and


(b) it is proved, or because of subsection (4) or (8) it must be presumed, that the company was insolvent at a particular time during the 12 months ending on the relation-back day;

it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.


588E(4)    
Subject to subsections (5) to (7), if it is proved that the company:


(a) has failed to keep financial records in relation to a period as required by subsection 286(1) ; or


(b) has failed to retain financial records in relation to a period for the 7 years required by subsection 286(2) ;

the company is to be presumed to have been insolvent throughout the period.


588E(4A)    


In determining for the purposes of the recovery proceeding whether a disposition of property of the company is a creditor-defeating disposition, the consideration payable to the company for the disposition is to be presumed to be less than both the market value of the property and the best price reasonably obtainable for the property, if it is proved that the company:


(a) has failed to keep financial records relating to the disposition as required by subsection 286(1) ; or


(b) has failed to retain financial records relating to the disposition for 7 years after the disposition as required by subsection 286(2) .

This subsection is subject to subsections (5) and (6).


588E(5)    


Paragraphs (4)(a) and (4A)(a) do not apply in relation to a contravention of subsection 286(1) that is only minor or technical.

588E(6)    


A presumption under subsection (4) or (4A) of this section, applying because of a contravention of subsection 286(2) , does not have effect so far as it would prejudice a right or interest of a person, if it is proved that:


(a) the contravention was due solely to someone destroying, concealing or removing financial records of the company; and


(b) none of those financial records was destroyed, concealed or removed by the first-mentioned person; and


(c) the person was not in any way, by act or omission, directly or indirectly, knowingly or recklessly, concerned in, or party to, destroying, concealing or removing any of those financial records.


588E(7)    
If the recovery proceeding is an application under section 588FF , subsection (4) of this section does not have effect for the purposes of proving, for the purposes of the application, that an unfair preference given by the company to a creditor of the company is an insolvent transaction, unless it is proved, for the purposes of the application, that a related entity of the company was a party to the unfair preference.

588E(8)    
If, for the purposes of another recovery proceeding in relation to the company, there has been proved:


(a) if the other proceeding is of the kind referred to in paragraph (1)(a) of this section - a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2) or in subsection 588FG(9) ; or


(aa) if the other proceeding is of the kind referred to in paragraph (1)(ab) of this section - a matter of the kind referred to in a paragraph of subsection 588FG(2) , 588GAB(2) or 588GAC(2) , or a defence under subsection 588GAB(3) or 588GAC(3) or section 588H ; or


(b) if the other proceeding is of the kind referred to in paragraph (1)(b) of this section - a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2) or 588FH(1) or in subsection 588FG(9) , or a defence under subsection 588FH(3) ; or


(c) if the other proceeding is of the kind referred to in paragraph (1)(c) or (d) of this section - a matter of the kind referred to in subsection 588FJ(3) ; or


(d) if the other proceeding is of the kind referred to in paragraph (1)(e) of this section - a matter of the kind referred to in a paragraph of section 588G , or a defence under section 588H ; or


(da) if the other proceeding is of the kind referred to in paragraph (1)(ea) of this section - a matter of the kind referred to in a paragraph of subsection 588GAB(2) or 588GAC(2) , or a defence under subsection 588GAB(3) or 588GAC(3) or section 588H ; or


(e) if the other proceeding is of the kind referred to in paragraph (1)(f) of this section - a matter of the kind referred to in a paragraph of subsection 588V(1) , or a defence under section 588X ;

it must be presumed that that matter was the case, or that the matters constituting that defence were the case.


588E(8A)    


If, for the purposes of another recovery proceeding in relation to the company, evidence has been adduced or pointed to that suggests a reasonable possibility of:


(a) subsection 588GA(1) or 588GAAA(1) applying in relation to a person and either a debt or a disposition; or


(b) subsection 588WA(1) applying in relation to a corporation and a debt;

it must be presumed that that reasonable possibility exists.


588E(9)    
A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the proceeding concerned.

SECTION 588F   CERTAIN TAXATION LIABILITIES TAKEN TO BE DEBTS  

588F(1)   [ Tax remittance liabilities are debts]  

For the purposes of this Part, a company's liability under a remittance provision to pay to the Commissioner of Taxation an amount equal to a deduction made by the company, after 1 July 1993, from a payment:


(a) is taken to be a debt; and


(b) is taken to have been incurred when the deduction was made.

588F(2)   [ ``remittance provision'']  

In this section:

remittance provision
means any of the following former provisions of the Income Tax Assessment Act 1936 :


(aa) section 220AAE, 220AAM or 220AAR;


(a) section 221F (except subsection 221F(12)) or section 221G (except subsection 221G(4A));


(b) subsection 221YHDC(2);


(c) subsection 221YHZD(1) or (1A);


(d) subsection 221YN(1);

or any of the provisions of Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 .

588F(3)   [ Generality of reference to a debt, etc]  

This section is not intended to limit the generality of a reference in this Act to a debt or to incurring a debt.

Division 2 - Voidable transactions  

Subdivision A - Kinds of transactions that may be voidable  

SECTION 588FA   MEANING OF UNFAIR PREFERENCE  

588FA(1)    
A transaction is an unfair preference given by a company to a creditor of the company if, and only if:

(a)    the company and the creditor are parties to the transaction (even if someone else is also a party); and

(b)    the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;

even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.


588FA(2)    
For the purposes of subsection (1) , a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security.

588FA(3)    
Where:

(a)    a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and

(b)    in the course of the relationship, the level of the company ' s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

then:

(c)    subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and

(d)    the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference.

SECTION 588FB   MEANING OF UNCOMMERCIAL TRANSACTION  

588FB(1)    
A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

(a)    the benefits (if any) to the company of entering into the transaction; and

(b)    the detriment to the company of entering into the transaction; and

(c)    the respective benefits to other parties to the transaction of entering into it; and

(d)    any other relevant matter.

588FB(2)    
A transaction may be an uncommercial transaction of a company because of subsection (1) :

(a)    whether or not a creditor of the company is a party to the transaction; and

(b)    even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

SECTION 588FC  

588FC   MEANING OF INSOLVENT TRANSACTION  
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:

(a)    any of the following happens at a time when the company is insolvent:


(i) the transaction is entered into; or

(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or

(b)    the company becomes insolvent because of, or because of matters including:


(i) entering into the transaction; or

(ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction.

SECTION 588FD   MEANING OF UNFAIR LOAN  

588FD(1)    
A loan to a company is unfair if, and only if:

(a)    the interest on the loan was extortionate when the loan was made, or has since become extortionate because of a variation; or

(b)    the charges in relation to the loan were extortionate when the loan was made, or have since become extortionate because of a variation;

even if the interest is, or the charges are, no longer extortionate.


588FD(2)    
In determining:

(a)    whether interest on a loan was or became extortionate at a particular time as mentioned in paragraph (1)(a) ; or

(b)    whether charges in relation to a loan were or became extortionate at a particular time as mentioned in paragraph (1)(b) ;

regard is to be had to the following matters as at that time:

(c)    the risk to which the lender was exposed; and

(d)    the value of any security in respect of the loan; and

(e)    the term of the loan; and

(f)    the schedule for payments of interest and charges and for repayments of principal; and

(g)    the amount of the loan; and

(h)    any other relevant matter.

SECTION 588FDA   MEANING OF UNREASONABLE DIRECTOR-RELATED TRANSACTION  

588FDA(1)    
A transaction of a company is an unreasonable director-related transaction of the company if, and only if:

(a)    the transaction is:


(i) a payment made by the company; or

(ii) a conveyance, transfer or other disposition by the company of property of the company; or

(iii) the issue of securities by the company; or

(iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and

(b)    

the payment, disposition or issue is, or is to be, made to:

(i) a director of the company; or

(ii) a relative of a director of the company; or

(iii) a relative of a spouse of a director of the company; or

(iv) a person on behalf of, or for the benefit of, a person of a kind referred to in subparagraph (i) , (ii) or (iii) ; and

(c)    it may be expected that a reasonable person in the company ' s circumstances would not have entered into the transaction, having regard to:


(i) the benefits (if any) to the company of entering into the transaction; and

(ii) the detriment to the company of entering into the transaction; and

(iii) the respective benefits to other parties to the transaction of entering into it; and

(iv) any other relevant matter.

The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.

Note: Subparagraph (a)(iv) - This would include, for example, granting options over shares in the company.


588FDA(2)    
To avoid doubt, if:

(a)    the transaction is a payment, disposition or issue; and

(b)    the transaction is entered into for the purpose of meeting an obligation the company has incurred;

the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred).


588FDA(3)    
A transaction may be an unreasonable director-related transaction because of subsection (1) :

(a)    whether or not a creditor of the company is a party to the transaction; and

(b)    even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.


SECTION 588FDB   MEANING OF CREDITOR-DEFEATING DISPOSITION  

588FDB(1)    
A disposition of property of a company is a creditor-defeating disposition if:

(a)    the consideration payable to the company for the disposition was less than the lesser of the following at the time the relevant agreement (as defined in section 9 ) for the disposition was made or, if there was no such agreement, at the time of the disposition:


(i) the market value of the property;

(ii) the best price that was reasonably obtainable for the property, having regard to the circumstances existing at that time; and

(b)    the disposition has the effect of:


(i) preventing the property from becoming available for the benefit of the company ' s creditors in the winding-up of the company; or

(ii) hindering, or significantly delaying, the process of making the property available for the benefit of the company ' s creditors in the winding-up of the company.


Extensions of concept of disposition

588FDB(2)    
For the purposes of this section and provisions of this Act that refer to a creditor-defeating disposition, if a company does something that results in another person becoming the owner of property that did not previously exist, the company is taken to have made a disposition of the property.

588FDB(3)    
For the purposes of this section and provisions of this Act that refer to a creditor-defeating disposition, if:

(a)    a company makes a disposition of property to another person; and

(b)    the other person gives some or all of the consideration for the disposition to a person (the third party ) other than the company;

the company is taken to have made a disposition of the property constituting so much of the consideration as was given to the third party.


Subdivision B - Voidable transactions  

SECTION 588FE   VOIDABLE TRANSACTIONS  

588FE(1)    


If a company is being wound up:

(a)    a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; and

(b)    a transaction of the company may be voidable because of subsection (6A) if the transaction was entered into on or after the commencement of the Corporations Amendment (Repayment of Directors ' Bonuses) Act 2003 ; and

(c)    

a transaction of the company may be voidable because of subsection (6B) if the transaction was entered into on or after the commencement of that subsection.

588FE(2)    
The transaction is voidable if:

(a)    it is an insolvent transaction of the company; and

(b)    it was entered into, or an act was done for the purpose of giving effect to it:


(i) during the 6 months ending on the relation-back day; or

(ii) after that day but on or before the day when the winding up began.

