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Before releasing dramatically downgraded economic forecasts the IMF chief, Christine Lagarde, told an audience in Berlin $1 trillion would be needed to support ailing governments and stave off a deeper crisis – half of which would have to come from Fund backers such as Australia.

The Treasurer, Wayne Swan, backed Ms Lagarde, saying without “larger firewalls” to protect embattled European nations the global economy was at risk.

But the shadow treasurer, Joe Hockey, questioned whether such payments were in Australia’s national interest.

The IMF has shaved three quarters of 1 per cent off its previous global growth forecast, issued in September. It expects the world economy to grow by 3.25 per cent this year and advanced economies 1.2 per cent. China would grow 8.2 per cent, down from 9.2 per cent. The euro zone would shrink 0.5 per cent before growing weakly next year.

But Ms Lagarde said the world was facing “a 1930s moment, in which inaction, insularity and rigid ideology combine to cause a collapse in global demand”.

“This is a defining moment,” she said. “It is not about saving any one country or region. It is about saving the world from a downward economic spiral.”

The IMF economic update warns of “adverse feedback loops” in which countries that have trouble paying debts cut spending further, depressing their economies even more, making it harder to repay their debts and imperilling financial institutions worldwide.

In Berlin Ms Lagarde attacked the “worrisome tendency to view fiscal policy as a morality play between profligacy and responsibility”.

While governments should commit to cutting spending in the medium term, the US in particular should avoid further cuts at the moment. Countries such as Australia which could readily finance higher deficits should allow them to climb rather than cut back if the world turned down.

Mr Swan endorsed the IMF analysis, saying no country can expect to be immune from the global threats it identified.

Mr Hockey said should the IMF ask Australia for more money “the government must explain to taxpayers whether it would be in Australia’s national interest to contribute, and from where it plans to fund any such contribution”.

Smh article excerpts

The Australian Chamber of Commerce and Industry’s (ACCI) latest survey of investor confidence shows on most counts business conditions are either stabilising at low levels or sinking to contractionary territory.

Overall the survey shows that mainstream Australian business is under significant pressure.

Most businesses saw sales and profitability shrink in the December quarter, while the outlook was poor for employment and investment intentions in the months ahead.

The ACCI says clearly this economy needs the benefit from further reductions in interest rates and that they would expect to see that in the first half of this year.

The survey found that business taxes and government charges continue to be the largest constraint on investment, followed by insufficient demand across the economy.

The chamber believes the federal government should commit to legitimate taxation reform embracing tax cuts that would assist Australian businesses and general taxpayers, with reductions in personal income tax and state taxes.

AAP article excerpts

Mr Ngan, who signed an enforceable undertaking with the Australian Securities and Investments Commission this week, admitted that he had failed to properly perform his duties as a liquidator.

Mr Ngan has handled a string of colourful corporate collapses, including the failed businesses of the corporate crook Brad Cooper, the recently arrested alleged art fraudster Ronald Coles, the Parramatta Eels chairman, Roy Spagnolo, and the eastern suburbs businessmen Ben and Simon Tilley.

Kerry Packer’s poker playing buddy Ben Tilley and his older brother Simon attracted 3000 well-heeled investors to their company Heritage Fine Wines. The aim was to invest in fine Australian red wine that would be sold offshore at a profit. Ben Tilley left the struggling business two years before its demise but Simon stayed on. Both offloaded their shares in Heritage two months before it crashed in 2005.

Mr Ngan’s subsequent actions as liquidator incensed creditors who took court action to have him removed. His replacement later discovered that Mr Ngan had sold back to the former directors, including Simon Tilley, the company’s computers which contained important financial information.

At the time a spokesman for Mr Ngan said the computers were sold to the directors because ”we could get more money that way” rather than selling them on the open market.

Mr Ngan has been the liquidator of choice for Mr Spagnolo, who has had an extraordinary run of bad luck as a property developer, with one after another of his property development companies failing, leaving debts to tradesmen and more than $1 million owing to the Tax Office.

