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mcgrathnicol.com

1. D18-20180608-Statutory Report by Liquidator-SJW

Samgris Resources Pty Ltd (In Liquidation)

ACN 147 457 181

(Samgris)

Statutory Report to Creditors

We refer to our initial information for creditors dated 24 April 2018 in which we advised you of our appointment as

Liquidators and your rights as a creditor in the liquidation.

The purpose of this report is to:

provide you with an update on the progress of the liquidation; and

advise you of the likelihood of a dividend being paid in the liquidation.

Background

Samgris was established in 2010 as a private Australian coal exploration company, based in Brisbane.

Appointment of Liquidators

Pursuant to an Order of the Supreme Court of Queensland dated 8 May 2017 and judgment of the Queensland

Court of Appeal delivered on 23 March 2018, Jamie Harris and Anthony Connelly were appointed Liquidators of

Samgris. Samgris was wound up on just and equitable grounds as a result of a dispute between the shareholders.

While the official liquidation date is 8 May 2017, as a result of a stay in the proceedings, the Liquidators had no

ability to exercise our legal powers in relation to Samgris until the stay was lifted on 23 March 2018.

On 23 March 2018 the Liquidators took control of Samgris’ business and have continued to trade the business while

we have undertaken an urgent assessment to determine the best course of action to preserve Samgris’ business and

assets.

The below diagram explains the timeline of Samgris’ liquidation:

8 May 2017 12 May 2017 23 March 2018

The Supreme Court of Queensland orders the Chief Executive Officer

and the directors nominated as representatives of the Majority Shareholder (refer to section 3) to

provide an undertaking.

The Supreme Court of Queensland appoints

Liquidators to Samgrisand at the same time orders a stay on the

Liquidation.

The Queensland Court of Appeal lifts the stay.

The Liquidators take control of Samgris’ assets and business.

Stay Period

2

Court Application

The Liquidators have made an application to the Federal Court of Australia seeking the following:

directions in relation to the disposition of property that occurred during the Stay Period; and

that the Liquidators be relieved of any statutory and/or other obligation that arose between 8 May 2017 to

23 March 2018 (Stay Period) by virtue of their appointment as Liquidators.

The court hearing was initially held on 11 May 2018. This hearing was adjourned to 21 May 2018 and then again

until a date to be determined (likely July 2018).

2.1.1 Dispositions of property

Pursuant to section 468 of the Corporations Act 2001 (Act), any disposition of property after the winding up of a

company has commenced is void, except in certain circumstances, including where that disposition was made by the

liquidator. The term “disposition of property” has a broad definition and can include payments, transfers,

assignments, the sale of, and acquisition of property.

The Liquidators consider any disposition of property made by Samgris between the Order of the Supreme Court of

Queensland on 8 May 2017 and the judgment of the Queensland Court of Appeal delivered on 23 March 2018 as,

prima facie, void.

Accordingly, the Liquidators are currently seeking orders that the dispositions of property that occurred during the

Stay Period are not considered void for the purposes of the Act. The orders sought do not request that the Court

ratify these dispositions, rather that they not be considered void solely for the purposes of section 468 of the Act.

2.1.2 Liquidators’ obligations during Stay Period

As a result of the stay, the Liquidators have been unable to comply with certain of their statutory reporting

requirements and other obligations that arose by virtue of their appointment during the Stay Period. Accordingly,

the Liquidators have also sought orders from the Federal Court granting relief in relation to the obligations that arose

during the Stay Period.

Samgris’ shareholdings

The below table outlines the relationship between Samgris’ shareholders and Samgris’ directors.

Samgris’ shareholders and their nominated directors

Shareholders Shareholders’ nominated directors of Samgris

Asia Pacific Joint Mining Pty Ltd (Majority Shareholder)

Hui Xie Xin Wang Laixin Li (collectively referred to as Majority Directors)

McKay Brooke Resources Limited and Allways Resources Holdings Pty Ltd (Minority Shareholders)

Wanfu Huang Michael Howard (collectively referred to as Minority Directors)

Potential arbitration notice

On 19 April 2018, the Liquidators received notice that the Majority Shareholder and its parent companies intended

to commence arbitration at the China International Economic and Trade Arbitration Commission, against Samgris.

