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When your company is faced with the unknown such as whether customers will pay what is owed, will suppliers extend their terms, should you re-finance the family home and inject more capital into the business or is the company falling behind in paying taxes, it adds further stress to what is already a difficult time for directors and shareholders.

As a director you must keep an eye on the solvency of the company and maintain regular contact with your accountant. Make sure you seek advice as early as possible and if you think the company cannot meet its debts as and when they fall due, you could be trading the company while insolvent and expert advice should be considered.

Please note that this article was first published in the Law Society Journal, August 2012, and is reproduced with permission.

Amy Stewart is a senior associate and Kate French was formerly a senior associate with Holding Redlich Sydney.

In shareholder disputes involving minority shareholder oppression, courts will not shy away from ordering the winding up of a solvent company, as was the case in a Full Federal Court decision in Hillam v Ample Source International (No 2) [2012] FCAFC 73 (Hillam).

Historically, courts have shown a general reluctance to make such an order when the company is otherwise solvent and functioning. But this approach appears to be changing, as demonstrated in Hillam, where the full court upheld a trial judge’s decision to wind up a solvent company (yet to earn income, but with hopeful future prospects) in circumstances where the minority shareholder had been oppressed.

The court found that the power conferred on the courts by s 233 of the Corporations Act 2001 (Cth) (the Act) to grant relief in cases involving allegations of oppression on minority shareholders is a discretionary power that is not subject to an overarching, general requirement to resort to winding up in the last instance. The case confirms that the power is wholly discretionary and, when exercised properly, is difficult to successfully appeal.

On 29 June 2012 the Pay as You Go Withholding Non-Compliance Tax Act 2012 was passed which appears to go further than anticipated from previous drafts. This will impact:

  • All Directors
  • Associates of Directors
  • All Businesses generally
  • Entrepreneurship in Australia

The changes include:

The recent news that one of Australia’s leading brands, Darrel Lea was placed in Voluntary Administration came as a shock to most people, including employees and long time customers.

Darrel Lea has been around for 85 years and employs around 700 people across its Sydney-based manufacturing facility and its 69 retail stores. Contrary to a lot of media reports, Darrel Lea’s reasons for the appointment of an Administrator are yet to be fully known however, one thing is for sure, a brand such as Darrel Lea will not shut down, be forced to close or even get close to a Liquidation.

The introduction of the Carbon Tax came into effect on 1 July 2012, the single most talked about move made by a Government since perhaps the GST in 2000.

Whilst there is ongoing disappointment surrounding the infamous “there will be no carbon tax under the government I lead” undertaking, businesses need to come to grips with today and plan for the future immediately. A broken promise is hard to undo but a business can be saved.