PMF Legal is a Sydney-based commercial Law firm with a strong record of clientsucesses and landmark court cases, coupled with a proud tradition of offeringcutting-edge legal advice in a commercial context.

ABOUTPMF Legal provides clients with boutique legal advice on corporate and commercial matters.

The fi rm has been responsible for a series of signifi cant successes for clients and has been a major contributor in assisting them to protect and expand their businesses.

The advice provided is cutting-edge, but more signifi cantly is innovative, tailored and personal to ensure each client’s objectives are met.

Additionally the fi rm has enjoyed more than its fair share of court victories which have set precedents and contributed to the changing or framing of new legislation.

PMF Legal is a unique and much respected fi rm with an ethical reputation.

Areas of practice include:

• Corporate insolvency situations • Voluntary administration • Deed of company arrangement • Creditors’ voluntary liquidation • Members’ voluntary liquidation • Court liquidation • Receivership • Bankruptcy • Commercial litigation • Commercial negotiations and solutions • Commercial contracts • Major Commonwealth tenders • Major public company tenders

CLIENTSPMF Legal - Amending the Corporations Law:

Re Crawford House Press Pty Ltd - 13 ACLC 874. Creditors with debts incurred during a deed of company arrangement were not entitled to receive any dividend if the deed failed and the company went into liquidation. This case led to the amendment that brought s553(1A) into the Corporations Law to ensure that creditors of a failed DCA could participate for a dividend on a winding up.

McDonald v ASIC - 15 ACLC 1. ASIC’s view was that the report sent by administrators to creditors in a voluntary administration should contain information on the “affairs form”. This would have increased the costs of administrators and reduced the funds available to the creditors of companies. The Supreme Court of New South Wales ruled invalid the Corporations Regulation that purported to prescribe that the administrator’s report under s439A had to be in Form 507 Report as to “affairs”.

McDonald v Deputy Commissioner of Taxation. There appears to be a major loophole in the Corporations Act that prevents creditors who bring winding-up applications before the Court from recovering their legal costs if the company goes into liquidation through a voluntary administration and not an order of the court. If there is this defect then it will be important for the parliament to rectify this gap. Some winding-up applications can cost tens of thousands of dollars. It does not produce a fair result if these creditors are unable to recovery their costs from the liquidation.

PMF Legal - Innovation:

Employers’ Mutual Indemnity v JST Transport - 15 ACLC 314. This case ruled that an administrator could use special proxies to vote in favour of a Deed of Company Arrangement. Workers Compensation insurers wanted to challenge the Deed because it left them exposed for continuing liability for an insurance policy where only a portion of the dividends were going to be paid under the Deed. If the proxies had not been able to be used the proposal for the deed would have failed to the detriment of the other creditors.

Re Genasys II Pty Ltd - 14 ACLC 729. This case allowed directors of a company in receivership to appoint an administrator – giving better outcomes for the unsecured creditors of the company than if the receivership had merely continued for the benefi t of the secured creditor.

Re Dionys Civil Engineering Pty Ltd 28 ACSR 83. This case allowed a deed of company arrangement to be completed even though some of the creditors had decided to try and have the company go into liquidation even though all of the money due under the deed of company arrangement had been paid to the deed administrator.

CLIENTSMelbase Corp Pty v Segenhoe Ltd - 13 ACLC 823. This was the fi rst case to grant leave to a contributory to bring a winding-up application against a company.

Re Kalblue Pty Ltd - 12 ACLC 1,057. This case allowed the unheard of to happen - a debtor had the company wound-up!

Re Spargold Enterprises Pty Ltd - 32 ACSR 363. An administrator had a court advise that where a company under a Deed of Company Arrangement appeared to be insolvent, then he had an obligation to all creditors and standing to apply to have the company wound-up.

Re A & D Hagan Pty Ltd – 46 ACSR 434. The Court determined that administrators had to personally chair the second creditors meeting under a voluntary administration. They could not appoint someone else to chair the meeting for them.