588FE(2A)    


The transaction is voidable if:

(a)    the transaction is:


(i) an uncommercial transaction of the company; or

(ii) an unfair preference given by the company to a creditor of the company; or

(iii) an unfair loan to the company; or

(iv) an unreasonable director-related transaction of the company; and

(b)    the company was under administration immediately before:


(i) the company resolved by special resolution that it be wound up voluntarily; or

(ii) the Court ordered that the company be wound up; and

(c)    the transaction was entered into, or an act was done for the purpose of giving effect to it, during the period beginning at the start of the relation-back day and ending:


(i) when the company made the special resolution that it be wound up voluntarily; or

(ii) when the Court made the order that the company be wound up; and

(d)    the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of, the administrator of the company.


588FE(2B)    


The transaction is voidable if:

(a)    the transaction is:


(i) an uncommercial transaction of the company; or

(ii) an unfair preference given by the company to a creditor of the company; or

(iii) an unfair loan to the company; or

(iv) an unreasonable director-related transaction of the company; and

(b)    the company was subject to a deed of company arrangement immediately before:


(i) the company resolved by special resolution that it be wound up voluntarily; or

(ii) the Court ordered that the company be wound up; and

(c)    the transaction was entered into, or an act was done for the purpose of giving effect to it, during the period beginning at the start of the relation-back day and ending:


(i) when the company made the special resolution that it be wound up voluntarily; or

(ii) when the Court made the order that the company be wound up; and

(d)    the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of:


(i) the administrator of the deed; or

(ii) the administrator of the company.

588FE(2C)    


The transaction is voidable if:

(a)    the transaction is:


(i) an uncommercial transaction of the company; or

(ii) an unfair preference given by the company to a creditor of the company; or

(iii) an unfair loan to the company; or

(iv) an unreasonable director-related transaction of the company; and

(b)    the company was under restructuring immediately before:


(i) the company resolved by special resolution that it be wound up voluntarily; or

(ii) the Court ordered that the company be wound up; and

(c)    the transaction was entered into, or an act was done for the purpose of giving effect to it, during the period beginning at the start of the relation-back day and ending:


(i) when the company made the special resolution that it be wound up voluntarily; or

(ii) when the Court made the order that the company be wound up; and

(d)    the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, in the ordinary course of business or by or with the consent of the restructuring practitioner for the company.


588FE(2D)    


The transaction is voidable if:

(a)    the transaction is:


(i) an uncommercial transaction of the company; or

(ii) an unfair preference given by the company to a creditor of the company; or

(iii) an unfair loan to the company; or

(iv) an unreasonable director-related transaction of the company; and

(b)    the company was subject to a restructuring plan immediately before:


(i) the company resolved by special resolution that it be wound up voluntarily; or

(ii) the Court ordered that the company be wound up; and

(c)    the transaction was entered into, or an act was done for the purpose of giving effect to it, during the period beginning at the start of the relation-back day and ending:


(i) when the company made the special resolution that it be wound up voluntarily; or

(ii) when the Court made the order that the company be wound up; and

(d)    the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done:


(i) in the ordinary course of business, or by or with the consent of the restructuring practitioner for the company; or

(ii) on behalf of the company by or under the authority of the restructuring practitioner for the plan.

588FE(3)    
The transaction is voidable if:

(a)    it is an insolvent transaction, and also an uncommercial transaction, of the company; and

(b)    it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day.

588FE(4)    
The transaction is voidable if:

(a)    it is an insolvent transaction of the company; and

(b)    a related entity of the company is a party to it; and

(c)    it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day.

588FE(5)    
The transaction is voidable if:

(a)    it is an insolvent transaction of the company; and

(b)    the company became a party to the transaction for the purpose, or for purposes including the purpose, of defeating, delaying, or interfering with, the rights of any or all of its creditors on a winding up of the company; and

(c)    the transaction was entered into, or an act done was for the purpose of giving effect to the transaction, during the 10 years ending on the relation-back day.

588FE(6)    
The transaction is voidable if it is an unfair loan to the company made at any time on or before the day when the winding up began.

588FE(6A)    


The transaction is voidable if:

(a)    it is an unreasonable director-related transaction of the company; and

(b)    it was entered into, or an act was done for the purposes of giving effect to it:


(i) during the 4 years ending on the relation-back day; or

(ii) after that day but on or before the day when the winding up began.

588FE(6B)    


The transaction is voidable if:

(a)    it is a creditor-defeating disposition of property of the company; and

(b)    at least one of the following applies:


(i) the transaction was entered into, or an act was done for the purposes of giving effect to it, when the company was insolvent, during the 12 months ending on the relation-back day or both after that day and on or before the day when the winding up began;

(ii) the company became insolvent because of the transaction or an act done for the purposes of giving effect to the transaction during the 12 months ending on the relation-back day or both after that day and on or before the day when the winding up began;

(iii) less than 12 months after the transaction or an act done for the purposes of giving effect to the transaction, the start of an external administration (as defined in Schedule 2 ) of the company occurs as a direct or indirect result of the transaction or act; and

(c)    

the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done:

(i) under a compromise or arrangement approved by a Court under section 411 ; or

(ii) under a deed of company arrangement executed by the company; or

(iii) by an administrator of the company; or

(iiia) by a restructuring practitioner for the company; or

(iiib) under a restructuring plan made by the company; or

(iv) by a liquidator of the company; or

(v) by a provisional liquidator of the company.

588FE(7)    
A reference in this section to doing an act includes a reference to making an omission.

Subdivision C - Court orders about voidable transactions  

SECTION 588FF   COURTS MAY MAKE ORDERS ABOUT VOIDABLE TRANSACTIONS  

588FF(1)   [ Powers of court]  

Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:


(a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;


(b) an order directing a person to transfer to the company property that the company has transferred under the transaction;


(c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction;


(d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following:


(i) money that the company has paid under the transaction;

(ii) proceeds of property that the company has transferred under the transaction;


(e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction;


(f) if the transaction is an unfair loan and such a debt, security or guarantee has been assigned - an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;


(g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;


(h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;


(i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time;


(j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.

588FF(2)   [ Limitation]  

Nothing in subsection (1) limits the generality of anything else in it.

588FF(3)   [ Time limit on application]  

An application under subsection (1) may only be made:


(a) during the period beginning on the relation-back day and ending:


(i) 3 years after the relation-back day; or

(ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company;
whichever is the later; or


(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.

588FF(4)   [ Unreasonable director-related transaction]  

If the transaction is a voidable transaction solely because it is an unreasonable director-related transaction, the court may make orders under subsection (1) only for the purpose of recovering for the benefit of the creditors of the company the difference between:


(a) the total value of the benefits provided by the company under the transaction; and


(b) the value (if any) that it may be expected that a reasonable person in the company's circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c) .

SECTION 588FG   TRANSACTION NOT VOIDABLE AS AGAINST CERTAIN PERSONS  
If no benefit or benefit received in good faith without grounds for suspecting insolvency

588FG(1)    
A court is not to make under section 588FF an order materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that:


(a) the person received no benefit because of the transaction; or


(b) in relation to each benefit that the person received because of the transaction:


(i) the person received the benefit in good faith; and

(ii) at the time when the person received the benefit:

(A) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b) ; and

(B) a reasonable person in the person's circumstances would have had no such grounds for so suspecting.


If transaction entered into for valuable consideration in good faith without grounds for suspecting insolvency

588FG(2)    


A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:


(a) the person became a party to the transaction in good faith; and


(b) at the time when the person became such a party:


(i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b) ; and

(ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and


(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.


588FG(3)    
For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to pay tax, the discharge is valuable consideration provided:


(a) by the person to whom the tax is payable; and


(b) under any transaction that consists of, or involves, the payment or application.

588FG(4)    
In subsection (3):

tax
means tax (however described) payable under a law of the Commonwealth or of a State or Territory, and includes, for example, a levy, a charge, and municipal or other rates.


588FG(5)    
For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to the Commonwealth, or to the Commissioner of Taxation, that arose under or because of an Act of which the Commissioner has the general administration, the discharge is valuable consideration provided by the Commonwealth, or by the Commissioner, as the case requires, under any transaction that consists of, or involves, the payment or application.

588FG(6)    
Subsections (3) and (5):


(a) are to avoid doubt and are not intended to limit the cases where a person may be taken to have provided valuable consideration under a transaction; and


(b) apply to an amount even if it was paid or applied before the commencement of this Act.

If transaction is creditor-defeating disposition

588FG(7)    


Subsections (1) and (2) do not apply to an order made solely on the grounds of subsection 588FE(6B) applying solely because of subparagraph 588FE(6B)(b)(iii) .

588FG(8)    


A court is not to make under section 588FF an order solely on the grounds of subsection 588FE(6B) if it is proved that paragraphs 588GA(1)(a) and (b) apply in relation to a person and the disposition. For the purposes of determining whether it is proved that those paragraphs apply in that way:


(a) subsections 588GA(2) to (7) apply; and


(b) section 588GB applies as if the proceeding under section 588FF were a relevant proceeding.


588FG(9)    


A court is not to make, solely on the grounds of subsection 588FE(6B) (about a creditor-defeating disposition of property), an order under section 588FF materially prejudicing a right or interest of a person other than a party to the creditor-defeating disposition if it is proved that the person later acquired the property in good faith.

Subdivision D - ASIC orders about certain voidable transactions  

SECTION 588FGAA   ASIC MAY ORDER UNDOING OF EFFECT OF CREDITOR-DEFEATING DISPOSITIONS BY COMPANY BEING WOUND UP  


Scope of this section

588FGAA(1)    
This section applies if:


(a) a company for which a liquidator has been appointed has made a creditor-defeating disposition of property; and


(b) the disposition is voidable under subsection 588FE(6B) ; and


(c) a person has received any money or property as a direct or indirect result of:


(i) the disposition; or

(ii) the person ' s acquisition of the property after the disposition.

Note: The person may receive money or property as an indirect result of acquiring (by the creditor-defeating disposition or a later transaction) the property of the company that was the subject of the creditor-defeating disposition, and later disposing of that property and receiving money or property as consideration for the later disposal.



Liquidator may request order

588FGAA(2)    
The company ' s liquidator may request ASIC to make an order under subsection (3). The request may be made only during the period beginning on the relation-back day and ending on the later of:


(a) 3 years after the relation-back day; and


(b) 12 months after the first appointment of a liquidator in relation to the winding up of the company.

ASIC must decide whether to grant the request.



