Those principles are that a director:

• must keep him or herself informed about the financial affairs of the company and regularly assess the company’s solvency. This means preparing financial information and reviewing same regularly;
• immediately on identifying concerns about the company’s viability, should take positive steps to confirm the company’s financial position and realistically assess the options available to deal with the company’s financial difficulties;
• should obtain appropriate advice from a suitably qualified person; and
• should consider and act appropriately on the advice received in a timely manner.

By providing guidance, ASIC seeks to assist directors both understand their duty to prevent insolvent trading and also, what they can do to minimise the risk that they will breach their duty.

If you need advice regarding your company, call our 24 hour insolvency advice line on 1300 100 285.

Dr Kauye, 57, of Toorak, faces 64 counts of trading while insolvent under the Corporations Act, 18 counts of theft under the Victorian Crimes Act, and one count of providing false information in an affidavit to the Victorian Supreme Court.

ASIC alleges Dr Kauye allowed ICG to trade while insolvent between 25 July 2003 and 1 October 2004. ASIC specifically alleges that while ICG was insolvent Dr Kauye incurred debts to contractors and retail providers of approximately $160,000 and misappropriated approximately $1.5 million from US based companies.

This matter was initiated as a result of ASIC’s investigations and facilitated by funding from the Assetless Administration Fund.

Dr Kauye has been bailed to appear at a directions hearing on 26 July 2010 in the Melbourne Magistrates’ Court. The trial date at the Melbourne County Court is yet to be determined.

The Assetless Administration Fund (AA Fund) was established by the Australian Government and is administered by ASIC. It finances preliminary investigations and reports by liquidators into the failure of companies with few or no assets, where it appears to us that enforcement action may result from the investigation and report.

ABC, which at its peak had almost 2200 centres in four countries, also had a flawed strategy to handle “significant and rapid growth”, the administrators wrote in a creditors report released yesterday.

“There was inadequate focus on the day-to-day practices and results of the business operations”.

The report also confirms that related entities are making claims against ABC include former chief executive officer Eddy Groves who is seeking $3.3 million in a claim for unpaid wages.

The administrator will hold a public examination next month at which time Mr Groves will be asked questions about the affairs of the company and his conduct as director.

The administrator has been running a public examination in Federal Court since December.

Examinations last week revealed that new management believed a scheme using contractor invoices helped overstate profits.

The administrator’s report also indicated there “may be” unreasonable director-related transactions and voidable transactions and highlighted that a director could be ordered to pay damages if insolvent trading occurred.

The administrator preliminary view is “………….that ABC became insolvent during the first half of 2008,”.

ABC, which catered for children aged from infants to school age, suspended trading in its shares in August 2008.

The administrator’s report states its directors advised that it had become apparent ABC could not pay debts when they fell due on November 1 and 2, 2008.

The report of the administrator said that ABC, which listed in 2001 with only 43 centres, pursued a rapid expansion “without a strategy of successful integration of the businesses being developed and acquired”. Occupancy levels were too low and labour costs rose significantly.

Another alleged problem was a “dependence upon compensation payments, liquidated damages and fee guarantees from developers to provide revenue streams”.

“As the operating cash flow of the business was insufficient to fund the ongoing acquisitions and the availability of additional debt and equity became scarce, the business model was unsustainable.”

ABC owed almost $1.6 billion when it collapsed.

Article excerpts news.com.au

This follows an ASIC investigation into his role in eleven failed companies, namely, Foresyte Pty Ltd, 40 Oxford Street Pty Ltd, High Noon Properties Pty Ltd, Kayforel Pty Ltd, 200 Noone Street Pty Ltd, Cancun Properties Pty Ltd, Quelon Pty Ltd, Stewart Lidal Pty Ltd, Gateway on Nicholson Pty Ltd, 34 Young Street Pty Ltd, and Brunswick East CDC Pty Ltd, where a liquidator was appointed.

The eleven companies were set up to facilitate property developments in Victoria and failed owing more than $14 million.

ASIC found that Mr Sonntag failed in the discharge of his duties as a director, failed to take reasonable steps to secure compliance by the companies with its obligations to keep books and records, and also failed to prevent the insolvent trading of Foresyte Pty Ltd and Quelon Pty Ltd.