PMF Legal - Fighting to Win:

A director of a company that went into liquidation, had been fi ghting to have a claim that the company had against a secured creditor brought so that the monies could be recovered and returned to members.

Notwithstanding the client’s usually helpless position as the director of a failed company, PMF Legal succeeded in having ASIC exercise its rarely called on power to appoint him as an eligible applicant to conduct examinations of key people with the secured creditor to investigate the circumstances that led to the company being put into liquidation. The examinations established that there was a very good case against the secured creditor. We then succeeded in having the Court allow our client to bring the company’s action against the secured creditor.

A client who had no hope of reversing the secured creditors’ alleged wrongful action was able to bring that action.

PEOPLEPaul Fordyce

Paul Fordyce is the principal and founder of PMF Legal. He has worked in commercial law and litigation (with an emphasis on insolvency) since 1974. He is an Accredited Specialist in Commercial Litigation (Insolvency) with the Law Society of New South Wales and is a Full Member of the Insolvency Practitioners Association of Australia - recently admitted as such when solicitors became eligible for full membership of this body for the first time. His membership was granted based on recognition of his standing in the profession.

Paul has considerable commercial experience which gives him a far greater understanding of what commercial clients need and expect when seeking legal assistance. His extensive experience in corporate insolvency has allowed him to work with insolvency issues as an expert so that he is able to bring a great deal of imaginative problem solving to this very complex area of the law. He has specialist experience in a range of industries including magazine editing and publishing, importation, distribution and retail businesses.

Additionally, Paul has turned his expertise and leadership to the development and maintenance of Australia’s largest database on corporate insolvency information. Located at www.insolvencynotices.com the site is always current, being updated six days a week - including public holidays.

His experience has included acting on the purchase and sale of businesses, working on multi-million dollar tenders for Commonwealth government contracts and for publicly listed private companies. At times this has also involved being involved in major commercial litigation including cases against the Commonwealth of Australia, major banks and other fi nancial institutions and large corporations. One of the leading cases that Paul was involved in against the Commonwealth of Australia in 1997 resulted in a thorough review being undertaken by the Commonwealth of its tendering procedures. This has resulted in much fairer and more transparently conducted tendering procedures.

Professional Memberships:

• International Federation of Insolvency Practitioners (INSOL) • International Bar Association (IBA) (Section J - Insolvency & Reconstruction) • Law Society of New South Wales • Insolvency Practitioner’s Association of Australia (IPAA) • International Women’s Insolvency & Restructuring Confederation (IWIRC) • Member of the Australian Institute of Credit Managers

MEDIATo keep up to date with the latest insolvency news visit our blog at www.pmflegal.com/blog.

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FAQThe following are the key types of insolvency options in Australia:

External Administration/External Administrator

This term applies to companies, the control of which, either total or in part, has been taken out of the hands of the directors and placed in the hands of an External Administrator. The External Administrator is usually a company but in the case of a controller can be a corporation.

Insolvency Practitioner

An Insolvency Practitioner is usually a person but can be a company (in the case of a controller) appointed generally to take over the control (either completely or partially) of a company from its directors - either for a short time or until the company ceases to exist.

Insolvent

Broadly speaking, this is when a company or individual is unable to pay its debts when they are due for payment.

Liquidator

Liquidator is a term that is used in Australia to refer to a person who acts in relation to companies that are being wound up. In the case of a Members Voluntary Liquidation no qualifi cation is required to become the Liquidator, in the case of a Court Winding Up the person must be an offi cial Liquidator (with the Court). In the case of a Creditors Voluntary Liquidation or administration the person must be a Liquidator registered with ASIC.

Restructuring Without Liquidation

There are two ways that a company can re-structure its affairs without liquidation. This is usually to give the company a chance of continuing in existence - frequently to enable it to continue to carry on business but sometimes for other reasons, for example, ones driven by taxation considerations:

a. A Scheme of Arrangement - is the oldest way of restructuring a company. It involves the Court being approached for permission to call a meeting of creditors to consider a proposal outlined to the Court, then put to the creditors to consider the proposal. Finally, the matter goes back to court for its final approval after it has been informed of what happened at the creditors’ meeting and to hear any objections to the scheme being approved that any creditor/member may wish to make.