Orders by ASIC

588FGAA(3)    
ASIC may, on request under subsection (2) or on its own initiative, make one or more of the following orders in writing given to the person:


(a) an order directing the person to transfer to the company property that was the subject of the disposition;


(b) an order requiring the person to pay to the company an amount that, in ASIC ' s opinion, fairly represents some or all of the benefits that the person has received (directly or indirectly) because of the disposition;


(c) an order requiring the person to transfer to the company property that, in ASIC ' s opinion, fairly represents the application of proceeds of property that was the subject of the disposition.

Note 1: Subsection (5) sets out matters ASIC must consider in deciding whether to make an order.

Note 2: Section 588FGAB provides further for the content of orders.



Limit on power to make orders

588FGAA(4)    
However, ASIC must not make an order under subsection (3) if ASIC has reason to believe that, if it were a court, section 588FG would prevent it from making a corresponding order under section 588FF .

Considerations in deciding whether to make orders

588FGAA(5)    
In deciding whether to make an order under subsection (3), ASIC must have regard to the following:


(a) the conduct of the company and its officers;


(b) the conduct of the person;


(c) the circumstances, nature and terms of the disposition;


(d) the relationship (if any) between the company and the person;


(e) any other matter ASIC considers relevant.

Revocation and amendment of orders

588FGAA(6)    
At any time, ASIC may, in writing given to the person, revoke or amend an order under subsection (3).

Note: A court may also set aside an order made under subsection (3) of this section: see section 588FGAE .


S 588FGAA inserted by No 6 of 2020, s 3, Sch 1[25] (effective 18 February 2020).

SECTION 588FGAB   CONTENT AND COPIES OF ORDERS  


Reasons

588FGAB(1)    
An order under subsection 588FGAA(3) must include written reasons for the making of the order (including why ASIC is satisfied section 588FGAA applies).

Orders for payment

588FGAB(2)    
An order under paragraph 588FGAA(3)(b) (requiring a person to pay a company an amount) may require the amount to be paid at a time or within a period set out in the order.

Liquidator to be given copies of orders etc.

588FGAB(3)    
If ASIC makes an order under subsection 588FGAA(3) relating to a company, ASIC must give the company ' s liquidator a copy of the order, and of any revocation or amendment of the order.

SECTION 588FGAC  

588FGAC   COMPLIANCE WITH ORDERS GENERALLY  


A person must not engage in conduct if the conduct contravenes an order under subsection 588FGAA(3) .

Note: Failure to comply with this section is an offence: see subsection 1311(1) .

SECTION 588FGAD   COMPLIANCE WITH ORDERS FOR PAYMENT  


Enforcement of order for payment generally

588FGAD(1)    
An amount payable by a person to a company under an order made under paragraph 588FGAA(3)(b) is recoverable by the company as a debt by action against the person in a court of competent jurisdiction.

Court order for payment if person convicted of offence

588FGAD(2)    
If a court convicts a person of an offence based on section 588FGAC relating to a contravention by the person or someone else of an order made under paragraph 588FGAA(3)(b) , the court may (in addition to imposing a penalty on the person for the offence) order the person to pay the company an amount not exceeding the amount involved in the contravention.

Complying with order for payment by transferring property

588FGAD(3)    
A person ordered under paragraph 588FGAA(3)(b) to pay a company the value of any property may comply with the order by transferring the property to the company.

SECTION 588FGAE   COURT MAY SET ASIDE ORDER BY ASIC  

588FGAE(1)    
The person subject to an order under subsection 588FGAA(3) or any other person interested in such an order may apply to a Court within the period described in subsection (2) to have the order set aside.

588FGAE(2)    
The period is 60 days after the day the applicant was given the order or otherwise became aware of it.

588FGAE(3)    
The Court may set the order aside if satisfied, on the basis of the written reasons for the order, that section 588FGAA did not apply.

588FGAE(4)    
If the order is set aside, it is taken never to have been made.

Subdivision E - Various rules about voidable transactions  

SECTION 588FGA   DIRECTORS TO INDEMNIFY COMMISSIONER OF TAXATION IF CERTAIN PAYMENTS SET ASIDE  

588FGA(1)    


This section applies if the court makes an order under section 588FF , or ASIC makes an order under section 588FGAA , against the Commissioner of Taxation because of the payment of an amount in respect of a liability:


(a) underany of the following provisions:


(i) former section 220AAE , 220AAM or 220AAR of the Income Tax Assessment Act 1936 ;

(ii) former section 221F (except subsection 221F(12) ), former section 221G (except subsection 221G(4A) ) or former section 221P of the Income Tax Assessment Act 1936 ;

(iii) former subsection 221YHDC(2) of the Income Tax Assessment Act 1936 ;

(iv) former subsection 221YHZD(1) or (1A) of the Income Tax Assessment Act 1936 ;

(v) former subsection 221YN(1) of the Income Tax Assessment Act 1936 ;

(vi) section 222AHA of the Income Tax Assessment Act 1936 ;

(vii) Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 ; or


(b) to pay the amount of an estimate of unpaid superannuation guarantee charge under Division 268 in Schedule 1 to the Taxation Administration Act 1953 .


588FGA(2)    
Each person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order.

588FGA(3)    
An amount payable to the Commissioner under subsection (2):


(a) is a debt due to the Commonwealth and payable to the Commissioner; and


(b) may be recovered in a court of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.

588FGA(4)    
The court may, in the proceedings in which it made the order against the Commissioner, order a person to pay to the Commissioner an amount payable by the person under subsection (2).


588FGA(5)    
A person who pays an amount under subsection (2) has the same rights:


(a) whether by way of indemnity, subrogation, contribution or otherwise; and


(b) against the company or anyone else;

as if the payment had been made under a guarantee:


(c) of the liability referred to in subsection (1); and


(d) under which the person and every other person who was a director of the company as mentioned in subsection (2) were jointly and severally liable as guarantors.

SECTION 588FGB   DEFENCES IN PROCEEDINGS UNDER SECTION 588FGA  

588FGB(1)    
This section has effect for the purposes of:

(a)    proceedings to recover from a person an amount payable under subsection 588FGA(2) ; and

(b)    proceedings under subsection 588FGA(5) against a person of the kind referred to in paragraph 588FGA(5)(d) .

588FGB(2)    
The time when the payment referred to in subsection 588FGA(1) was made is called the payment time .

588FGB(3)    
It is a defence if it is proved that, at the payment time, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it made the payment.

588FGB(4)    
Without limiting the generality of subsection (3), it is a defence if it is proved that, at the payment time, the person:

(a)    had reasonable grounds to believe, and did believe:


(i) that a competent and reliable person ( the other person ) was responsible for providing to the first-mentioned person adequate information about whether the company was solvent; and

(ii) that the other person was fulfilling that responsibility; and

(b)    expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it made the payment.

588FGB(4A)    


Subsections (3) and (4) of this section do not apply if the order mentioned in subsection 588FGA(1) was made wholly or partly because the condition in 588FE(6B)(b)(iii) was met.

588FGB(5)    
It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at the payment time.

588FGB(6)    
It is a defence if it is proved that:

(a)    the person took all reasonable steps to prevent the company from making the payment; or

(b)    there were no such steps the person could have taken.

588FGB(7)    
In determining whether a defence under subsection (6) has been proved, the matters to which regard is to be had include, but are not limited to:

(a)    

any action the person took with a view to appointing an administrator of the company or a restructuring practitioner for the company; and

(b)    when that action was taken; and

(c)    the results of that action.


SECTION 588FH   LIQUIDATOR MAY RECOVER FROM RELATED ENTITY BENEFIT RESULTING FROM INSOLVENT TRANSACTION  

588FH(1)    
This section applies where a company is being wound up and a transaction of the company:


(a) is an insolvent transaction of the company; and


(b) is voidable under section 588FE ; and


(c) has had the effect of discharging, to the extent of a particular amount, a liability (whether under a guarantee or otherwise and whether contingent or otherwise) of a related entity of the company.

588FH(2)    
The company ' s liquidator may recover from the related entity, as a debt due to the company, an amount equal to the amount referred to in paragraph (1)(c).

588FH(3)    


In deciding what orders (if any) to make under section 588FF or 588FGAA on an application relating to the transaction, a court or ASIC must take into account any amount recovered under subsection (2) of this section.

588FH(4)    
If the liquidator recovers an amount under subsection (2) from the related entity, the related entity has the same rights:


(a) whether by way of indemnity, subrogation, contribution or otherwise; and


(b) against the company or anyone else;

as if the related entity had paid the amount in discharging, to the extent of that amount, the liability referred to in paragraph (1)(c).


SECTION 588FI   CREDITOR WHO GIVES UP BENEFIT OF UNFAIR PREFERENCE MAY PROVE FOR PREFERRED DEBT  

588FI(1)    
This section applies where:


(a) a transaction is an unfair preference given by a company to a creditor of the company after 23 June 1993; and


(b) at the request of the company ' s liquidator, because of an order under section 588FF or 588FGAA , or for any other reason, the creditor has put the company in the same position as if the transaction had not been entered into.


588FI(2)    
A court must not make under section 588FF , on an application relating to the transaction, an order prejudicing a right or interest of the creditor.

588FI(2A)    


ASIC must not make an order under section 588FGAA that relates to the transaction and prejudices a right or interest of the creditor.

588FI(3)    
The creditor may prove in the winding up as if the transaction had not been entered into.

SECTION 588FJ   CIRCULATING SECURITY INTEREST CREATED WITHIN 6 MONTHS BEFORE RELATION-BACK DAY  

588FJ(1)    
This section applies if:


(a) a company is being wound up in insolvency; and


(b) the company created a circulating security interest in property of the company at a particular time that is at or after 23 June 1993 and:


(i) during the 6 months ending on the relation-back day; or

(ii) after that day but on or before the day when the winding up began.

588FJ(2)    


The circulating security interest is void, as against the company ' s liquidator, except so far as it secures:


(a) an advance paid to the company, or at its direction, at or after that time and as consideration for the circulating security interest; or


(b) interest on such an advance; or


(c) the amount of a liability under a guarantee or other obligation undertaken at or after that time on behalf of, or for the benefit of, the company; or


(d) an amount payable for property or services supplied to the company at or after that time; or


(e) interest on an amount so payable.


588FJ(3)    
Subsection (2) does not apply if it is proved that the company was solvent immediately after that time.

588FJ(4)    
Paragraphs (2)(a) and (b) do not apply in relation to an advance so far as it was applied to discharge, directly or indirectly, an unsecured debt, whether contingent or otherwise, that the company owed to:


(a) the secured party; or


(b) if the secured party was a body corporate - a related entity of the body.


588FJ(5)    
Paragraphs (2)(d) and (e) do not apply in relation to an amount payable as mentioned in paragraph (2)(d) in so far as the amount exceeds the market value of the property or services when supplied to the company.