To date, the Liquidators have not received any further information from the Majority Shareholder in relation to the

intended arbitration.

3

Strategy for Samgris shareholdings

On 30 April 2018, the Liquidators sent correspondences to Samgris’ shareholders requesting them to:

advise whether negotiations between the shareholders in relation to Samgris’ shareholding would be useful

and;

in the event of an absence of a satisfactory response from the shareholders, the Liquidators would take

steps to commence asset realisations.

Substantive responses have not been received. Accordingly, the Liquidators are investigating realisation of Samgris’

assets.

Update on the progress of the liquidation

Employees

After undertaking preliminary investigations, the Liquidators concluded that we no longer required the ongoing

assistance of Samgris’ Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Tenement & Administration

Manager. These employees’ employment was terminated on 4 May 2018 and they were paid their wages and

superannuation up to and including 4 May 2018.

In order to maintain the mining tenements, the Liquidators have continued to employ Samgris’ Exploration Manager

and Accountant.

Tenements

Samgris holds eleven tenements located in Queensland. The Liquidators are currently working with Samgris’

Exploration Manager to maintain the tenements in good standing order. The Liquidators do not currently intend to

progress the field exploration work of any of the eleven tenements.

The Liquidators contacted a number of valuers to undertake a valuation of Samgris’ eleven tenements and have

subsequently engaged Palaris to undertake the valuation.

Samgris’ assets and liabilities

The below tables detail the assets and liabilities provided in the Directors’ Reports as to Affairs (RATA) compared with

the estimated realisable assets and identified liabilities. As a result of the Stay, the Liquidators requested that Samgris’

directors complete two separate RATAs, with the details in each RATA as follows:

details of the first RATA being as at 8 May 2017 (liquidation date); and

details of the second RATA being as at 23 March 2018 (date the stay was lifted).

Please note that the tables do not include the actual and estimated costs of the liquidation incurred by the

Liquidators.

4

Samgris – Directors’ RATA as at 8 May 2017 vs estimated realisations by Liquidators

A$

Valuation from

Directors’

RATA (Majority

Directors)

Estimated

realisable value

from Directors’

RATA (Majority

Directors)

Valuation from

Directors’ RATA

(Minority

Directors)

Estimated

realisable value

from Directors’

RATA (Minority

Directors)

Assets

available for

realisation by

the Liquidators

(Estimated)

Assets

Cash at Bank 8,217,828 8,217,828 8,199,853 8,199,853 8,200,000

Cash on hand - - 1,010 1,010 Unknown

Debtors on appointment 11 - 109,042 Unknown -

Interest in land (tenements) 9,487,000 Unknown 55,000,000 Unknown Unknown

Plant and equipment 34,031 34,031 100,000 Unknown 34,031

Potential recoveries 400,000 400,000 400,000 400,000 400,000

Total assets 18,138,870 8,651,859 63,809,905 8,600,863 8,634,031

Liabilities

Secured creditors - - - - -

Employee entitlements (123,490) (123,490) Unknown Unknown Unknown

Directors’ fees (588,667) (588,667) Unknown Unknown Unknown

Unsecured creditors (377) (377) Unknown Unknown Unknown

Total liabilities (712,534) (712,534) Unknown Unknown Unknown

Net assets 17,426,336 7,939,325 Unknown Unknown Unknown

Source: Directors’ RATAs and Samgris’ books and records

Note: Where figures varied between the RATAs the average was taken.

5

Samgris – Directors’ RATA as at 23 March 2018 vs estimated realisations by Liquidators

A$

Valuation from

Directors’

RATA (Majority

Directors)

Estimated

realisable value

from Directors’

RATA (Majority

Directors)

Valuation from

Directors’ RATA

(Minority

Directors)

Estimated

realisable value

from Directors’

RATA (Minority

Directors)

Assets

available for

realisation by

the Liquidators

(Estimated)

Assets

Cash at Bank 7,680,140 7,680,140 7,624,735 7,624,735 7,680,241

Cash on hand - - 1,010 1,010 Unknown

Debtors on appointment 11 - 11,223 Unknown -

Interest in land (tenements) 9,322,363 Unknown 55,000,000 Unknown Unknown

Plant and equipment 25,715 25,715 100,000 Unknown 25,715

Potential recoveries 400,000 400,000 400,000 400,000 400,000

Total assets 17,428,229 8,105,855 63,136,968 8,025,745 8,105,956

Liabilities

Secured creditors - - - - -

Employee entitlements (206,784) (206,784) Unknown Unknown (238,014)

