4. Legislación Comparada
4.1. Aspecto Legislativo
4.1.3. Colombia Ley 909 del 2004
While there are a relatively large number of reported cases dealing with its predecessors49 there are only a handful of reported s 588G cases in the seven years since it became
48. (1999) 17 ACLC 511.
49. For example, there were 45 ss 556 and 592 cases reported in the CCH Australian Company Law Cases between 1992 and 1996.
operative. The main reason for the lack of s 588G cases is the decline in the number of companies wound up in insolvency50 and the increasing use of voluntary administra- tions followed by deeds of company arrangement as preferred forms of insolvency administration. Indeed, if this trend continues insolvent trading cases are likely to be relatively rare.
While there are a number of factors that encourage directors to initiate voluntary ad- ministrations, creditors have the ultimate say in deciding what happens to the company after the administration period expires. In a significant number of cases creditors will have sound reasons for voting in favour of a deed of company arrangement even though the directors may have had a potential s 588G liability if the company were wound up instead. The voluntary administration scheme contained in Part 5.3A of the Corporations Law was the result of amendments made by the Corporate Law Reform Act 1992, which also inserted the current insolvent trading provisions into the Corporations Law. The scheme implemented one of the main recommendations of the Australian Law Reform Commis- sion contained in the Harmer Report51 for a constructive and creative approach to corporate insolvency. Section 435A indicates that the object of the voluntary administra- tion scheme is to maximise the chance of a company or its business continuing in existence and if this is not possible, to result in a better return for the company’s creditors and members than would result from an immediate winding up.
Popularity of voluntary administrations
The embracement of voluntary administration by directors and insolvency practitioners as a preferred form of insolvency administration is revealed in the table52on the following page.
These statistics indicate that there have been 5914 voluntary administrations from 23 June 1993 (when the provisions of Part 5.3A of the Corporations Law became operative) to the end of June 1997 compared to 8837 compulsory liquidations in the same period. However, of more significance is the decline in the number of liquidations. These are down 28 per cent over the six-year interval. The most notable decline is the number of court- appointed winding ups — down 55 per cent. Creditors voluntary winding ups have increased markedly. This is a direct result of the voluntary administration process because most companies which enter into liquidation after a voluntary administration enter into a creditors voluntary winding up.53
50. Under s 588M liquidation is an essential prerequisite for successful compensation claims against directors under the insolvent trading provisions.
51. Australian Law Reform Commission, General Insolvency Inquiry, Report No 45, AGPS 1988 (“Harmer Report”).
52. Appointments of External Administrators since 1 July 1991, by financial year. “A Study of Voluntary Administrations in NSW” ASC Research Paper 98/01, Appendix II.
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Why are there So Few Insolvent Trading Cases?
A company is under voluntary administration for a relatively short time.54 Under s 439C creditors may resolve that the company executes a deed of company arrangement or that it should be wound up.55 While a company is subject to a deed of company arrange- ment no compensation recovery action can be brought against its directors for contravention of s 588G.56 The statistics indicate that a significant number of companies in financial difficulties are not placed in liquidation and move from voluntary administration to a deed of company arrangement. As the table indicates, there have been 2273 deeds of company arrangements from 23 June 1993 to the end of June 1997. Thus about half of all the voluntary administrations are followed by deeds of company arrangement.
Legislative incentives for directors to initiate voluntary administration
Directors are entitled to make the decision to place their company in voluntary administra- tion if they believe the company is insolvent or is likely to become insolvent at some future time.57 However, while this decision can also be made by the company’s liquidator58 as
54. Corporations Law s 439A.
55. While s 439C also enables creditors to terminate voluntary administration and hand control back to the company’s directors, this is relatively rare.
56. Under s 588M liquidation is an essential prerequisite for directors’ liability. 57. Corporations Law s 436A.
well as a secured creditor entitled to enforce a charge on the whole or substantially the whole of the company’s property,59 a survey on voluntary administration carried out by the Australian Society of Certified Practising Accountants’ Centre of Excellence for Insol- vency and Reconstruction in 1996 (“the Voluntary Administration Survey”)led to some surprising results. In particular, the survey indicated that most voluntary administrations are initiated by directors, with secured creditors appointing their own administrator in 2 per cent of voluntary administrations and liquidator initiated voluntary administrations in 12 percent of cases.
The Harmer Report60 recognised that the voluntary administration scheme would only achieve its object if directors were encouraged “to take early and orderly steps to deal with an existing or impending state of insolvency”. Various provisions of the Corporations Law and other legislation provide an incentive for directors to place their company in vol- untary administration.