Eight property development companies in which Mr Spagnolo has been involved have gone into liquidation, and Mr Ngan has been appointed to mop up the corporate collapses.

When Mr Coles’s art business was exposed as a fraud in The Sun-Herald in January 2009, the very next day it was Peter Ngan to whom Mr Coles turned to sort things out.

On Tuesday this week, the day after Mr Coles was arrested in connection with an alleged fraudulent multimillion-dollar art scheme, Mr Ngan agreed to sign an enforceable undertaking

with ASIC that effectively bans him from the liquidation business for 30 months.

It is understood that after receiving complaints from the public and information from other liquidators, ASIC began investigating Mr Ngan two years ago. A subsequent review of 24 companies he had liquidated (none of which involved any of the people mentioned earlier) turned up an array of failures on Mr Ngan’s behalf.

They included Mr Ngan’s failure to identify, secure and deal appropriately with assets, carrying out incomplete or inadequate investigations, failing to chase up debts and failing to sell assets at their maximum price.

The corporate watchdog also found that Mr Ngan had failed to adequately report to creditors, either didn’t adequately report to ASIC or failed to report at all, and failed to disclose prior relationships and indemnities.

Smh article

Its latest six-monthly assessment of global economic prospects halves its forecast for growth among high-income countries, and pushes its forecast for countries using the euro into negative territory.

It has slashed its global growth forecast for 2012 from 3.6 per cent to 2.5 per cent.  High-income nations are forecast to grow at 1.4 per cent rather than 2.7 per cent. The euro area’s economy will shrink 0.3 per cent.

However, the bank warns “even achieving these much weaker outcomes is very uncertain“.

“The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome.”

Although contained for the moment, there is a risk of a “much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis“.

In the event  of such a crisis “activity is unlikely to bounce back as quickly as it did in 2008/09, in part because high-income countries will not have the fiscal resources to launch as strong a countercyclical policy response or to offer the same level of support to troubled financial institutions”.

Responding to the report, acting treasurer Bill Shorten said there was no doubt Australia faced “a tough year ahead”.

“The Australian economy is now around 7 per cent larger than it was prior to the global financial crisis and the global recession.  By way of comparison, the United States is just back to – or above – where it was prior to the crisis.”

Among the changes, the World Bank now expects the US to expand 2.2 per cent in its presidential election year, down from an earlier forecast of 2.9 per cent.

Australia’s two biggest export markets will also see slower growth. China’s economy will expand 8.4 per cent this year, slower than the 9.2 per cent growth rate reported yesterday for 2011. That forecast, though, is unchanged from the World Bank’s November update.

Japan’s economy will grow 1.9 per cent in 2012, down from the 2.6 per cent pace predicted by the bank in June.

India, one of Australia’s fastest growing markets, will expand 6.5 per cent in 2012, sharply slower than the 8.4 per cent rate earlier tipped by the bank.

Bloomberg article excerpts

ASIC has accepted an enforceable undertaking (EU) from Sydney liquidator, Mr Peter Ngan, which prevents him from practising as a registered liquidator for the next two-and-a-half years.

Following an ASIC review of 24 external administrations which Mr Ngan managed as sole appointee at his firm, Ngan & Co, ASIC found Mr Ngan, who is also an official liquidator, failed to carry out or properly perform his duties.

ASIC Deputy Chairman Belinda Gibson said the matter was detected through ASIC’s proactive liquidator compliance program which has been tasked to identify issues with practitioners in the industry for further investigation and appropriate enforcement action as required.

‘ASIC is committed to holding all gatekeepers, including registered liquidators, to account for their responsibility to creditors and to the court. Registered liquidators must ensure they have the capacity to discharge their duties’, Ms Gibson said.

‘Our proactive program of compliance visits for insolvency practitioners continues and we will take appropriate steps to deal with liquidators who don’t meet their obligations.’