Directors’ fees (818,000) (818,000) Unknown Unknown (818,000)

Unsecured creditors (13,554) (13,554) Unknown Unknown (100,000)

Total liabilities (1,038,338) (1,038,338) Unknown Unknown (1,156,014)

Net assets 16,389,891 7,067,517 Unknown Unknown 6,949,942

Source: Directors’ RATAs and Samgris’ books and records

Note: Where figures varied between the RATAs the average was taken.

Assets

The Liquidators took control of Samgris on 23 March 2018, when the stay on the liquidation was lifted. As at

23 March 2018, Samgris had the following assets:

$7,680,241 in its bank accounts. These funds are being used by the Liquidators to:

maintain the tenements;

pay the remaining employee wages;

pay storage costs for Samgris’ books and records;

pay rent to store coal at a premises located in Nebo;

pay lease payments for the photocopier and Samgris’ office located at 410 Queen Street, Brisbane;

and

pay suppliers as required, such as Engin (phone and internet).

plant and equipment which consists of office furniture & equipment and a Toyota Prado Kakudu. The

vehicle has been collected by GraysOnline and will be realised by the Liquidators. The Liquidators have

requested a valuation of the vehicle;

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eleven tenements of which a recent valuation has not been conducted and accordingly the Liquidators are

unaware of the value. The Liquidators have engaged a valuer to value the tenements. The Majority

Directors have claimed that there is minimal value held in the tenements. However, the Minority Directors

have claimed the tenements may hold a value of $55 million; and

there is a claim of $400,000. This was a deposit paid to Australian Shaanxi Mining Pty Ltd (ASM) under the

Entrustment Agreement (Agreement) dated 1 August 2016 to reimburse ASM’s authorised expenses under

the Agreement. As a result of the undertakings made pursuant to the Court Order on 12 May 2017, the

activities under the Agreement were not commenced. Accordingly, the Liquidators will write to ASM

requesting the balance of funds be returned to Samgris.

Employee entitlements

The Liquidators expect to have access to sufficient circulating asset recoveries to meet all priority employee claims,

including pay-in-lieu of notice and redundancy, in full.

Creditor claims

As at 8 May 2017, the Majority Directors advised that directors’ fees outstanding were $588,667. As Samgris

continued to trade past 8 May 2017 and was permitted to make payments in the ordinary course of business, the

Liquidators have not identified any other unpaid pre-appointment creditors, apart from potentially Samgris’ CFO.

Investigations undertaken to date

The Liquidators have commenced preliminary investigations into Samgris’ affairs and have identified that:

Samgris was wound up on just and equitable grounds and continued to have sufficient cash at bank to

meet all of its known liabilities throughout the Stay Period;

certain transactions that occurred during the Stay Period may be in breach of the undertakings required by

the Court Order dated 12 May 2017. These transactions are of a low value. The Liquidators are continuing

to investigate these potential breaches;

the Liquidators have not yet identified breaches of any of the other undertakings. However, we intend to

continue our investigations and write to Samgris’ shareholders requesting they advise if they are aware of

any breaches.

Our initial investigations indicate that Samgris is solvent. If it is found that Samgris is insolvent, we will investigate

unfair preference payments and uncommercial transactions as transactions of this nature will only be void if:

Samgris was insolvent; or

Samgris became insolvent as a result of entering into the transaction.

The Liquidators are continuing to investigate the affairs of Samgris.

Receipts and payment to date

Enclosed are details of all receipts and payments in the liquidation for the period 23 March 2018 to 31 May 2018.

The receipts and payments do not include transactions that occurred prior to 23 March 2018 as the Liquidators did

not have control of Samgris.

7

Amounts owed by Samgris

Set out below is a summary of the treatment of amounts owed by Samgris.

Amounts owed by Samgris

Period to which the debt relates Action required by creditor

Pre-8 May 2017 Based on information available at this time, the Liquidators consider it likely that a dividend may be payable to creditors with admitted claims in the liquidation. Please complete and return the attached Proof of Debt. Refer to section 8.1 for further information.