The process is very complicated and expensive. Because of the introduction of the alternative procedure of Deeds of Company Arrangement (under the Voluntary Administration provisions), which is quicker and cheaper and does not require any court involvement, schemes of arrangement are used very rarely these days for insolvent companies. They are used more for solvent company corporate restructures.

b. Deed of Company Arrangements - were introduced into the Corporations Law in 1993 as a cheaper, quicker way of letting a company come to an arrangement with its creditors without going into liquidation and without having to meet the many and expensive requirements and procedures of a Scheme of Arrangement. A Deed of Company Arrangement must be preceded by a Voluntary Administration.

Secured Creditors

Secured creditors are usually banks or other fi nancial or lending institutions although they can be smaller companies or individuals that give fi nancial assistance to a company and have taken a security (like a mortgage) over the assets of the company. The security usually gives very extensive powers that let the secured creditor take the control of the whole of the company, or some of its more important assets, with a view to selling them so that the debt owed to the secured creditor can be forcibly repaid. For this database these have been put into two categories:

a. A Receiver - is a person from a fi rm of accountants who is a liquidator registered with ASIC.

b. A Controller - can be a person or a company, and does not need to be a registered liquidator although the majority are. A controller is put in control of a certain part of the property of a company for the purpose of selling it and paying the proceeds to the secured creditor - up to the amount owed. The term controller is used in this database to include an agent for the mortgagee in possession.

Voluntary Administration (VA)

This is the most common type of appointment for a company that is in financial diffi culties. It is usually a half-way house to a Creditors’ Voluntary Liquidation or a Deed of Company Arrangement.

In a very few cases the Voluntary Administration simply ends and the company is returned to the control of its directors. The Voluntary Administration must end fairly quickly by the company going into a Creditors Voluntary Liquidation, a Deed of Company Arrangement or being returned to the control of its directors.

The duration of an administration is usually about a month - but can be extended by the creditors or the Court.

Winding Up (WU)

The purpose of a Winding Up is to sell or otherwise realise all of the assets of a company, and to fi nalise all of its affairs with a view to then bringing the company’s existence to an end - a corporate death. There are four main ways that this happens:

a. Creditors Voluntary Liquidation (CVL) - is a common way for companies that are insolvent to have their affairs dealt with by an insolvency practitioner. The essential condition for a Creditors Voluntary Liquidation is that the company is insolvent. A Creditors Voluntary Liquidation comes about either as the end result of a Voluntary Administration or as a direct result of the members of the company determining that the company should go into liquidation in circumstances where it will not be able to pay its creditors within 12 months of going into liquidation.

Although the members of the company choose the liquidator (insolvency practitioner), the creditors can change the liquidator (insolvency practitioner) at a meeting of creditors that follows, usually within an hour or so, the meeting of members at which the company is put into liquidation.

b. Court Winding Up (CWU) - occurs as the result of a court order. Most often the order is made because the company is insolvent. Orders are also made for many other reasons such as a dispute between the directors of the company that cannot be resolved making the management of the company unworkable.

c. Provisional Liquidation (PL) - this is a temporary situation for a company. The court appoints a PL usually where it is convinced that there is an urgent need to have somebody protecting the assets of the company. It can either proceed into liquidation from provisional liquidation or it can be returned to the control of its directors once the court has heard all of the evidence and determined not to make an order winding the company up. The usual outcome is a Court Winding Up.

d. Members Voluntary Liquidation - this does not (or should not) involve a company that is insolvent. Usually such a company is wound up where its use is no longer required. For example a family business that was conducted by the parents through a company and they have now retired and closed or sold the business off. Another common situation is where a large corporation no longer needs one of the companies in its group.

CONTACTPMF LegalLevel 11, 84 Pitt Street Sydney NSW 2000

Phone: 61 2 9221 9888 Fax: 61 2 9221 6888 Email: pfordyce@pmflegal.com

www.pmflegal.com