Insolvency Litigation Services
Grope Hamilton Lawyers assists businesses, directors, creditors, liquidators and receivers with corporate insolvency disputes, including statutory demands, winding-up proceedings, liquidator claims and insolvent trading matters in South Australia.
What Is Insolvency Litigation?
Insolvency does not always lead to litigation.
A company may be insolvent when it cannot pay its debts as and when they become due. Once financial difficulty develops into a dispute, however, the issues can extend well beyond the unpaid debt itself.
Corporate insolvency litigation can involve questions about what is owed, transactions made before liquidation, the conduct and potential liability of directors, recovery action by a liquidator, the ownership or control of assets, or whether a company should be wound up.
The right response depends on how the dispute has arisen.
A creditor considering a statutory demand is in a very different position from a company that has just received one. A director responding to an insolvent trading allegation faces different issues again from a business being asked to repay money as an alleged unfair preference.
Identifying that position early is important because some insolvency procedures involve strict time limits and significant consequences if they are not addressed.
Legal Assistance for Insolvency Disputes
Insolvency disputes can involve creditors, companies, directors, liquidators and receivers, often with different legal rights, commercial interests and procedural requirements. Our role is to identify the legal position, the immediate issue and the practical way forward.
Statutory Demands and Winding-Up Proceedings
A statutory demand is more than an ordinary request for payment. It is a formal process under the Corporations Act 2001 (Cth) that can have significant consequences if it is not addressed within the required timeframe.
Your Company Has Received a Statutory Demand
Identify the Response Window
A company generally has 21 days after service to comply with the demand or apply to the Court to have it set aside.
Consider the Relevant Issues
Relevant issues may include a genuine dispute about the debt, an offsetting claim, a defect in the demand that may cause substantial injustice, or another ground recognised under the legislation.
Assess the Consequences of Inaction
Failure to address the demand within the required timeframe may have consequences beyond the debt itself and may affect later winding-up proceedings.
You Are Considering a Statutory Demand
Confirm the Debt Position
Before issuing a demand, it is important to consider whether the debt is due and payable and whether the statutory requirements have been satisfied.
Consider Whether a Dispute Exists
A statutory demand should not simply be used as another debt recovery letter where a genuine dispute or offsetting claim may arise.
Consider the Next Insolvency Step
If a valid statutory demand is not complied with, the creditor may then need to consider whether winding-up proceedings are appropriate in the circumstances.
Liquidator Recovery Claims:
Unfair Preferences and Other Voidable Transactions
When a company enters liquidation, the liquidator may review transactions made before the liquidation to determine whether money or property can be recovered for the benefit of creditors. Receiving a demand from a liquidator does not, by itself, mean that the amount claimed must be repaid. The legal basis of the claim, the transaction history and the surrounding circumstances need to be considered.
Unfair Preference
A liquidator may allege that a creditor received more in respect of an unsecured debt than it would have received if the payment were set aside and the creditor instead proved for the debt in the liquidation.
Uncommercial Transaction
A transaction may be challenged where its commercial circumstances and the benefit provided to the company raise issues under the voidable transaction provisions.
Unreasonable Director-Related Transaction
Certain transactions benefiting a director, a director's relative or another person within the statutory provisions may be examined and, in appropriate circumstances, challenged as an unreasonable director-related transaction.
Creditor-Defeating Disposition
A disposition may be challenged where company property was transferred for less than the relevant value and the transaction had the effect of preventing, hindering or significantly delaying that property from becoming available to creditors.
What May Need to Be Considered?
Whether a liquidator recovery claim succeeds can depend on the particular transaction, the company’s financial position and the evidence surrounding what occurred.
Timing
When the payment or transaction occurred and how that timing relates to the circumstances being investigated.
Financial Position
The company’s financial circumstances at the relevant time may be important to the legal analysis.
Transaction History
Payments, invoices, correspondence, account history and the broader course of dealings may provide important context.
Available Responses
Depending on the circumstances, a defence, negotiation, settlement or other response may need to be considered.
If You Have Received a Claim From a Liquidator
The starting point is to identify the transaction being challenged, the legal basis relied upon and the evidence supporting the claim before deciding whether to negotiate, defend or otherwise respond.
Insolvent Trading and Director-Related Claims
Insolvency disputes may involve allegations against directors, recovery action by liquidators or questions about decisions made while a company was experiencing financial difficulty.