1. Sections 588H(5) and (6)
The insolvent trading provisions themselves encourage directors of companies in fin- ancial difficulties to appoint an administrator sooner, rather than later. A director will not contravene s 588G if, pursuant to s 588H(5), the director can establish that he or she took all reasonable steps to prevent the company from incurring debts when there were reason- able grounds to suspect that it was insolvent. In determining whether the s 588H(5) defence has been proved, s 588H(6) directs the court to have regard, inter alia, to any action the director took with a view to appointing an administrator, when that action was taken and the results of the action.61
Because a director’s personal liability for contravening s 588G only arises if the company is in liquidation, the action taken by a director with a view to appointing an administrator for the purposes of ss 588H(5) and (6) will be significant in only two situations. It will be a relevant defence for a director who has, prior to liquidation, unsuc- cessfully attempted to convince the board to place the company in voluntary administration.62 It will also be relevant where the board has resolved to place the com- pany in voluntary administration but the creditors, pursuant to s 439C, decide that the company should be wound up.
2. Guarantor directors
Placing an insolvent company in voluntary administration may be an attractive option for directors who have personally guaranteed company debts. While the company is under
59. Corporations Law s 436C. 60. Supra n 51 at para 54.
61. Corporations Law s 1317S sets out similar considerations to be considered by a court when it determines whether or not a person should be relieved from the civil penalty consequences of contravening s 588G. 62. However, as a result of the NSW Court of Appeal decision in Byron v Southern Star Group Pty Ltd (1997) 15
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Why are there So Few Insolvent Trading Cases?
voluntary administration, s 440J prevents creditors from enforcing the guarantee against the director. Section 440J also prevents creditors from enforcing guarantees of company debts provided by a director’s spouse or other relative. This restriction on enforcement of guarantees is not necessarily bad for creditors. The fact that a guarantee becomes enforceable upon termination of voluntary administration may encourage guarantor directors to contribute to the assets under a deed of company arrangement.
3. Impact of Australian Tax Office s 222AOE notices
It is quite common to find that directors, especially of small companies, are unaware of the extent of the company’s financial difficulties.63 Even if directors are aware of financial problems they often have unrealistic expectations that they can trade their way out of dif- ficulties. An early reminder of their potential s 588G liabilities may prompt them to take action to avoid liquidation.
Changes to the Income Tax Assessment Act made by the Insolvency (Tax Priorities) Legislation Amendment Act 199364 have the effect of alerting directors at a relatively early stage of their company’s precarious financial state and prompt them to take remedial measures. The object of these provisions is to ensure that a company meets relevant tax obligations, such as employer group tax obligations, or goes promptly into voluntary administration or liquidation.65
Under these provisions, directors who ignore a notice served on them under s 222AOE of the Income Tax Assessment Act by the Australian Tax Office may become personally liable by way of penalty for their company’s unremitted PAYE tax obligations.66 Under s 222AOB, directors may avoid personal liability if they, inter alia, put the company into liquidation or appoint an administrator.67
The Voluntary Administration Survey referred to above indicates that 15 percent of voluntary administrations followed the Australian Taxation Office issuing directors with a s 222AOE personal liability notice. Clearly, receipt of a s 222AOE notice has a significant impact on directors of insolvent companies and focuses their attention on the plight of their company and encourages them to take action to avoid potential personal liability.
4. Avoiding potential consequences of liquidation
Directors may decide to initiate voluntary administration as a means of frustrating outstanding creditors’ winding up applications and avoiding some of the potential
63. See, for example, Morley v Statewide Tobacco Services Pty Ltd (1992) 10 ACLC 1233 and Group Four
Industries Pty Ltd v Brosnan (1992) 10 ACLC 1437.
64. Particularly Pt VI Div 9 of the Income Tax Assessment Act which came into effect about the same time as s 588G and the voluntary administration provisions.
65. Income Tax Assessment Act s 222ANA.
66. See S Barkoczy and M Barkoczy, “Directors’ Liability and the New Regime for Collecting Unremitted Tax Instalments” (1996) 6 Revenue Law Journal 117.
67. Under s 222AOB directors may also avoid personal liability if they either cause the company to pay the amount claimed or enter into an agreement with the Commissioner of Taxation for payment.
consequences of liquidation. For example, liquidation can be a precursor to ASIC prosecu- tion for Corporations Law offences apart from contravention of s 588G. Further, if directors have been involved in other companies that were placed in liquidation, another winding up may result in ASIC serving s 206F management disqualification notices on them.
A 1998 study of voluntary administrations by the ASC’s NSW Regional Office68 re- vealed that avoiding these potential consequences of liquidation was the aim in 15 of the 55 administrations investigated. Frustrating outstanding winding up applications was the aim in seven of the 55 administrations.