588FJ(6)    


If, during the 6 months ending on the relation-back day, or after that day but on or before the day when the winding up began, a debt secured by the circulating security interest was discharged, out of the company ' s money or property, to the extent of a particular amount (in this subsection called the realised amount ), the liquidator may, by proceedings in a court of competent jurisdiction, recover from the secured party, as a debt due to the company, the amount worked out in accordance with the formula:

Unsecured amount − Realisation costs

where:

realisation costs
means so much (if any) of the costs and expenses of enforcing the security interest as is attributable to realising the realised amount.

unsecured amount
means so much of the realised amount as does not exceed so much of the debt as would, if the debt had not been so discharged, have been unsecured, as against the liquidator, because of subsection (2).


Division 2A - Vesting of PPSA security interests if not continuously perfected  

SECTION 588FK   INTERPRETATION AND APPLICATION  

588FK(1)    
A word or expression used in this Division (other than the expression PPSA security interest) has the same meaning as in the Personal Property Securities Act 2009 .

Note 1: As a result of this section, in this Division, company has the same meaning as in the Personal Property Securities Act 2009 .

Note 2: For PPSA security interest , see section 9 .


588FK(2)    
Subsection (1) applies despite any other provision of this Act.

588FK(3)    
For the purposes of this Division, whether or not a person has acquired actual or constructive knowledge of a circumstance is to be determined in accordance with sections 297 to 300 of the Personal Property Securities Act 2009 .

SECTION 588FL   VESTING OF PPSA SECURITY INTERESTS IF COLLATERAL NOT REGISTERED WITHIN TIME  


Scope

588FL(1)    
This section applies if:

(a)    

any of the following events occurs:

(i) an order is made, or a resolution is passed, for the winding up of a company;

(ii) an administrator of a company is appointed under section 436A , 436B or 436C ;

(iii) a company executes a deed of company arrangement under Part 5.3A ;

(iv) a restructuring practitioner for the company is appointed under section 453B ;

(v) a company makes a restructuring plan under Division 3 of Part 5.3B ; and

(b)    

a PPSA security interest granted by the company in collateral is covered by subsection (2).

Note: A security interest granted by a company in relation to which paragraph (a) applies that is unperfected at the critical time may vest in the company under section 267 or 267A of the Personal Property Securities Act 2009 .


588FL(2)    
This subsection covers a PPSA security interest if:

(a)    at the critical time, or, if the security interest arises after the critical time, when the security interest arises:


(i) the security interest is enforceable against third parties under the law of Australia; and

(ii) the security interest is perfected by registration, and by no other means; and

(b)    the registration time for the collateral is after the latest of the following times:


(i) 6 months before the critical time;

(ii) the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever time is earlier;

(iii) if the security agreement giving rise to the security interest came into force under the law of a foreign jurisdiction, but the security interest first became enforceable against third parties under the law of Australia after the time that is 6 months before the critical time - the time that is the end of 56 days after the security interest became so enforceable, or the time that is the critical time, whichever time is earlier;

(iv) a later time ordered by the Court under section 588FM .

Note 1: For the meaning of critical time , see subsection (7).

Note 2: For when a security interest is enforceable against third parties under the law of Australia, see section 20 of the Personal Property Securities Act 2009 .

Note 3: A security interest may become perfected at a particular time by a registration that is made earlier than that time, if the security interest attaches to the collateral at the later time (after registration). See section 21 of the Personal Property Securities Act 2009 .

Note 4: The Personal Property Securities Act 2009 provides for perfection by registration, possession or control, or by force of that Act (see section 21 of that Act).


588FL(3)    
(Repealed by No 35 of 2011, s 3, Sch 1 [ 8] (effective 30 January 2012).)

Vesting of security interest in company

588FL(4)    
The PPSA security interest vests in the company at the following time, unless the security interest is unaffected by this section because of section 588FN :

(a)    if the security interest first becomes enforceable against third parties at or before the critical time - immediately before the event mentioned in paragraph (1)(a);

(b)    if the security interest first becomes enforceable against third parties after the critical time - at the time it first becomes so enforceable.

Note: For the meaning of critical time , see subsection (7).



Property acquired for new value without knowledge

588FL(5)    
Subsection (4) does not affect the title of a person to personal property if:

(a)    the person acquires the personal property for new value from a secured party, from a person on behalf of a secured party, or from a receiver in the exercise of powers:


(i) conferred by the security agreement providing for the security interest; or

(ii) implied by the general law; and

(b)    

at the time the person acquires the property, the person has no actual or constructive knowledge of the following (as the case requires):

(i) the filing of an application for an order to wind up the company;

(ii) the passing of a resolution to wind up the company;

(iii) the appointment of an administrator of the company under section 436A , 436B or 436C ;

(iv) the execution of a deed of company arrangement by the company under Part 5.3A ;

(v) the appointment of a restructuring practitioner for the company under section 453B ;

(vi) the making of a restructuring plan by the company under Division 3 of Part 5.3B .

Note: For what is actual or constructive knowledge, see sections 297 and 298 of the Personal Property Securities Act 2009 .


588FL(6)    
In a proceeding in Australia under this Act, the onus of proving the fact that a person acquires personal property without actual or constructive knowledge as mentioned in paragraph (5)(b) lies with the person asserting that fact.

588FL(7)    


In this section:

critical time
, in relation to a company, means:


(a) if the company is being wound up - when, on a day, the event occurs by virtue of which the winding up is taken to have begun or commenced on that day under section 513A or 513B ; or


(b) if the company is under administration or is subject to a deed of company arrangement - when, on a day, the event occurs by virtue of which the day is the section 513C day for the company; or


(c) if the company is under restructuring or is subject to a restructuring plan - when, on a day, the event occurs by virtue of which the day is the section 513CA day for the company.


SECTION 588FM   EXTENSION OF TIME FOR REGISTRATION  

588FM(1)    


A company, or any person interested, may apply to the Court (within the meaning of section 58AA ) for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv) .

Note: If an insolvency-related event occurs in relation to a company, paragraph 588FL(2)(b) fixes a time by which a PPSA security interest granted by the company must be registered under the Personal Property Securities Act 2009 , failing which the security interest may vest in the company.


588FM(2)    
On an application under this section, the Court may make the order sought if it is satisfied that:


(a) the failure to register the collateral earlier:


(i) was accidental or due to inadvertence or some other sufficient cause; or

(ii) is not of such a nature as to prejudice the position of creditors or shareholders; or


(b) on other grounds, it is just and equitable to grant relief.

588FM(3)    
The Court may make the order sought on any terms and conditions that seem just and expedient to the Court.

SECTION 588FN   PPSA SECURITY INTERESTS UNAFFECTED BY SECTION 588FL  


PPSA security interests arising under certain transactions

588FN(1)    
Subsection 588FL(4) (vesting of security interests in company) does not apply to a PPSA security interest provided for by any of the following transactions, if the interest does not secure the payment or performance of an obligation:


(a) a transfer of an account or chattel paper;


(b) a PPS lease, if paragraph (e) (serial numbered goods) of the definition of PPS lease in subsection 13(1) of the Personal Property Securities Act 2009 applies to the lease, and none of paragraphs (a) to (d) of that definition applies to the lease;


(c) a commercial consignment.

Example: An example of a PPSA security interest mentioned in paragraph (b) is a PPS lease of goods that does not secure the payment or performance of an obligation, if:

  • (a) the goods leased may or must be described by serial number in accordance with regulations made for the purposes of the Personal Property Securities Act 2009 ; and
  • (b) the lease is for a term of between 90 days and 1 year; and
  • (c) paragraphs (c) and (d) of the definition of PPS lease in subsection 13(1) of the Personal Property Securities Act 2009 do not apply to the lease.


  • PPSA security interests and subordinated debts

    588FN(2)    
    Subsection 588FL(4) (vesting of security interests in company) does not apply to a PPSA security interest in an account if all of the following conditions are satisfied:


    (a) a person (the obligor ) owes money to another person (the senior creditor );


    (b) the obligor also owes money to a third person (the junior creditor );


    (c) an agreement between the senior creditor and the junior creditor provides (in substance):


    (i) for the postponement or subordination of the obligor ' s debt to the junior creditor, to the obligor ' s debt to the senior creditor; and

    (ii) in the event of the obligor ' s debt to the junior creditor being discharged (whether wholly or partly) by the obligor transferring personal property to the junior creditor - for the junior creditor to transfer the property, or proceeds of the property, to the senior creditor to the value of the amount owed by the obligor to the senior creditor; and

    (iii) in the event that the property or proceeds are not transferred - for the junior creditor to hold the property or proceeds on trust for the senior creditor to that value; and

    (iv) in the event of such a trust arising - for a security interest to be granted by the junior creditor to the senior creditor over the personal property or proceeds securing payment of the obligor ' s debt to the senior creditor;


    (d) the security interest is a security interest granted under the agreement, in the circumstances described in subparagraph (c)(iv).

    Transfer of collateral subject to PPSA security interests

    588FN(3)    


    Subsection 588FL(4) (vesting of security interests in company) does not apply to a PPSA security interest if:


    (a) before the critical time that applies under section 588FL , the company acquired, by transfer, the collateral in which the PPSA security interest is granted; and


    (b) the company did not acquire the collateral free of the security interest; and


    (c) the security interest became perfected before the critical time; and


    (d) the security interest was continuously perfected by registration during a period covered by subsection (4) that begins before the critical time.


    588FN(4)    
    The period covered by this subsection:


    (a) begins at whichever of the following times is applicable:


    (i) in a case in which the secured party consented to the transfer - the end of 5 business days after the day of the transfer;

    (ii) in a case in which the secured party otherwise acquires the actual or constructive knowledge required to perfect the secured party ' s interest by registration (or to re-perfect the interest by an amendment of a registration) - the end of 5 business days after the day the secured party acquires the knowledge; and


    (b) ends no earlier than at the critical time that applies under section 588FL .

    Note: For what is actual or constructive knowledge, see sections 297 and 298 of the Personal Property Securities Act 2009 .


    SECTION 588FO   CERTAIN LESSORS, BAILORS AND CONSIGNORS ENTITLED TO DAMAGES  


    Scope

    588FO(1)    
    This section applies if either of the following PPSA security interests is vested in a company under section 588FL :


    (a) a PPSA security interest of a consignor under a commercial consignment;


    (b) a PPSA security interest of a lessor or bailor under a PPS lease.

    Entitlement to damages and compensation

    588FO(2)    
    The consignor, lessor or bailor:


    (a) is taken to have suffered damage immediately before the PPSA security interest was vested in the company; and


    (b) may recover an amount of compensation from the company equal to the greater of the following amounts:


    (i) the amount determined in accordance with the consignment, lease or bailment;

    (ii) the sum of the market value of the consigned, leased or bailed property immediately before the critical time that applies under section 588FL , and the amount of any other damage or loss resulting from the termination of the consignment, lease or bailment.

