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

Subdivision B - Duties to prevent creditor-defeating dispositions  

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.