Mr Sonntag has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

Earlier, we were contacted by the young lady’s mother who was concerned her daughter was suicidal at the prospect of liquidation and bankruptcy.

Briefly, the restaurant business was operated through a PTY LTD company. There were 3 directors and shareholders.

The business was not performing well and as a result, in November 2008, the business was sold to a third party and the funds received were used to pay all external creditors excluding the tax department.

Subsequently, the tax department issued a director penalty notice to the directors which they did not act upon within the 14 days allowed by the notice.

As a consequence of the non compliance with the notice, the directors became personally liable for the debt of $40,000 as per the director penalty notice.

The directors paid this money to the ATO, but it was apparent that the company had a further issue with the tax department as it had not lodged BAS returns or paid other PAYG obligations for well over 12 months. In this way, the director explained that the ATO were perusing her and the other directors on a daily basis for the payment of $90,000. This was causing great stress to all the directors.

The director believed that the ATO could bankrupt her for the additional debt of the company and that this would impact her and her spouses other business and result in the loss of a piece of land the couple owned together.

The advice provided to this young lady on the insolvency advice line was that the company was no longer trading and therefore the immediate problem of insolvent trading was not an issue.

She was also advised that the sale of business and use of funds to pay creditors including the tax department could cause problems such as the recovery of preferential payments.

Most importantly however, she understood the ATO could issue a further Director Penalty Notice that could see her become personally liable for the tax debt of the company.

Ultimately, the director understood the company was a seperate legal entity to her and that by placing the company into liquidation – it would not automatically cause her bankruptcy.

By helping the director to understanding her assets are entirely seperate to the PTY LTD company (except in circumstances where the corporate veil can be lifted), the director had a change in attitude.

She is no longer suicidal and understand that liquidation in her case will be of benefit to her and the directors of the company.

Dr Kauye, 57, of Toorak, faces 64 counts of trading while insolvent under the Corporations Act, 18 counts of theft under the Victorian Crimes Act, and one count of providing false information in an affidavit to the Victorian Supreme Court.

The charges arise from Dr Kauye’s conduct while a director of ICG where it is alleged the company continued to trade while insolvent between 25 July 2003 and 1 October 2004. ASIC specifically alleges that Dr Kauye ran up debts to contractors and retail and service providers and stole approximately $1.5 million from US based companies.

A committal mention date was set for 1 July 2009 in the Melbourne Magistrates’ Court.

The Commonwealth Director of Public Prosecutions is prosecuting the matter.

Former Gold Coast boat builder, Mr Marcel Shears, has been resentenced in the Southport District Court to four months imprisonment after failing to complete 200 hours community service imposed in July 2007. He will serve six weeks.

On 12 July 2007, Mr Shears, 37, was sentenced to 12 months imprisonment and immediately released upon entering a five-year good behaviour bond after pleading guilty to five charges of insolvent trading laid by ASIC. The Court also ordered he pay restitution and complete 200 hours community service within 12 months.

Background

In January 2005, Mr Shears was charged with five counts of insolvent trading amounting to $17,000. At the time of the alleged offence, Mr Shears was a director of Cabriolet Royale Pty Ltd which specialised in the business of building luxury pleasure boats for the United States market.

In August 2003, Cabriolet Royale was placed into liquidation following action taken by a US customer enforcing a judgment debt. ASIC alleged Mr Shears continued to build boats under the name ëCabrioletí, and dishonestly allowed the company to incur debts while insolvent.

This highlights the fact that ASIC is active in pursuit of directors that fail in their duties and engage in insolvent trading and phoenix type activity.

While the temptation is there for director in a difficult spot to behave improperly, often they do so because they do not understand the very serious ramification of their actions.

In this regard, Liquidation Direct are expert liquidators and specialists in insolvency law. With over 50 years combined experience, we are able to assist you in making the right decisions in difficult times. Liquidation Direct has a genuine 24 hour advice line which allows you to speak with an insolvency expert when it matters most – right now.

Call 1300 767 525 for free and confidential insolvency advice – 24 hours – everyday.