    Note: The consignor, lessor or bailor may be able to prove the amount of compensation in proceedings related to the winding up of the company.


    Division 2B - Security interests in favour of company officers etc.  

    SECTION 588FP   SECURITY INTERESTS IN FAVOUR OF AN OFFICER OF A COMPANY ETC. VOID  


    General rule

    588FP(1)    
    A security interest, and any powers purporting to be conferred by the instrument under which the security interest is created, are void, and are taken always to have been void, if:


    (a) a company grants the security interest; and


    (b) a person covered by subsection (2) is a secured party; and


    (c) the secured party purports to take a step to enforce the security interest, within 6 months after the time (the relevant time ) the instrument is made, without the leave of the Court under subsection (4).

    588FP(2)    
    This subsection covers the following persons:


    (a) a person who is an officer (including a local agent of a foreign company) of the company at the relevant time;


    (b) a person who has been such an officer of the company at any time within the period of 6 months ending at the relevant time;


    (c) a person associated, in relation to the creation of the security interest, with a person of a kind mentioned in paragraph (a) or (b).

    588FP(3)    
    Without limiting paragraph (1)(c), a secured party takes a step to enforce a security interest if:


    (a) the secured party appoints a receiver, or a receiver and manager, under powers conferred by an instrument creating or evidencing the security interest; or


    (b) whether directly or by an agent, the secured party enters into possession or assumes control of property of a company for the purposes of enforcing the security interest; or


    (c) the secured party seizes the property under section 123 of the Personal Property Securities Act 2009 for the purposes of enforcing the security interest.

    Extension of time on application to the Court

    588FP(4)    
    On application by a secured party, the Court may give leave for a security interest granted by a company to be enforced by the secured party within 6 months after the relevant time, if it is satisfied that:


    (a) the company was solvent immediately before the relevant time; and


    (b) in all the circumstances of the case, it is just and equitable for the Court to do so.

    Exception for security interests in PPSA retention of title property

    588FP(5)    
    This section does not apply in relation to a PPSA security interest in PPSA retention of title property.

    Effect on debts, liabilities, obligations and title

    588FP(6)    
    A debt, liability or obligation is not affected by the fact that the security interest securing the debt, liability or obligation is void under subsection (1).

    588FP(7)    
    Subsection (1) does not affect the title of a person to property if:


    (a) the person acquires the property for new value (within the meaning of the Personal Property Securities Act 2009 ) from any of the following persons (the seller ):


    (i) a person covered by subsection (2);

    (ii) another person on behalf of a person covered by subsection (2);

    (iii) a receiver, or receiver and manager, appointed under powers conferred by an instrument creating or evidencing the security interest; and


    (b) at the time the person acquires the property, the person has no actual or constructive knowledge that the seller is a secured party or acting on behalf of a secured party.

    588FP(8)    
    Sections 297 to 300 of the Personal Property Securities Act 2009 apply in relation to the determination of whether or not a person has actual or constructive knowledge as mentioned in paragraph (7)(b) of this section.

    Onus of proof

    588FP(9)    
    In a proceeding in Australia under this Act, the onus of proving the fact that a person acquires property without actual or constructive knowledge as mentioned in paragraph (7)(b) lies with the person asserting that fact.

    Division 3 - Duties to prevent insolvent trading and creditor-defeating dispositions  

    Subdivision A - Director ' s duty to prevent insolvent trading  

    SECTION 588G   DIRECTOR ' S DUTY TO PREVENT INSOLVENT TRADING BY COMPANY  

    588G(1)    
    This section applies if:


    (a) a person is a director of a company at the time when the company incurs a debt; and


    (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and


    (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and


    (d) that time is at or after the commencement of this Act.

    588G(1A)    
    For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.


    When debts are incurred [ operative table]
    Action of company When debt is incurred
    1 paying a dividend when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared
    2making a reduction of share capital to which Division 1 of Part 2J.1 applies (other than a reduction that consists only of the cancellation of a share or shares for no consideration) when the reduction takes effect
    3 buying back shares (even if the consideration is not a sum certain in money) when the buy-back agreement is entered into
    4 redeeming redeemable preference shares that are redeemable at its option when the company exercises the option
    5 issuing redeemable preference shares that are redeemable otherwise than at its option when the shares are issued
    6 financially assisting a person to acquire shares (or units of shares) in itself or a holding company when the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided
    7 entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into when the transaction is entered into


    588G(2)    
    By failing to prevent the company from incurring the debt, the person contravenes this section if:


    (a) the person is aware at that time that there are such grounds for so suspecting; or


    (b) a reasonable person in a like position in a company in the company ' s circumstances would be so aware.

    Note: This subsection is a civil penalty provision (see section 1317E ).


    588G(3)    
    A person commits an offence if:


    (a) a company incurs a debt at a particular time; and


    (aa) at that time, a person is a director of the company; and


    (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and


    (c) the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and


    (d) the person's failure to prevent the company incurring the debt was dishonest.


    588G(3A)    


    For the purposes of an offence based on subsection (3), absolute liability applies to paragraph (3)(a).

    Note: For absolute liability , see section 6.2 of the Criminal Code .


    588G(3B)    


    For the purposes of an offence based on subsection (3), strict liability applies to paragraphs (3)(aa) and (b).

    Note: For strict liability , see section 6.1 of the Criminal Code .


    588G(4)    
    The provisions of Division 4 of this Part are additional to, and do not derogate from, Part 9.4B as it applies in relation to a contravention of this section.

    Subdivision B - Duties to prevent creditor-defeating dispositions  

    SECTION 588GAA  

    588GAA   OBJECT OF THIS SUBDIVISION  


    The object of this Subdivision is to deter the practice (which may form part of the activity sometimes called phoenixing) of disposing of a company ' s assets to avoid the company ' s obligations to its creditors.

    SECTION 588GAB   OFFICER ' S DUTY TO PREVENT CREDITOR-DEFEATING DISPOSITION  

    588GAB(1)    
    An officer of a company must not engage in conduct that results in the company making a creditor-defeating disposition of property of the company, if:

    (a)    the company is insolvent; or

    (b)    the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition; or

    (c)    less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2 ) of the company occurs as a direct or indirect result of the disposition; or

    (d)    less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition.

    Note 1: Failure to comply with this subsection is an offence: see subsection 1311(1) .

    Note 2: Recklessness is the fault element for the result of the company making the creditor-defeating disposition and for paragraphs (1)(a), (b), (c) and (d): see section 5.6 of the Criminal Code .


    588GAB(2)    
    An officer of a company must not engage in conduct that results in the company making a disposition of property of the company, if:

    (a)    one or more of the following applies:


    (i) the company is insolvent;

    (ii) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition;

    (iii) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2 ) of the company occurs as a direct or indirect result of the disposition;

    (iv) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition; and

    (b)    the officer knows, or a reasonable person in the position of the officer would know, that the disposition is a creditor-defeating disposition.

    Note 1: This subsection is a civil penalty provision (see section 1317E ).

    Note 2: Section 588E provides for presumptions about when a company is insolvent and about matters relevant to whether a disposition is a creditor-defeating disposition.



    Exceptions

    588GAB(3)    
    Subsections (1) and (2) do not apply if the disposition was made:

    (a)    under a compromise or arrangement approved by a Court under section 411 ; or

    (b)    under a deed of company arrangement executed by the company; or

    (ba)    

    under a restructuring plan made by the company; or

    (c)    by the company ' s liquidator; or

    (d)    by a provisional liquidator of the company.

    Note: Section 588GA also provides for subsections (1) and (2) of this section not to apply if the disposition was connected with a course of action likely to lead to a better outcome for the company.


    SECTION 588GAC   PROCURING CREDITOR-DEFEATING DISPOSITION  

    588GAC(1)    
    A person must not engage in conduct of procuring, inciting, inducing or encouraging the making by a company of a disposition of property that results in the company making the disposition of the property, if:

    (a)    one or more of the following applies:


    (i) the company is insolvent;

    (ii) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition;

    (iii) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2 ) of the company occurs as a direct or indirect result of the disposition;

    (iv) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition; and

    (b)    the disposition is a creditor-defeating disposition.

    Note 1: Failure to comply with this subsection is an offence: see subsection 1311(1) .

    Note 2: Recklessness is the fault element for the result of the company making the disposition and for subparagraphs (1)(a)(i), (ii), (iii) and (iv) and paragraph (1)(b): see section 5.6 of the Criminal Code .


    588GAC(2)    
    A person must not engage in conduct of procuring, inciting, inducing or encouraging the making by a company of a disposition of property that results in the company making the disposition of the property, if:

    (a)    one or more of the following applies:


    (i) the company is insolvent;

    (ii) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition;

    (iii) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2 ) of the company occurs as a direct or indirect result of the disposition;

    (iv) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition; and

    (b)    the person knows, or a reasonable person in the position of the person would know, that the disposition is a creditor-defeating disposition.

    Note 1: This subsection is a civil penalty provision (see section 1317E ).

    Note 2: Section 588E provides for presumptions about when a company is insolvent and about matters relevant to whether a disposition is a creditor-defeating disposition.



    Exceptions

    588GAC(3)    
    Subsections (1) and (2) do not apply if the disposition was made:

    (a)    under a compromise or arrangement approved by a Court under section 411 ; or

    (b)    under a deed of company arrangement executed by the company; or

    (ba)    

    under a restructuring plan made by the company; or

    (c)    by the company ' s liquidator; or

    (d)    by a provisional liquidator of the company.

    Note: Section 588GA also provides for subsections (1) and (2) of this section not to apply if the disposition was connected with a course of action likely to lead to a better outcome for the company.


    Subdivision C - Safe harbour from breach of duties  

    SECTION 588GA   SAFE HARBOUR - TAKING COURSE OF ACTION REASONABLY LIKELY TO LEAD TO A BETTER OUTCOME FOR THE COMPANY  


    Safe harbour

    588GA(1)    


    Subsection 588G(2) does not apply in relation to a person and a debt, and subsections 588GAB(1) and (2) and 588GAC(1) and (2) do not apply in relation to a person and a disposition, if:


    (a) at a particular time after the person starts to suspect the company may become or be insolvent, the person starts developing one or more courses of action that are reasonably likely to lead to a better outcome for the company; and


    (b) the debt is incurred, or the disposition is made, directly or indirectly in connection with any such course of action during the period starting at that time, and ending at the earliest of any of the following times:


    (i) if the person fails to take any such course of action within a reasonable period after that time - the end of that reasonable period;

    (ii) when the person ceases to take any such course of action;

    (iii) when any such course of action ceases to be reasonably likely to lead to a better outcome for the company;

    (iv) the appointment of an administrator, or liquidator, of the company.