8 May 2017 to 22 March 2018 We expect these amounts will be treated as payments that became due and payable during the Liquidation and will be paid from funds held by the Liquidator. Please complete and return the attached Running Account Balance Work Paper. Refer to section 8.2 for further information.

23 March 2018 onwards Please continue to forward invoices for goods and services to the Liquidators’ office until further notice.

Please refer below for further information.

Likelihood of a dividend

A number of factors will affect the likelihood of a dividend being paid to creditors, including:

the size and complexity of the liquidation;

the amount of assets realisable and the costs of realising those assets;

the statutory priority of certain claims and costs;

the value of various classes of claims including secured, priority and unsecured creditor claims, and

the volume of enquiries by creditors and other stakeholders.

Based on information available at this time, the Liquidators consider it likely that a dividend may be payable to

creditors with admitted claims in the liquidation.

If a dividend is to be paid, you will be contacted before it is paid and, if you have not already done so at that time,

you will be asked to lodge a proof of debt. This formalises the record of your claim in the liquidation and is used

to determine all claims against Samgris.

If you are a creditor of Samgris, with an amount owed to you at 8 May 2017, please complete and return the

enclosed Proof of Debt Form (Form 535) (POD) via email swood@mcgrathnicol.com by close of business

3 July 2018.

If you are owed an amount by Samgris which occurred post 8 May 2017, please refer to section 8.2 of this report

for instructions on how to submit a claim for the amount owed.

Amounts owed during the Stay Period (8 May 2017 to 23 March 2018)

If an amount outstanding relates to or became due and payable to you during the Stay Period (after 8 May 2017 but

prior to 23 March 2018) please complete the enclosed:

POD indicating the amount owed to you and attach supporting documentation; and

8

the Running Account Balance Work Paper (Work Paper) showing the transactions invoiced, paid and

outstanding to you during the Stay Period. A copy of the Work Paper is enclosed in this report and has

also been uploaded to the McGrathNicol website in an Excel format and can be downloaded

from http://www.mcgrathnicol.com/assignments/samgris-resources-pty-ltd/#.

Please return the POD and Work Paper via email swood@mcgrathnicol.com by close of business 3 July 2018.

Please refer to the enclosed Work Paper Example, which explains how this document should be completed.

Amounts owed to creditors for services provided during the Stay Period are not pre-appointment claims against

Samgris and will not be included in any dividend process. However, we expect these amounts will be treated as

payments that became due and payable during the Liquidation and will be paid from funds held by the Liquidator.

Cost of the liquidation

As previously advised in our initial information to creditors, we estimated that our total remuneration for the

liquidation would be $200,000 to $300,000.

We currently anticipate that our remuneration for the liquidation may be higher ($300,000 to $500,000) than

originally anticipated as a result of additional time invested due to:

the application to the Federal Court seeking orders (refer to section 2.1); and

the potential arbitration proceedings brought against Samgris (refer to section 3.1).

What happens next?

The Liquidators will proceed with the liquidation, which will include:

realising the remaining assets, in particular Samgris eleven tenements;

recovering any further available property;

completing our investigations into Samgris’ affairs;

if identified, pursuing any viable claims for statutory recovery actions;

completing our reporting to the corporate insolvency regulator, the Australian Securities and Investments

Commission (ASIC);

assuming sufficient funds are available, pay any outstanding amounts which were incurred during the

period 8 May 2017 to 23 March 2018; and

review any claims submitted by creditors as at 8 May 2017 and declare a dividend, if relevant.

If the Liquidators receive a request for a meeting that complies with the guidelines set out in the initial information

provided to you, we will hold a meeting of creditors.

The Liquidators may write to you again with further information on the progress of the liquidation.

The Liquidators currently expect to have completed this liquidation within seven months of this report.

9

Where can you get more information?

You can access information which may assist you on the following websites:

ARITA at www.arita.com.au/creditors.

ASIC at http://www.asic.gov.au (search for “insolvency information sheets”).

If you have any queries, please contact Shanna Wood on (07) 3333 9856. For further information about this

engagement, please refer to the website http://www.mcgrathnicol.com/assignments/samgris-resources-pty-ltd/#.

