Brad is the managing director and one of several directors of a medium size manufacturing company, Cashless Pty Ltd. During early 2015, Cashless Pty Ltd has experienced several episodes of cash flow shortages in its business operations due to suppliers of its raw materials requiring payment within 7 days of delivery and purchasers of its products delaying payment on product shipped for up to 2 months. Some of the customers claimed that the products of Cashless Pty Ltd had quality control faults which were not discoverable until the customers had individually inspected each item. Thus, customers were delaying payment until such inspection could be undertaken.
To overcome the quality control problem, Brad had committed Cashless Pty Ltd to the purchase of $2 million dollars for a new computer automated manufacturing plant. This new plant was paid for out of the accumulated profits of Cashless Pty Ltd. The company had invested the accumulated profits in the short-term money market. The investment in the new plant had virtually depleted the accumulated profits and in doing so had removed the company’s only alternate source of funds which Cashless Pty Ltd relied upon when cash flow was tight in its business.
Brad has just received a letter from the newly appointed liquidator of Cashless Pty Ltd’s largest customer, Broke Ltd, advising that it was highly unlikely that Broke Ltd would be able to pay Cashless Pty Ltd the $750,000 owed for products delivered by Cashless Pty Ltd to Broke Ltd. Brad immediately realised that a loss of this magnitude could very possibly mean that Cashless Pty Ltd might not be able to meet its current financial commitments.
Brad, as the managing director, calls you and seeks your advice on what avenues are available to the directors of Cashless Pty Ltd in the circumstances they find themselves, assuming that Broke Ltd’s liquidator is correct.
(a) Advise the directors of Cashless Pty Limited, with reference to the facts above, of the most appropriate form of external administration available to them under the Corporations Act 2001 (Cth).Discuss the procedure involved in the most appropriate alternative you identified and, supported with reasons, the most probable outcome. AND
(b) Assume a creditor of Cashless Pty Ltd has issued a statutory demand against the company claiming the repayment of an outstanding debt in the sum of $25,000. The directors dispute the debt and therefore intend to ignore the statutory demand. With reference to the Corporations Act 2001(Cth), fully advise the directors of Cashless Pty Ltd as to their various legal options and the legal consequences, if any, of ignoring the statutory demand. AND
(c) Assume that Cashless Pty Ltd is being compulsorily wound up. Discuss the powers available to a liquidator under the Corporations Act 2001 (Cth). Note that this question is independent of parts (a) and (b) above.