    Note 1: The person bears an evidential burden in relation to the matter in this subsection (see subsection (3)).

    Note 2: For subsection (1) to be available, certain matters must be being done or be done (see subsections (4) and (5)).



    Working out whether a course of action is reasonably likely to lead to a better outcome

    588GA(2)    
    For the purposes of (but without limiting) subsection (1), in working out whether a course of action is reasonably likely to lead to a better outcome for the company, regard may be had to whether the person:


    (a) is properly informing himself or herself of the company ' s financial position; or


    (b) is taking appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the company ' s ability to pay all its debts; or


    (c) is taking appropriate steps to ensure that the company is keeping appropriate financial records consistent with the size and nature of the company; or


    (d) is obtaining advice from an appropriately qualified entity who was given sufficient information to give appropriate advice; or


    (e) is developing or implementing a plan for restructuring the company to improve its financial position.

    588GA(3)    


    A person who wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588G(2) , 588GAB(1) or (2) or 588GAC(1) or (2) bears an evidential burden in relation to that matter.

    Matters that must be being done or be done

    588GA(4)    


    Subsection (1) does not apply in relation to a person and either a debt or a disposition if:


    (a) when the debt is incurred, or the disposition is made, the company is failing to do one or more of the following matters:


    (i) pay the entitlements of its employees by the time they fall due;

    (ii) give returns, notices, statements, applications or other documents as required by taxation laws (within the meaning of the Income Tax Assessment Act 1997 ); and


    (b) that failure:


    (i) amounts to less than substantial compliance with the matter concerned; or

    (ii) is one of 2 or more failures by the company to do any or all of those matters during the 12 month period ending when the debt is incurred;

    unless an order applying to the person and that failure is in force under subsection (6).

    Note: Employee entitlements are defined in subsection 596AA(2) and include superannuation contributions payable by the company.


    588GA(5)    


    Subsection (1) is taken never to have applied in relation to a person and either a debt or a disposition if:


    (a) after the debt is incurred, or after the disposition is made, the person fails to comply with paragraph 429(2)(b) , or subsection 438B(2) , 475(1) , 497(4) or 530A(1) , in relation to the company; and


    (b) that failure amounts to less than substantial compliance with the provision concerned;

    unless an order applying to the person and that failure is in force under subsection (6).


    588GA(6)    
    The Court may order that subsection (4) or (5) does not apply to a person and one or more failures if:


    (a) the Court is satisfied that the failures were due to exceptional circumstances or that it is otherwise in the interests of justice to make the order; and


    (b) an application for the order is made by the person.

    Definitions

    588GA(7)    
    In this section:

    better outcome
    , for the company, means an outcome that is better for the company than the immediate appointment of an administrator, or liquidator, of the company.

    evidential burden
    , in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist.


    SECTION 588GAAA   SAFE HARBOUR - TEMPORARY RELIEF IN RESPONSE TO THE CORONAVIRUS  


    Safe harbour

    588GAAA(1)    
    Subsection 588G(2) does not apply in relation to a person and a debt incurred by a company if the debt is incurred:

    (a)    in the ordinary course of the company ' s business; and

    (b)    during:


    (i) the 6-month period starting on the day this section commences; or

    (ii) any longer period that starts on the day this section commences and that is prescribed by the regulations for the purposes of this subparagraph; and

    (c)    

    before any appointment during that period of an administrator, restructuring practitioner or liquidator of the company.

    588GAAA(2)    
    A person who wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588G(2) bears an evidential burden in relation to that matter.

    When the safe harbour does not apply

    588GAAA(3)    
    Subsection (1) is taken never to have applied in relation to a person and a debt in the circumstances prescribed by the regulations for the purposes of this subsection.

    Definitions

    588GAAA(4)    
    In this section:

    evidential burden
    , in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist.


    SECTION 588GAAB   SAFE HARBOUR - COMPANIES UNDER RESTRUCTURING  


    Safe harbour

    588GAAB(1)    
    Subsection 588G(2) does not apply in relation to a person and a debt incurred by a company if the debt is incurred:

    (a)    during the restructuring of the company; and

    (b)    in the ordinary course of the company ' s business, or with the consent of the restructuring practitioner or by order of the Court.

    588GAAB(2)    
    A person who wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588G(2) bears an evidential burden in relation to that matter.

    When the safe harbour does not apply

    588GAAB(3)    
    Subsection (1) is taken never to have applied in relation to a person and a debt in the circumstances prescribed by the regulations for the purposes of this subsection.

    Definitions

    588GAAB(4)    
    In this section:

    evidential burden
    , in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist.


    SECTION 588GAAC   SAFE HARBOUR - TEMPORARY RELIEF FOR COMPANIES LOOKING FOR A RESTRUCTURING PRACTITIONER  


    Safe harbour

    588GAAC(1)    
    Subsection 588G(2) does not apply in relation to a person and a debt incurred by a company if:

    (a)    the company is eligible for temporary restructuring relief when the debt is incurred; and

    (b)    the debt is incurred in the ordinary course of the company ' s business; and

    (c)    the company has taken all reasonable steps to appoint a restructuring practitioner before the debt was incurred.

    588GAAC(2)    
    A person who wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588G(2) bears an evidential burden in relation to that matter.

    When the safe harbour does not apply

    588GAAC(3)    
    Subsection (1) is taken never to have applied in relation to a person and a debt in circumstances prescribed by the regulations for the purposes of this subsection.

    Definitions

    588GAAC(4)    
    In this section:

    evidential burden
    , in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist.


    SECTION 588GB   INFORMATION OR BOOKS NOT ADMISSIBLE TO SUPPORT THE SAFE HARBOUR IF FAILURE TO PERMIT INSPECTION ETC.  


    When books or information not admissible for the safe harbour

    588GB(1)    
    If, at a particular time:

    (a)    

    a person fails to permit the inspection of, or deliver, any books of the company in accordance with:

    (i) a notice given to the person under subsection 438C(3) , section 477 or subsection 530B(4) ; or

    (ii) an order made under section 486 ; or

    (iii) subsection 438B(1) , paragraph 453F(1)(c) , section 453G or subsection 477(3) or 530A(1) ; or

    (b)    a warrant is issued under subsection 530C(2) because the Court is satisfied that a person has concealed, destroyed or removed books of the company or is about to do so;

    those books, and any secondary evidence of those books, are not admissible in evidence for the person in a relevant proceeding.

    Note: For subparagraph (a)(i), a liquidator could give such a notice if this is necessary for winding up the affairs of the company and distributing its property (see paragraph 477(2)(m) ).


    588GB(2)    
    If, at a particular time, a person fails to give any information about the company in accordance with:

    (a)    a notice given to the person under section 477 ; or

    (b)    

    paragraph 429(2)(b) , subsection 438B(2) or (3) , paragraph 453F(1)(b) or subsection 475(1) , 497(4) or 530A(1) or (2) ;

    that information is not admissible in evidence for the person in a relevant proceeding.



    Exceptions

    588GB(3)    
    However, subsection (1) or (2) does not apply to a person, and a book or information, if:

    (a)    the person proves that:


    (i) the person did not possess the book or information at any time referred to in that subsection; and

    (ii) there were no reasonable steps the person could have taken to obtain the book or information; or

    (b)    each entity seeking to rely on the notice, order, subsection, paragraph or warrant referred to in that subsection fails to comply with subsection (5) in relation to the person; or

    (c)    an order applying to the person, and the book or information, is in force under subsection (4).

    588GB(4)    
    The Court may order that subsection (1) or (2) does not apply to a person, and a book or information, if:

    (a)    the Court is satisfied that the failures by the person as mentioned in that subsection were due to exceptional circumstances or that it is otherwise in the interests of justice to make the order; and

    (b)    an application for the order is made by the person.

    Notice of effect of this section must be given

    588GB(5)    


    An entity that seeks to rely on a notice, order, subsection or warrant referred to in subsection (1) or (2) must set out the effect of this section:

    (a)    for a notice under subsection 438C(3) , section 477 or subsection 530B(4) - in that notice; or

    (b)    for an order under section 486 or for subsection 438B(3) , 477(3) or 530A(2) - in a written notice given to the person when the entity seeks to rely on that order or subsection; or

    (c)    for a warrant issued under subsection 530C(2) - in a written notice given to the person when the entity seeks to exercise the warrant.

    This subsection does not apply to an entity that seeks to rely on paragraph 429(2)(b) , subsection 438B(1) or (2) , paragraph 453F(1)(c) , section 453G or subsection 475(1) , 497(4) or 530A(1) .


    588GB(6)    
    A failure to comply with subsection (5) does not affect the validity of the notice, order, subsection or warrant referred to in subsection (5).

    Definitions

    588GB(7)    


    In this section:

    relevant proceeding
    means a proceeding:


    (a) for, or relating to, a contravention of subsection 588G(2) or 588GAB(1) or (2) or 588GAC(1) or (2) ; and


    (b) in which a person seeks to rely on subsection 588GA(1) or 588GAAA(1) .

    Example: A proceeding under section 588M .


    SECTION 588H   DEFENCES ABOUT REASONABLE GROUNDS, ILLNESS OR REASONABLE STEPS  
    Application

    588H(1)    


    This section has effect for the purposes of:


    (a) proceedings for a contravention of subsection 588G(2) relating to the incurring of a debt at a time (the key time ); and


    (b) proceedings for a contravention of subsection 588GAB(2) or 588GAC(2) relating to the disposition of a company ' s property at a time (the key time ); and


    (c) proceedings under section 588M relating to the incurring of the debt or the disposition of the property.



    Expectations and belief about company ' s solvency

    588H(2)    


    It is a defence if it is proved that, at the key time, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent despite all its debts incurred, and dispositions of its property made, at that time.

    588H(3)    


    Without limiting the generality of subsection (2), it is a defence if it is proved that, at the key time, the person:


    (a) had reasonable grounds to believe, and did believe:


    (i) that a competent and reliable person (the other person ) was responsible for providing to the first-mentioned person adequate information about whether the company was solvent; and

    (ii) that the other person was fulfilling that responsibility; and


    (b) expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent despite all its debts incurred, and dispositions of its property made, at that time.


    588H(3A)    


    Subsections (2) and (3) do not apply for the purposes of proceedings relating to the disposition of the company ' s property if the key time was less than 12 months before:


    (a) the start of an external administration (as defined in Schedule 2) of the company that occurred as a direct or indirect result of the disposition; or


    (b) the company ceased to carry on business altogether as a direct or indirect result of the disposition.



    Director who did not take part in management

    588H(4)    


    If the person was a director of the company at the key time, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company.