The EU requires Mr Ngan to:

• apply to the Supreme Court of New South Wales within seven days of ASIC accepting the EU, to be replaced as external administrator of all 35 external administrations of which he is currently the appointed external administrator
• for two-and-a-half years (period of suspension) not perform any duty or function which requires the person performing such duty or function to be registered as a liquidator
• not perform any work on the external administrations where the court replaces him as the appointed external administrator
• participate in an additional 75 hours Continuing Professional Development during the period of suspension, and
• have an independent registered liquidator (approved by ASIC) review and report to ASIC on the first four creditors’ voluntary liquidations and the first two voluntary administrations that involve the assessment of the merits and the administration of the operative terms of a deed of company arrangement, following the end of the period of suspension.

Mr Ngan acknowledged and accepted ASIC’s concerns that he:

• failed to identify, secure and deal appropriately with assets
• carried out incomplete or inadequate investigations
• did not adequately report to creditors
• did not adequately report to ASIC or not report at all
• adopted inappropriate remuneration practices and time recording procedures
• failed to disclose prior relationships and indemnities
• had inadequately maintained books, and
• unnecessarily delayed finalising external administrations.

Mr Ngan also acknowledged and accepted ASIC’s concerns that he failed to disclose prior relationships and indemnities.

In acknowledging and accepting ASIC’s concerns, Mr Ngan admitted that he failed to carry out or perform adequately and properly the duties of a liquidator.

In brief – Section 459E statutory demand and insolvency

Under Section 459C of the Corporations Act, a company is presumed to be insolvent if during or after the three months preceding the day on which an application is made for the winding up of the company, one of a number of events occurred. This includes, most commonly, failure to comply with a Section 459E statutory demand which a creditor has served on the company.

In practice the process of making a statutory demand is often used as a means of collecting debts, although that is not what it is supposed to be about. A statutory demand is supposed to form the first part in a winding up application.

Most common reason for company liquidation is insolvency

Just as an individual can be bankrupted, so a corporation can be wound up and brought to a commercial end. Whereas an individual continues to live and breathe through and after bankruptcy and the slate is wiped clean, a company is brought to a commercial conclusion by a wind-up application.

The most common basis for placing a company into liquidation is insolvency.

The test of whether or not a company is insolvent as applied under Section 95A of the Corporations Act is whether or not the company is able to pay its debts as and when they become due and payable.

Legislative changes only serve to increase statutory demand litigation

In an attempt to deal with the abundance of litigation, the legislature introduced significant amendments in the mid-1990s.

In Scolaro’s Concrete Constructions Pty Limited v Schiavello Commercial Interiors (Vic) Pty Limited, the Full Federal Court said about those amendments that:

“Unless the debtor demonstrates that there is a genuine dispute about the claim, the inevitable result would be a prima facie conclusion of insolvency if the amount were not paid. The public interest is served by these provisions because they tend to bring about a situation in which insolvent companies are either discouraged or prevented from continuing to trade.”

As it turns out, the amendments have certainly have not reduced the amount of litigation in respect of statutory demands. In fact there seems to be more litigation. The result is at odds with the intention of the legislature.

Characteristics of a valid statutory demand

Valid demands can only be sent by creditors who have a debt, which is due and payable¹. The debt cannot be contingent or prospective. You have to be able to put a dollar value on it. The debt or debts claimed in the statutory demand must total at least the statutory minimum², which is presently $2,000.00³.

The demand must be in the prescribed form⁴, must be in writing and must be signed by or on behalf of the creditor. It must correctly state the debtor’s company name and its registered office and it must specify a place in Australia where the debt can be paid. It has been held that it is permissible to specify that payment be made to the creditor’s solicitors.

If the creditor is a company, the statutory demand should be given under the common seal.

Because a creditor can gain the benefit of a presumption of insolvency if the statutory demand is not complied with, the creditor should ensure that any demand is expressed in clear, correct and unambiguous terms⁵.