If Your Conduct Is Being Examined
It is important to understand the legal basis of the allegation, the period being examined and the particular debts or transactions said to be relevant.
The company’s financial records, the information available at the time and the steps taken in response to financial difficulty may all need to be reviewed.
If Potential Director Liability Is Being Considered
The claim may require detailed consideration of when the company became insolvent, when debts were incurred and the circumstances surrounding the directors’ decisions.
The available documents and financial evidence may be important in determining whether proceedings should be pursued.
The company’s solvency at the relevant time.
When the particular debts were incurred.
The information available and steps taken by those involved.
Liquidator Investigations and Examinations
A liquidator's investigation may involve requests for company books and records, information or assistance from current or former officers. Other persons may also be required to produce company books or, in some circumstances, attend a court-ordered examination concerning the company's examinable affair
Request for Books and Records
A request for company books, records or other documents relevant to the liquidator’s enquiries.
Identify and Provide Relevant Material
Relevant company records may need to be located, preserved and provided in accordance with the request.
Request for Information or Assistance
A request for information, explanations or assistance concerning the company’s business, property or affairs.
Provide Information or Explanations
Directors or other officers may need to respond to enquiries and provide information or assistance relevant to the liquidator’s investigation.
Examination Process
In some circumstances, a person may be required to attend a formal examination concerning the company’s examinable affairs and answer questions relevant to the investigation.
Prepare for Formal Questioning
Preparation may involve understanding the scope of the examination, reviewing relevant documents and considering the matters likely to be addressed.
Before Responding
Where you receive a request for records, information or notice concerning an examination, it is important to understand what is being required and the context in which the information is sought. Grope Hamilton Lawyers can assist with reviewing the request, preparing for an examination and providing representation where appropriate.
Frequently Asked Questions
Once a company is in liquidation, restrictions generally apply to commencing or continuing legal proceedings against the company.
Depending on the type of liquidation and the nature of the proceeding, Court permission may be required before an existing proceeding can continue or a new proceeding can be commenced. In other circumstances, a creditor may instead need to lodge a proof of debt in the liquidation.
The appropriate course depends on the claim, the insolvency process and what the creditor is seeking to achieve.
A liquidator may admit a proof of debt in full, admit part of it, seek further information or reject it.
If all or part of a formal proof of debt is rejected, the creditor should receive notice of the decision. There may be a limited period in which the decision can be challenged through the Court.
If you disagree with the liquidator’s decision, obtaining advice promptly can help determine whether the rejection should be challenged and what evidence may be required.
Not in the same way that a lawyer acts for an individual client.
A liquidator has statutory responsibilities in administering the liquidation and dealing with the interests of creditors generally. An individual creditor may have its own legal or commercial interests that require separate consideration.
Independent legal advice may therefore be appropriate where there is a dispute about a creditor’s claim, the conduct of the liquidation or another issue affecting that creditor’s position.
A receiver and a liquidator perform different roles.
A receiver is generally appointed in connection with secured property and acts primarily in relation to the assets covered by the appointment, while a liquidator has broader responsibilities in winding up the company and dealing with creditors generally.
Disputes may arise involving either type of appointment. Grope Hamilton Lawyers acts both for and against liquidators and receivers in insolvency-related litigation.
Corporate insolvency is principally governed by the Commonwealth Corporations Act 2001.
Depending on the type of application or proceeding, a corporate insolvency matter in South Australia may be dealt with by the Federal Court of Australia or the Supreme Court of South Australia.
The appropriate Court and procedure depend on the particular dispute, application and relief being sought.
Insolvency disputes may involve liquidators, receivers, creditors, companies, directors and other affected parties.
Depending on the circumstances and subject to the usual conflict checks and professional obligations, Grope Hamilton Lawyers can assist parties bringing or defending insolvency-related claims and proceedings.
Start with the document that has caused you to seek advice, such as a statutory demand, liquidator’s claim, Court document, proof of debt decision, request for information or examination material.
It can also be helpful to provide the relevant dates and a short chronology, together with contracts, invoices, payment records, financial documents and correspondence connected with the dispute.
You do not need to determine the legal position before seeking advice. Providing the available documents and a clear outline of what has occurred can help identify the issues that require attention.