Dated: 12 June 2018

William James Harris

Liquidator

Enclosures:

List of receipts and payments

Proof of Debt (Form 535)

Proof of Debt Guidance Notes

Running Account Balance Work Paper

Running Account Balance Work Paper Example

ARITA Information Sheet – Offences, Recoverable Transactions & Insolvent Trading

Receipts and payments for the period 23 March 2018 to 31 May 2018

Transaction Amount ($) (incl GST)

Receipts

Interest income 32,371

Pre-appointment funds 7,680,241

Reimbursement (tenement rent) 130

Total receipts 7,712,742

Payments

Advertising (728)

Bank charges (520)

EPC renewal fees (630)

EPC security payments (1,000)

Legal fees (15,842)

Mail redirection (528)

PAYG tax 27,820

Printing and stationery (781)

Mining tenement rent (13,555)

Rent and rates (25,195)

Office supplies (70)

Superannuation (11,578)

Telephone and fax (396)

Tenement management (411)

Wages and salaries (101,463)

Total payments (144,877)

Total 7,567,865

Samgris Resources Pty Ltd (In Liquidation)

ACN 147 457 181

*Do not complete if this proof is made by the creditor personally.

Australian Company Number: 147 457 181

FORM 535 Subregulation 5.6.49(2)

Corporations Act (2001)

FORMAL PROOF OF DEBT OR CLAIM

(GENERAL FORM)

To the Liquidators of Samgris Resources Pty Ltd (In Liquidation)

1. This is to state that the company was on 8 May 2017 (date of court order in winding up by the Court,

or date of resolution to wind up, if a voluntary winding up), and still is, justly and truly indebted to:

_________________________________________________________ (full name and address of the creditor and, if applicable, the creditor's partners. If prepared by

an employee or agent of the creditor, also insert a description of the occupation of the creditor)

for $_______________and______cents.

Date Consideration (state how the

Debt arose)

Amount

$ c

Remarks (include details of

voucher substantiating payment

2. To my knowledge or belief the creditor has not, nor has any person by the creditor's order, had or received

any satisfaction or security for the sum or any part of it except for the following: (insert particulars of all

securities held. If the securities are on the property of the company, assess the value of those securities.

If any bills or other negotiable securities are held, show them in a schedule in the following form).

Date Drawer Acceptor Amount $c Due Date

*3. I am employed by the creditor and authorised in writing by the creditor to make this statement. I know

that the debt was incurred for the consideration stated and that the debt, to the best of my knowledge

and belief, remains unpaid and unsatisfied.

*3. I am the creditor's agent authorised in writing to make this statement in writing. I know that the debt

was incurred for the consideration stated and that the debt, to the best of my knowledge and belief,

remains unpaid and unsatisfied.

........................................... Dated

Signature

Occupation:

Address

1

Proof of Debt

Guidance Notes

(Please read carefully before filling in Form 535 or Form 536)

It is a creditor’s responsibility to prove their claim to our satisfaction.

When lodging claims, creditors must ensure:

the proof of debt form is properly completed in every particular; and

evidence, as set out under “Information to support your claim”, is attached to the Form 535 or Form 536.

Directions for completion of a Proof of Debt

Insert the full name and address of the creditor.

Under “Consideration” state how the debt arose, for example “goods sold to the company on

______________________.”.

Under “Remarks” include details of any documents that substantiate the debt (refer to the section

“Information to support your claim” below for further information).

Where the space provided for a particular purpose is insufficient to contain all the information required for

a particular item, please attach additional information.

Information to support your claim

Please note that unless you provide evidence to support the existence of the debt, your debt is not likely to be

accepted. Detailed below are some examples of debts creditors may claim and a suggested list of documents that

should accompany a proof of debt to substantiate the debt.

Trade Creditors

Invoice(s) and statement(s) showing the amount of the debt; and

Advice(s) to pay outstanding invoice(s) (optional).

Guarantees/Indemnities

Executed guarantee/indemnity;

Notice of Demand served on the guarantor; and

Calculation of the amount outstanding under the guarantee.

Judgment Debt

Copy of the judgment; and

Documents/details to support the underlying debt as per other categories.

Deficiencies on Secured Debt

Security Documents (eg. mortgage);

Independent valuation of the secured portion of the debt (if not yet realised) or the basis of the creditor’s

estimated value of the security;

Calculation of the deficiency on the security; and

Details of income earned and expenses incurred by the secured creditor in respect of the secured asset

since the date of appointment.