Amount and nature of the debt being claimed

Under Section 459E(2), a statutory demand must specify the debt claimed. If relating to more than one debt, it must specify the total debts claimed and at least indicate the nature of the debt relied upon, for example, goods supplied and delivered.

Failure to specify the nature of the debt is a defect in the statutory demand, but it may not cause substantial injustice and require a Court to hold the demand to be invalid⁶.

The statutory demand requires the company to pay the debt or secure or compound the amount owed within 21 days of the date of the demand “to the creditor’s satisfaction”. Those words require an objective test. It is for the Court to decide whether a creditor acted reasonably if he or she rejected a debtor’s proposal⁷.

Statutory demand must comply substantially with the form

A statutory demand does not have to comply strictly with the form. Substantial compliance is what is required. For example, in Daewoo Australia Pty Limited v Suncorp Metway Pty Limited (2000) 48 NSWLR 692 the Court accepted payment in a foreign currency as being appropriate, even though the form requires it to be translated into Australian currency.

If important words are omitted from the demand then the Court will see the demand as bad⁸.

Unliquidated damages, multiple creditors and multiple proceedings

A statutory demand may not include a claim for unliquidated damages. That is not a debt within the definition of debt⁹. However, you can subtract the amounts not due from the amount that is actually due and so long as more than $2,000 is owing, a statutory demand can be regarded as valid .

A multiple number of creditors are not allowed to serve a single demand on one company – it is a defect which will cause substantial injustice. A debtor is entitled to know what is owed to whom and how the debt may be discharged.

A creditor is not entitled to serve a demand at the same time as proceeding against the debtor company’s directors in relation to the same alleged debt. That is an abuse of process and a reason for setting aside a Demand under section 459(1)(b)¹¹.

Judgment or affidavit required

If a judgment has not been obtained then there must be an affidavit accompanying the demand, verifying that the debt is due and payable and that it complies with the rules laid down for statutory demands¹². If the demand does not rely on a judgment and it is not accompanied by an affidavit, the demand will be set aside¹³.

If the name of the creditor is incorrect, the Court will consider whether the demand correctly identifies the party who claims to be entitled to payment. Allowance will be made for minor errors¹⁴.

How a statutory demand is served

A statutory demand can be served by leaving it at the registered office, sending it by post to that office or delivering a copy of the demand personally to a director of the company who resides in Australia.

Where a creditor becomes aware that the company no longer occupies the registered address and the creditor is aware of the new address, then he or she should bring the demand to the notice of the company at that new address¹⁵.

If the creditor is aware that the company no longer occupies the registered address but does not know where the company has moved, then it is prudent to serve it on the company’s director.

Three month time limit to presumption of insolvency

Section 459C(2) provides that the presumption of insolvency only lasts for three months after the demand is served and before the application to wind up is lodged. If an application to wind up the debtor company is not lodged within that time then the demand cannot be relied upon.

A company is taken to have failed to comply with a demand at the end of 21 days after the date of service. The time for compliance may be longer if the company seeks to set aside the demand. The Court may extend the time for compliance where the hearing of an application pursuant to that section is sought. If the Court does not extend the time for compliance, then compliance ends seven days after the application is finally determined¹⁶.

Resisting a statutory demand

If a company wishes to have a statutory demand set aside, it must apply to the Court within 21 days of service of the demand and it must serve the supporting affidavit on the person who made the demand within that 21 day period as well. Strictly speaking, both documents should be served at the registered office and not the address in the demand¹⁸.

An application can only relate to one demand, so if a company has received three demands, it must make three setting aside applications to the Court to have the demands set aside¹⁹.

The supporting affidavit should state the grounds for making the application, rather than simply making an assertion that the debt is not due. If the affidavit is insufficient, it cannot be supplemented by a late affidavit served outside the 21 day period²⁰.

Reasons for setting aside a statutory demand

A demand will only be set aside if the amount in fact owed is less than the statutory minimum²¹, if there is a defect in the demand that would cause substantial injustice if the demand is not set aside²² or if there is some other reason why the demand should be set aside²³.