    Reasonable steps taken to prevent debt or disposition

    588H(5)    


    It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt or making the disposition of its property.

    588H(6)    


    In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to:


    (a) any action the person took with a view to appointing an administrator of the company or a restructuring practitioner for the company; and


    (b) when that action was taken; and


    (c) the results of that action.

    This subsection does not apply to a defence in proceedings relating to a disposition of the company ' s property.


    SECTION 588HA   REVIEW RELATING TO SAFE HARBOUR  

    588HA(1)    
    The Minister must cause an independent review of the following matters to be undertaken as soon as practicable after the last day of the 2 year period commencing on the commencement of this section:


    (a) the impact of the availability of the safe harbour described in subsection 588GA(1) to directors of companies on:


    (i) the conduct of directors; and

    (ii) the interests of creditors and employees of those companies;


    (b) any other matters the Minister considers relevant.


    588HA(2)    
    The review must be undertaken by 3 persons who, in the Minister ' s opinion, possess appropriate qualifications to undertake the review.

    588HA(3)    
    The persons who undertake the review must give the Minister a written report of the review.

    588HA(4)    
    The Minister must cause a copy of the report to be tabled in each House of the Parliament within 15 sitting days of that House after the day on which the report is given to the Minister.

    588HA(5)    
    The report is not a legislative instrument.

    Division 4 - Director liable to compensate company  

    Subdivision A - Proceedings against director  

    SECTION 588J   ON APPLICATION FOR CIVIL PENALTY ORDER, COURT MAY ORDER COMPENSATION  

    588J(1)    
    Where, on an application for a civil penalty order against a person in relation to a contravention of subsection 588G(2) , the Court is satisfied that:


    (a) the person committed the contravention in relation to the incurring of a debt by a company; and


    (b) the debt is wholly or partly unsecured; and


    (c) the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company ' s insolvency;

    the Court may (whether or not it makes a pecuniary penalty order under section 1317G or an order under section 206C disqualifying a person from managing corporations) order the first-mentioned person to pay to the company compensation equal to the amount of that loss or damage.


    588J(1A)    


    If, on an application for a civil penalty order against a person for a contravention of subsection 588GAB(2) or 588GAC(2) relating to a disposition of property of a company, the Court is satisfied that:


    (a) the person contravened the subsection; and


    (b) one or more creditors of the company suffered loss or damage because of the disposition and the company ' s insolvency;

    the Court may order the person to pay the company compensation equal to the loss or damage (whether or not the Court makes a pecuniary penalty order under section 1317G or an order under section 206C disqualifying the person from managing corporations).


    588J(2)    


    A company ' s liquidator may intervene in an application for a civil penalty order against a person in relation to a contravention of subsection 588G(2) , 588GAB(2) or 588GAC(2) relating to the company.

    588J(3)    
    A company ' s liquidator who so intervenes is entitled to be heard:


    (a) only if the Court is satisfied that the person committed the contravention; and


    (b) only on the question whether the Court should order the person to pay compensation to the company.


    SECTION 588K   CRIMINAL COURT MAY ORDER COMPENSATION  

    588K(1)    
    If:


    (a) a court finds a person guilty of an offence under subsection 588G(3) in relation to the incurring of a debt by a company; and


    (b) the court is satisfied that:


    (i) the debt is wholly or partly unsecured; and

    (ii) the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency;

    the court may (whether or not it imposes a penalty) order the first-mentioned person to pay to the company compensation equal to the amount of that loss or damage.

    Note: Section 73A defines when a court is taken to find a person guilty of an offence.


    588K(2)    


    If:


    (a) a court finds a person guilty of an offence based on subsection 588GAB(1) or 588GAC(1) relating to disposition of property by a company; and


    (b) the court is satisfied that one or more creditors of the company suffered loss or damage because of the disposition and the company ' s insolvency;

    the court may order the person to pay the company compensation equal to the loss or damage (whether or not the court imposes a penalty for the offence).


    SECTION 588L  

    588L   ENFORCEMENT OF ORDER UNDER SECTION 588J OR 588K  
    An order to pay compensation that a court makes under section 588J or 588K may be enforced as if it were a judgment of the court.

    SECTION 588M   RECOVERY OF COMPENSATION FOR LOSS RESULTING FROM INSOLVENT TRADING  

    588M(1)    
    This section applies where:


    (a) a person (in this section called the director ) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and


    (b) the person (in this section called the creditor ) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company ' s insolvency; and


    (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and


    (d) the company is being wound up;

    whether or not:


    (e) the director has been convicted of an offence in relation to the contravention; or


    (f) a civil penalty order has been made against the director in relation to the contravention.

    588M(1A)    


    This section also applies if:


    (a) a person (the director ) has contravened subsection 588GAB(1) or (2) or 588GAC(1) or (2) relating to disposition of property by a company; and


    (b) one or more creditors of the company have suffered loss or damage because of the disposition and the company ' s insolvency; and


    (c) the company is being wound up.

    This section applies whether or not the director has been convicted of an offence relating to the contravention or a civil penalty order has been made against the director for the contravention.


    588M(2)    
    The company ' s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.

    588M(3)    
    The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.

    588M(4)    
    Proceedings under this section may only be begun within 6 years after the beginning of the winding up.

    SECTION 588N  

    588N   AVOIDING DOUBLE RECOVERY  


    An amount recovered in proceedings under section 588M in relation to the incurring of a debt, or the disposition of property, by a company is to be taken into account in working out the amount (if any) recoverable in:


    (a) any other proceedings under that section in relation to the incurring of the debt or the disposition of the property; and


    (b) proceedings under section 596ACA in relation to a contravention of subsection 596AC(1) , (2) , (3) or (4) that is linked to the incurring of the debt or the disposition of the property.

     View history note

    SECTION 588P  

    588P   EFFECT OF SECTIONS 588J, 588K AND 588M  
    Sections 588J, 588K and 588M:


    (a) have effect in addition to, and not in derogation of, any rule of law about the duty or liability of a person because of the person's office or employment in relation to a company; and


    (b) do not prevent proceedings from being instituted in respect of a breach of such a duty or in respect of such a liability.

    SECTION 588Q  

    588Q   CERTIFICATES EVIDENCING CONTRAVENTION  
    For the purposes of this Part, a certificate that:


    (a) purports to be signed by the Registrar or other proper officer of an Australian court; and


    (b) states:


    (i) that that court has declared that a specified person has, by failing to prevent a specified company from incurring a specified debt, contravened subsection 588G(3) in relation to the company; or

    (ii) that a specified person was convicted by that court for an offence constituted by a contravention of section 588G in relation to the incurring of a specified debt by a specified company; or

    (iii) that a specified person charged before that court with such an offence was found in that court to have committed the offence but that the court did not proceed to convict the person of the offence; or

    (iv) that that court has declared that a specified person has contravened subsection 588GAB(2) or subsection 588GAC(2) in relation to a specified disposition of property by a specified company; or

    (v) that a specified person was convicted by that court for an offence constituted by a contravention of subsection 588GAB(1) or 588GAC(1) in relation to a specified disposition of property by a specified company; or

    (vi) that a specified person charged before that court with an offence described in subparagraph (v) was found in that court to have committed the offence but that the court did not proceed to convict the person of the offence;

    is, unless it is proved that the declaration, conviction or finding was set aside, quashed or reversed, conclusive evidence:


    (c) that the declaration was made, that the person was convicted of the offence, or that the person was so found, as the case may be; and


    (d) that the person committed the contravention.

    Subdivision B - Proceedings by creditor  

    SECTION 588R   CREDITOR MAY SUE FOR COMPENSATION WITH LIQUIDATOR'S CONSENT  

    588R(1)    
    A creditor of a company that is being wound up may, with the written consent of the company's liquidator, begin proceedings under section 588M in relation to the incurring by the company of a debt that is owed to the creditor.

    588R(1A)    


    If section 588M applies in relation to a company because of subsection 588M(1A) , a creditor described in that subsection may begin proceedings under that section with the written consent of the company ' s liquidator.

    588R(2)    


    Subsections (1) and (1A) have effect despite section 588T , but subject to section 588U .

    SECTION 588S  

    588S   CREDITOR MAY GIVE LIQUIDATOR NOTICE OF INTENTION TO SUE FOR COMPENSATION  
    After the end of 6 months beginning when a company begins to be wound up, a creditor of the company may give to the company's liquidator a written notice:


    (a) stating that the creditor intends to begin proceedings under section 588M relating to:


    (i) the incurring by the company of a specified debt that is owed to the creditor; or

    (ii) a specified disposition by the company of property, because of which (and the company ' s insolvency) the creditor has suffered loss or damage; and


    (b) asking the liquidator to give to the creditor, within 3 months after receiving the notice:


    (i) a written consent to the creditor beginning the proceedings; or

    (ii) a written statement of the reasons why the liquidator thinks that proceedings under section 588M in relation to the incurring of that debt, or the making of that disposition, should not be begun.

    SECTION 588T   WHEN CREDITOR MAY SUE FOR COMPENSATION WITHOUT LIQUIDATOR'S CONSENT  

    588T(1)    
    This section applies where a notice is given under section 588S .

    588T(2)    


    The creditor may begin proceedings in a court under section 588M in relation to the incurring by the company of the debt, or the making by the company of the disposition, specified in the notice if:


    (a) as at the end of 3 months after the liquidator receives the notice, he or she has not consented to the creditor beginning such proceedings; and


    (b) on an application made after those 3 months, the court has given leave for the proceedings to begin.


    588T(3)    
    If:


    (a) during those 3 months, the liquidator gives to the creditor a written statement of the reasons why the liquidator thinks that such proceedings should not be begun; and


    (b) the creditor applies for leave under paragraph (2)(b);

    then:


    (c) the creditor must file the statement with the court when so applying; and


    (d) in determining the application, the court is to have regard to the reasons set out in the statement.

    SECTION 588U   EVENTS PREVENTING CREDITOR FROM SUING  

    588U(1)    


    A creditor of a company that is being wound up cannot begin proceedings under section 588M in relation to the incurring of a debt, or the making of a disposition, by the company if:


    (a) the company's liquidator has applied under section 588FF in relation to the debt or disposition, or in relation to a transaction under which the debt was incurred; or


    (b) the company's liquidator has begun proceedings under section 588M in relation to the incurring of the debt or the making of the disposition; or


    (c) the company ' s liquidator has intervened in an application for a civil penalty order against a person relating to:


    (i) a contravention of subsection 588G(2) relating to the incurring of the debt; or

    (ii) a contravention of subsection 588GAB(2) or 588GAC(2) relating to the disposition; or


    (d) the company ' s liquidator has requested ASIC to make an order under subsection 588FGAA(3) relating to the disposition; or


    (e) ASIC has made an order under subsection 588FGAA(3) relating to the disposition.