2

Loans (Bank and Personal)

Executed loan agreement; and

Loan statements showing payments made, interest accruing and the amount outstanding as at the date of

appointment.

Tax Debts

Documentation that shows the assessment of debts, whether it is an actual debt or an estimate, and

separate amounts for the primary debt and any penalties.

Employee Debts

Basis of calculation of the debt;

Type of Claim (eg. wages, holiday pay, etc);

Correspondence relating to the debt being claimed; and

Contract of Employment (if any).

Leases

Copy of the lease; and

Statement showing amounts outstanding under the lease, differentiating between amounts outstanding at

the date of the appointment and any future monies.

Samgris Resources Pty Ltd (In Liquidation)

ACN 147 457 181

(Samgris)

Running Account Balance Work Paper

Instructions

Please complete each column in the below table with invoices issued to Samgris, amounts settled and amounts still

outstanding in the period 8 May 2017 to 23 March 2018. Attach all supporting documentation (invoices, statement

of accounts, contracts etc.)

Please also attach a completed Proof of Debt Form (Form 535) detailing the amount owed to you as at 8 May 2017

and your details.

Refer to the Running Account Balance Work Paper Example for an example of how to complete the Running

Account Balance Work Paper.

Please duplicate this page if you require more entry lines.

Claimants name: ________________________________________________________

Invoice number Date of invoice Period for which

service was provided

Amount owed ($)

(incl GST)

Amount paid ($)

(incl GST)

Total outstanding balance as at 23 March 2018

Samgris Resources Pty Ltd (In Liquidation)

ACN 147 457 181

(Samgris)

Running Account Balance Work Paper

Instructions

Please complete each column in the below table with invoices issued to Samgris, amounts settled and amounts still

outstanding in the period 8 May 2017 to 23 March 2018. Attach all supporting documentation (invoices, statement

of accounts, contracts etc.)

Please also attach a completed Proof of Debt Form (Form 535) detailing the amount owed to you as at 8 May 2017

and your details.

Refer to the Running Account Balance Work Paper Example for an example of how to complete the Running

Account Balance Work Paper.

Please duplicate this page if you require more entry lines.

Claimant’s name: Suzie’s Cleaning Services Pty Ltd

Invoice

number

Date of

invoice

Period for which

service was provided

Invoiced

amount ($)

(incl GST)

Amount paid ($)

(incl GST)

Outstanding

balance ($)

(Incl GST)

001 3/08/2017 1/07/17 to 31/07/17 150.00 150.00 -

002 3/09/2017 1/08/17 to 31/08/17 150.00 150.00 -

003 3/10/2017 1/09/17 to 30/09/17 150.00 150.00 -

004 3/11/2017 1/10/17 to 31/10/17 150.00 150.00 -

005 3/12/2017 1/11/17 to 30/11/17 150.00 150.00 -

006 3/01/2018 1/12/17 to 31/12/17 150.00 150.00 -

007 3/02/2018 1/01/18 to 31/01/18 150.00 150.00

008 3/03/2018 1/02/18 to 28/02/18 150.00 150.00 -

009 3/04/2018 1/03/18 to 31/03/18 150.00 106.45*

Total outstanding balance as at 23 March 2018 256.45

*This is a pro-rated amount for the amount outstanding up to and including 22 March 2018. If the Liquidators have

not paid for the amount owing on an invoice from 23 March 2018 onward, please include the full amount owed.

Creditor Information Sheet Offences, Recoverable Transactions and Insolvent Trading

AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION

A summary of offences under the Corporations Act that may be identified by the administrator:

180 Failure by company officers to exercise a reasonable degree of care and diligence in the exercise of their powers and the discharge of their duties.

181 Failure to act in good faith.

182 Making improper use of their position as an officer or employee, to gain, directly or indirectly, an advantage.

183 Making improper use of information acquired by virtue of the officer’s position.

184 Reckless or intentional dishonesty in failing to exercise duties in good faith for a proper purpose. Use of position or information dishonestly to gain advantage or cause detriment. This can be a criminal offence.

198G Performing or exercising a function or power as an officer while a company is under administration.

206A Contravening a court order against taking part in the management of a corporation.