A demand which has a defect can only be set aside where it causes substantial injustice. It will not be set aside if it was a demand within the terms of the Act and the defect is only a minor irregularity or misstatement²⁴.

A defect in the amount claimed in the demand is not, of itself, sufficient to set the demand aside, although the size of the defect may go towards the issue of injustice²⁵.

Section 459J(1)(b) allows for the setting aside of the demand on the “some other reason” basis. The fact that a company is solvent is not “some other reason” for the purposes of this section²⁶.

A demand containing grossly inflated amounts might be considered to be “some other reason”²⁷.

Statutory demands set aside if indebtedness genuinely disputed

A demand will be set aside where there is a dispute which is genuine.

In Goldspar Australia Pty Limited v KWA Design Group Pty Limited [1998] NSWSC 502, Austin J of the Supreme Court of New South Wales said that a genuine dispute required that the dispute be bona fide and truly exist in fact and that the grounds for alleging a dispute are to be real and not spurious, hypothetical, illusory or misconceived.

Pitfalls in statutory demands for both debtors and creditors

From a debtor’s point of view, the problem with the statutory demand is that once the time for compliance with the demand has expired, unless there is a valid application filed and served to set the demand aside, there is absolutely no opportunity of contesting the demand²⁸.

In those circumstances, if the demand is pressed, the only way of dealing with the demand is to pay the debt, reserve one’s rights and sue for the money back. That can create major problems, particularly if the debt claimed is in fact disputed. A company that would otherwise be solvent can find itself having to pay a debt it does not believe it owes and one which renders it insolvent.

A creditor using a demand as a quick means of a debt recovery can likewise have the whole thing blow up in its face. Where there is no judgment already obtained, all a debtor has to show to set aside a demand is that there is some genuine dispute.

The Court is not interested in the merits of that dispute. All it needs to determine before it sets aside a demand, as it regularly does, is that there is a serious question to be tried.

Consider your position and avoid insolvent trading

There is one further point I ought to mention. If a demand is received by a company and the company is in financial difficulties, then it may be a trigger for that company’s directors to consider their position.

Directors of companies that are trading entities, where those companies are insolvent, leave themselves open to insolvent trading claims. Consequently, if your company is insolvent, that is, it is unable to pay its debts as they fall due and you receive a statutory demand, it is probably time to think about your exit strategy from the company, or how the company’s business might be otherwise saved.

There are a number of ways of doing that, including voluntary administration or a creditor’s voluntary liquidation. The main thing to remember is that if you seek advice quickly, all may not be lost.

1. Section 459E(1)(a)
2. Section 459E(1)
3. Section 9
4. Form 509H
5. See Topfelt Pty Limited v State Bank of New South Wales Limited [1993] FCA 589; (1993) 12 ACSR 381 (1993) 120 ALR 155 (1993) 47 FCR 226 (7 December 1993)
6. Jarena Pty Limited v Sholl Nicholas Pty Limited [1996] FCA1264
7. Commonwealth Bank of Australia v Parform Pty Limited (unreported, Federal Court, 11 August 1996) Sundberg J
8. Beralt Pty Limited v Joe Battaglia Plastering Pty Limited (1999) 17 ACLC 1702
9. First Line Distributions Pty Limited v Whiley (1995) 13 ACLC 1216
10. Re: Add-A-Cab Holdings Pty Limited (1996) 14 ACLC 1763
11. See Perlake Pty Limited v Finance & Mortgage Corp (NSW) Pty Limited (1997) 15 ACLC 76
12. Section 459E(3)
13. Victor Tunevitch Pty Limited v Farrow Mortgage Services Pty Limited (1994) 14 ACSR 565
14. Delaine Pty Limited v Quarto Publishing Pty Limited (1990) 8 ACLC 1026
15. DC of T v Abberwood Pty Limited (1990) 8 ACLC 528
16. Section 459F(2)(a)(ii)
17. Section 459G(3)
18. Vicbar Pty Limited v Development Constructions (Newcastle) Pty Limited (1995) 13 ACLC 1220
19. Calquid Pty Limited v A & D Illes Pty Limited [2000] NSWSC 558
20. Grey Winter Properties Pty Limited v Gas & Fuel Corp Super Fund [1996] FCA 1783
21. Section 459H
22. Section 459J
23. Section 459J
24. Beta Trading Co Pty Limited v Specialised Laminators (1997) 15 ACLC 270
25. Besser Industries (NT) Pty Limited v Streetcan Constructions Pty Limited (1995) 13 ACLC 544
26. Chippendale Printing Co Pty Limited v DCT [1995] FCA 1426
27. First State Computing Pty Limited v Kyling (1995) 13 ACLC 939
28. David Grant & Co Pty Limited v Westpac Banking Corporation [1995] HCA 43