    588U(2)    
    Subsection (1) has effect despite sections 588R and 588T .

    Division 5 - Liability of holding company for insolvent trading by subsidiary  

    SECTION 588V   WHEN HOLDING COMPANY LIABLE  

    588V(1)   [ Contravention]  

    A corporation contravenes this section if:


    (a) the corporation is the holding company of a company at the time when the company incurs a debt; and


    (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and


    (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and


    (d) one or both of the following subparagraphs applies:


    (i) the corporation, or one or more of its directors, is or are aware at that time that there are such grounds for so suspecting;

    (ii) having regard to the nature and extent of the corporation's control over the company's affairs and to any other relevant circumstances, it is reasonable to expect that:

    (A) a holding company in the corporation's circumstances would be so aware; or

    (B) one or more of such a holding company's directors would be so aware; and


    (e) that time is at or after the commencement of this Act.

    588V(2)   [ No offence]  

    A corporation that contravenes this section is not guilty of an offence.

    SECTION 588W   RECOVERY OF COMPENSATION FOR LOSS RESULTING FROM INSOLVENT TRADING  

    588W(1)   [ Liquidator may recover from holding company]  

    Where:


    (a) a corporation has contravened section 588V in relation to the incurring of a debt by a company; and


    (b) the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and


    (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and


    (d) the company is being wound up;

    the company's liquidator may recover from the corporation, as a debt due to the company, an amount equal to the amount of the loss or damage.

    588W(2)  [ Time limit]  

    Proceedings under this section may only be begun within 6 years after the beginning of the winding up.

    SECTION 588WA   SAFE HARBOUR - TAKING REASONABLE STEPS TO ENSURE COMPANY ' S DIRECTORS HAVE THE BENEFIT OF THE DIRECTORS ' SAFE HARBOUR  

    588WA(1)    


    Subsection 588V(1) does not apply in relation to a corporation that is the holding company of a company, and to a debt, if:


    (a) the corporation takes reasonable steps to ensure that either subsection 588GA(1) or 588GAAA(1) (the safe harbour provision ) applies in relation to:


    (i) each of the directors of the company; and

    (ii) the debt; and


    (b) the safe harbour provision does so apply in relation to each of those directors and to the debt.


    588WA(2)    
    A corporation that wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588V(1) bears an evidential burden in relation to that matter.

    588WA(3)    
    In this section:

    evidential burden
    , in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist.


    SECTION 588X   DEFENCES ABOUT REASONABLE GROUNDS, ILLNESS OR REASONABLE STEPS  

    588X(1)    
    This section has effect for the purposes of proceedings under section 588W.

    588X(2)    
    It is a defence if it is proved that, at the time when the debt was incurred, the corporation, and each relevant director (if any), had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

    588X(3)    
    Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the corporation, and each relevant director (if any):


    (a) had reasonable grounds to believe, and did believe:


    (i) that a competent and reliable person was responsible for providing to the corporation adequate information about whether the company was solvent; and

    (ii) that the person was fulfilling that responsibility; and


    (b) expected, on the basis of the information provided to the corporation by the person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

    588X(4)    
    If it is proved that, because of illness or for some other good reason, a particular relevant director did not take part in the management of the corporation at the time when the company incurred the debt, the fact that the director was aware as mentioned in subparagraph 588V(1)(d)(i) is to be disregarded.

    588X(5)    
    It is a defence if it is proved that the corporation took all reasonable steps to prevent the company from incurring the debt.

    588X(6)    
    In subsections (2), (3) and (4):

    relevant director
    means a director of the corporation who was aware as mentioned in subparagraph 588V(1)(d)(i).


    Division 6 - Application of compensation under Division 4 or 5  

    SECTION 588Y   APPLICATION OF AMOUNT PAID AS COMPENSATION  

    588Y(1)   [ Repayment of secured debts postponed]  

    An amount paid to a company under section 588J, 588K, 588M or 588W is not available to pay a secured debt of the company unless all the company's unsecured debts have been paid in full.

    588Y(2)   [ Injured party knew of insolvency]  

    Where:


    (a) under section 588J or 588K, or in proceedings under section 588M or 588W, a court orders a person to pay to the company compensation, or an amount, equal to the amount of loss or damage suffered by a person in relation to a debt because of the company's insolvency; and


    (b) the court is satisfied that, at the time when the company incurred the debt, the person who suffered the loss or damage knew that the company was insolvent at that time or would become insolvent by incurring the debt, or by incurring at that time debts including the debt, as the case requires;

    the court may order that the compensation or amount paid to the company is not available to pay that debt unless all the company's unsecured debts (other than debts to which orders under this subsection relate) have been paid in full.

    588Y(3)   [ Proceedings begun by creditor]  

    Subsection (2) does not apply in relation to proceedings under section 588M in relation to the incurring of a debt by a company if the proceedings are begun by a creditor of the company (as provided for in Subdivision B of Division 4).

    588Y(4)   [ Limitation]  

    Subsection (2) does not apply in relation to a liability that is taken to be a debt because of section 588F.

    Division 7 - Person managing a corporation while disqualified may become liable for corporation's debts  

    SECTION 588Z  

    588Z   COURT MAY MAKE ORDER IMPOSING LIABILITY  
    Where:


    (a) a company is being wound up; and


    (b) on or after 23 June 1993 and within 4 years before the relation-back day, a person contravened section 206A by managing the company;

    the Court may, on the application of the company's liquidator, order that the person is personally liable for so much of the company's debts and liabilities as does not exceed an amount specified in the order.

    Division 8 - Employee entitlements contribution orders  

    SECTION 588ZA   EMPLOYEE ENTITLEMENTS CONTRIBUTION ORDERS  


    Making of employee entitlements contribution order

    588ZA(1)    
    The Court may make an order under subsection (2) (an employee entitlements contribution order ) in relation to an entity (the contributing entity ) if the Court is satisfied that:


    (a) a company (the insolvent company ) is being wound up; and


    (b) an amount (the unpaid entitlements amount ) of the entitlements of one or more employees (within the meaning of Part 5.8A) of the insolvent company that are protected under Part 5.8A has not been paid; and


    (c) the contributing entity is a member of the same contribution order group (see subsection (6)) as the insolvent company; and


    (d) the contributing entity has benefited, directly or indirectly, from work done by those employees; and


    (e) that benefit exceeds the benefit that would be reasonable in the circumstances if the insolvent company and the contributing entity were dealing at arm ' s length; and


    (f) it is just and equitable to make the order.

    Note 1: For the people who may apply to the Court for an employee entitlements contribution order, see section 588ZB .

    Note 2: A reference in Part 5.8A to an employee of a company is a reference to a current or former employee, and includes a reference to another person to whom an entitlement of an employee is owed (see section 596AA ).


    588ZA(2)    
    For the purposes of subsection (1), the Court may order the contributing entity to pay to the liquidator of the insolvent company an amount that:


    (a) reflects the value of the excess referred to in paragraph (1)(e); and


    (b) does not, together with any other payments required to be made in respect of the unpaid entitlements amount by the order, exceed the unpaid entitlements amount.

    588ZA(3)    
    The payment of an amount in accordance with an employee entitlements contribution order is not to be taken to be an advance of money for the purposes of section 560 .

    588ZA(4)    
    In determining whether it is just and equitable to make an employee entitlements contribution order, the Court may have regard to the following matters:


    (a) the size of the excess referred to in paragraph (1)(e);


    (b) the nature of the relationship between the contributing entity and the insolvent company;


    (c) any efforts made by the contributing entity, or officers of the contributing entity, and officers of the insolvent company to pay or to provide for the payment of the unpaid entitlements amount;


    (d) if the contributing entity is solvent - whether the order is likely to result in the contributing entity becoming insolvent;


    (e) the extent (if any) to which the order is likely to result in the contributing entity becoming unable to pay the entitlements of its employees or make distributions to creditors;


    (f) any other matters that the Court considers appropriate.

    588ZA(5)    
    If the Court makes an employee entitlements contribution order, the Court may do the following:


    (a) if the contributing entity is a company - order that the obligation to pay an amount under the order has the priority of a debt or claim covered by any of paragraph 556(1)(e) , (f), (g) or (h) in the winding up of the contributing entity (whether or not the contributing entity is being wound up when the order is made);


    (b) make any other orders, and give any directions, that the Court considers appropriate for the purposes of giving effect to the employee entitlements contribution order.

    Contribution order group

    588ZA(6)    
    For the purposes of subsection (1), 2 entities are members of the same contribution order group if:


    (a) one of the entities is, or has been, a related body corporate of the other entity; or


    (b) one of the entities is, or has been, a related body corporate of a body corporate that is, or has been, a related body corporate of the other entity; or


    (c) one of the entities is, or has been, controlled by the other entity or a related body corporate of the other entity; or


    (d) both of the entities represent, or have represented, to the public that they are related to one another; or


    (e) both entities are, or have been, part of the same consolidated entity; or


    (f) both entities are, or have been, part of a collection of entities that, as a matter of economic and commercial substance, functions or functioned as a single entity.

    SECTION 588ZB   WHO MAY APPLY FOR AN EMPLOYEE ENTITLEMENTS CONTRIBUTION ORDER  

    588ZB(1)    
    An application to the Court for an employee entitlements contribution order may only be made by:


    (a) the liquidator of the insolvent company referred to in paragraph 588ZA(1)(a) (the insolvent company ); or


    (b) the Commissioner of Taxation; or


    (c) the Fair Work Ombudsman; or


    (d) the Secretary of the Department administered by the Minister who administers the Fair Entitlements Guarantee Act 2012 .

    588ZB(2)    
    If a liquidator is appointed to the insolvent company, a person mentioned in paragraph (1)(b), (c) or (d) may make the application only:


    (a) if the liquidator has given written consent to the applicant for the application to be made; or


    (b) with the leave of the Court.

    588ZB(3)    
    The Court may give leave under paragraph (2)(b) only if:


    (a) the applicant has given a written notice to the liquidator asking the liquidator to give consent under paragraph (2)(a); and


    (b) either:


    (i) the liquidator has given written notice to the applicant refusing to give consent under paragraph (2)(a); or

    (ii) more than 30 days have passed since the notice under paragraph (a) of this subsection was given; and


    (c) the Court is satisfied that it is appropriate to give leave, having regard to the following matters:


    (i) whether it is likely that the liquidator will make an application for an employee entitlements contribution order in relation to the insolvent company;

    (ii) any other matter that the Court considers relevant.


    When proceedings may be begun

    588ZB(4)    
    An application for an employee entitlements contribution order may only be made within 6 years after the beginning of the winding up of the insolvent company.