206A, B Taking part in the management of corporation while being an insolvent, for example, while bankrupt.

206A, B Acting as a director or promoter or taking part in the management of a company within five years after conviction or imprisonment for various offences.

209(3) Dishonest failure to observe requirements on making loans to directors or related companies.

254T Paying dividends except out of profits.

286 Failure to keep proper accounting records.

312 Obstruction of an auditor.

314-7 Failure to comply with requirements for the preparation of financial statements.

437D(5) Unauthorised dealing with company's property during administration.

438B(4) Failure by directors to assist administrator, deliver records and provide information.

438C(5) Failure to deliver up books and records to the administrator.

590 Failure to disclose property, concealed or removed property, concealed a debt due to the company, altered books of the company, fraudulently obtained credit on behalf of the company, material omission from Report as to Affairs or false representation to creditors.

Preferences

A preference is a transaction, such as a payment by the company to a creditor, in which the creditor receiving the payment is preferred over the general body of creditors. The relevant period for the payment commences six months before the commencement of the liquidation. The company must have been insolvent at the time of the transaction, or become insolvent because of the transaction.

Where a creditor receives a preference, the payment is voidable as against a liquidator and is liable to be paid back to the liquidator subject to the creditor being able to successfully maintain any of the defences available to the creditor under the Corporations Act.

Uncommercial Transaction

An uncommercial transaction is one that it may be expected that a reasonable person in the company's circumstances would not have entered into, having regard to:

• the benefit or detriment to the company;

• the respective benefits to other parties; and,

• any other relevant matter.

Offences

Recoverable Transactions

AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 2

Version: August 2017 22143 (VA) - INFO - Offences recoverable transactions and insolvent trading v1_1.docx1

To be voidable, an uncommercial transaction must have occurred during the two years before the liquidation. However, if a related entity is a party to the transaction, the period is four years and if the intention of the transaction is to defeat creditors, the period is ten years.

The company must have been insolvent at the time of the transaction, or become insolvent because of the transaction.

Unfair Loan

A loan is unfair if and only if the interest was extortionate when the loan was made or has since become extortionate. There is no time limit on unfair loans – they only must be entered into before the winding up began.

Arrangements to avoid employee entitlements

If an employee suffers loss because a person (including a director) enters into an arrangement or transaction to avoid the payment of employee entitlements, the liquidator or the employee may seek to recover compensation from that person. It will only be necessary to satisfy the court that there was a breach on the balance of probabilities. There is no time limit on when the transaction occurred.

Unreasonable payments to directors

Liquidators have the power to reclaim ‘unreasonable payments’ made to directors by companies prior to liquidation. The provision relates to payments made to or on behalf of a director or close associate of a director. The transaction must have been unreasonable, and have been entered into during the 4 years leading up to a company's liquidation, regardless of its solvency at the time the transaction occurred.

Voidable charges

Certain charges over company property are voidable by a liquidator:

• circulating security interest created within six months of the liquidation, unless it secures a subsequent advance;

• unregistered security interests;

• security interests in favour of related parties who attempt to enforce the security within six months of its creation.

In the following circumstances, directors may be personally liable for insolvent trading by the company:

• a person is a director at the time a company incurs a debt;

• the company is insolvent at the time of incurring the debt or becomes insolvent because of incurring the debt;

• at the time the debt was incurred, there were reasonable grounds to suspect that the company was insolvent;

• the director was aware such grounds for suspicion existed; and

• a reasonable person in a like position would have been so aware.

The law provides that the liquidator, and in certain circumstances the creditor who suffered the loss, may recover from the director, an amount equal to the loss or damage suffered. Similar provisions exist to pursue holding companies for debts incurred by their subsidiaries.

A defence is available under the law where the director can establish:

• there were reasonable grounds to expect that the company was solvent and they did so expect;

• they did not take part in management for illness or some other good reason; or

• they took all reasonable steps to prevent the company incurring the debt.

The proceeds of any recovery for insolvent trading by a liquidator are available for distribution to the unsecured creditors before the secured creditors.

Important note: This information sheet contains a summary of basic information on the topic. It is not a substitute for legal advice. Some provisions of the law referred to may have important exceptions or qualifications. This document may not contain all of the information about the law or the exceptions and qualifications that are relevant to your circumstances.

Insolvent trading