Ariff’s lack of contrition counted against him when Judge James Bennett imposed a non-parole period of three years and six months from his September conviction.

Ariff was ”well aware” of the community’s expectations of his ”role and status” as a liquidator whereby he had control of the assets and responsibility for the conversion of cash, the payment of creditors and the distribution to members, the judge said.

The judge found that Ariff was motivated primarily by a desire to save his struggling practice, Stuart Ariff Insolvency Administrators, from collapse.

Judge Bennett read from a pre-sentence report containing Ariff’s comments to a prison doctor.

In it Ariff criticised the jury and blamed employees for the transfer of funds from the bank accounts of a Newcastle family company, HR Cook Investments, 13 times, and the falsification of six forms lodged with ASIC.

Judge Bennett said there was ”glaring and irrefutable” evidence that ”the offender and his company were the intended beneficiaries” of the crimes.

”I reject the proposition that the offender was not the principal in all that occurred,” he said.

Smh article excerpts

The biannual survey by data intelligence company Veda, found 82 per cent were worried about their ability to meet debt repayments in the future, up from 75 per cent a year ago.

The results come as fears grow of a global economic downturn on the back of Europe’s sovereign debt crisis.

The survey also found that one in five Australians was struggling to repay their current credit commitments.

However, about 29 per cent of this sub group were considering applying for more credit in the next six months, the survey found.

“It is concerning that there are people struggling with their current debt levels but are turning to more credit as the answer, potentially edging closer to a debt spiral,” Veda senior adviser Matthew Strassbourg said in a statement.

The survey found people aged 25-34 were the most worried about their ability to repay debt and the most likely to borrow more in the next six months.

About 70 per cent of this age group had received help from a family member to repay debts compared to about 35 per cent for the rest of the population.

AAP

The company joined a string of retail sector failures this year that includes outdoors wear chain Colorado, Borders bookstores, and fashion groups Ed Hardy, Bettina Liano, Brown Sugar and Satch.

Staff at Fletcher Jones’ 45 stores across Australia were told of the predicament at 4pm meetings yesterday.

Fletcher Jones stores will continue to trade while the Voluntary Administrator assesses the company’s situation.

Founded in 1918 in Warrnambool by World War I veteran David Fletcher Jones, the company expanded through the 1920s and 1930s to become a postwar manufacturing success story that at its peak employed 3000 at four factories.

But it was hit by the rise of Chinese manufacturing and the dismantling of clothing tariffs from the 1980s.

Fletcher Jones’ current owners, the Dimmick family, bought it in 1995. They slashed the number of shops, closing stores in shopping centres where rent was expensive in favour of lower-rent shopping strips.

Sales increased, with the introduction of the GST giving the business a one-off boost as shoppers brought forward the purchase of items such as suits.

But by 2000, sales had again started to suffer.

The turmoil in Australia’s manufacturing sector has also continued, with receivers taking control of packaging group HP, which employs 300 workers making a variety of products including bottles for Dettol, Harpic and Finish.

National Australia Bank, which is believed to be owed more than $50 million, appointed receivers on Tuesday.

Smh article excerpts