Factors influencing creditors’ decision
Notwithstanding that directors are provided with legislative incentives to initiate volun- tary administration, the ultimate decision regarding the fate of the company rests with its creditors.69 The voluntary administration scheme gives creditors the opportunity to make a cost benefit analysis and decide whether the company’s liquidation or a deed of company arrangement produces a better outcome for them. This analysis will include an assessment of the likelihood of a liquidator increasing the amount of the company’s assets available for distribution to creditors by successful s 588G proceedings against directors. The likelihood of successful unfair preference claims against particular creditors will also be relevant.
Creditors base their decision on the fate of the company on information provided to them by the administrator. When convening the second creditors’ meeting, s 439A(4)(a) requires the administrator to provide them with his or her report about the company’s busi- ness, property, affairs and financial circumstances. In addition, under s 439A(4)(b) creditors must be sent a statement setting out the administrator’s opinion as to whether it is in their interests for the company to execute a deed of company arrangement, or whether administration should end or the company should be wound up.
Amongst other things, the Corporations Regulations prescribe that an administrator’s report must specify whether there are any transactions that appear to be voidable transac- tions, such as unfair preferences, that would be recoverable in a liquidation.70 While it is not prescribed, administrators’ reports usually indicate whether or not directors may be potentially liable for breaching s 588G.71 If a complaint is made that an administrator’s report inadequately canvassed the possibility of pursuing directors or holding companies in either ss 588G or 588V actions, the court must assess, on the basis of the material
68. ASC Research Paper 98/01 ‘A Study of Voluntary Administrations in New South Wales’ para 7.103.
69. Under s 439C the creditors, at the second creditors’ meeting, may resolve that the company execute a deed of company arrangement, that the company should be wound up, or that administration should end.
70. Corporations Regulations reg 5.3A.02.
71. In its January 1997 Discussion Paper, Voluntary Administration, the Legal Committee of the Companies and Securities Advisory Committee did not support a mandatory legislative checklist of matters to be covered in an administrator’s report (such as directors’ s 588G liabilities) but proposed that the Corporations Law should follow the general disclosure requirements and require the report to include “any other matter material to the creditors’ decision”.
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Why are there So Few Insolvent Trading Cases?
before it, whether there is a real prospect that the action would produce a better result for creditors than under the proposed deed of company arrangement.72 A failure by the administrator to quantify the amounts that may be recoverable on a liquidation does not of itself constitute a material omission.73
According to Deputy Commissioner of Taxation v Comcorp Australia Ltd,74 be- cause of the tight time constraints imposed for preparation of the report, the information in it need not be as extensive as is required for an explanatory statement for a scheme of arrangement under Part 5.1A of the Corporations Law. However, it should contain suffi- cient information as can reasonably be expected to be material to creditors in all the circumstances. If an administrator’s report canvasses whether or not directors have po- tential s 588G liabilities if the company were to be wound up, creditors should be informed of the “commerciality” of such proceedings including the litigation risks, whether or not funds would be available to pursue the claims and whether directors have the means to meet successful compensation claims.
Despite the fact that directors avoid potential personal liability for failing to prevent insolvent trading if creditors decide in favour of a deed and not to wind up the company, there is evidence that such a decision does produce a better outcome. A significant finding of the Voluntary Administration Survey referred to above was that the average dividend of companies entering into deeds of company arrangement was 30 cents in the dollar.75 By contrast, the insolvency practitioners surveyed estimated that had those companies been placed in liquidation, the average dividend would have been seven cents in the dollar.
The voluntary administration scheme produces a better outcome for creditors than formal liquidation for a number of reasons.76 In some cases, directors may be prepared to contribute to funds available for distribution to creditors in a deed of company arrangement from their own personal resources in order to avoid potentially higher claims against themselves. This is likely to be the case if, prior to the commencement of voluntary admin- istration, directors have failed to prevent insolvent trading, have received unfair preferences or have breached their fiduciary duties by not taking creditors’ interests into account. In addition, directors will frequently be willing to contribute to a deed of company arrangement to regain control over the company’s business or purchase some or all of its assets perhaps for a higher price than would be paid by outsiders.77 Evidence from the Voluntary Administration Survey suggests that resumption of control by directors is quite a common outcome in deeds of company arrangement. The survey reveals that directors
72. Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1997) 24 ACSR 47. 73. Hagenvale Pty Ltd v Depla Pty Ltd (1995) 17 ACSR 139 at 150. 74. (1996) 14 ACLC 1616.
75. Routledge, “An Exploratory Empirical Analysis of Part 5.3A of the Corporations Law” (1998) 16 Company
and Securities Law Journal 4, finds similar high returns for unsecured creditors in an empirical investigation.
76. See Crutchfield, Annotated Corporate Voluntary Administration Law (1994) at 30–34 where a number of factors in favour of creditors supporting voluntary administration are outlined.
77. On regaining control directors will be in a better position to utilise the company’s carry forward tax losses than third party purchasers of the company’s shares.
commenced similar businesses shortly after the completion of the administration in 16 per cent of all cases.