Answer ... (a) Debtor
The role of the debtor is passive, as all assets, liabilities, contracts and responsibilities of the company become subject to the control of the insolvency practitioner on appointment, who will assume responsibility for the affairs of the company.
(b) Directors of the debtor
The powers of the directors in relation to the affairs of the company are suspended on the appointment of the insolvency practitioner. However, the directors do have a positive responsibility to:
- provide the insolvency practitioner with assistance in relation to the appointment; and
- ensure that books and records are made available to the insolvency practitioner for investigations into the affairs of the company to be conducted.
(c) Shareholders of the debtor
Shareholders of the debtor have no active role in insolvency proceedings. The practical reality is on the conclusion of the insolvency event, the shares are nearly always deemed to be worthless.
(d) Secured creditors
To be recognised as a secured creditor by the insolvency practitioner, the security holder
must have validly registered and perfected its security interest on the Personal Property Securities Register operated by the Australian Financial Security Authority.
A valid security interest provides the secured party with:
- a priority over all or some assets of the company (all present and after acquired property); or
- security over the specific asset over which it holds a registration, usually by way of serial numbered goods.
The appointment of a liquidator does not preclude a secured creditor from dealing with the assets which are subject to its security.
(e) Unsecured creditors
Unsecured creditors have the lowest priority in any return to creditors.
Unsecured creditors are entitled to:
- receive reports from a liquidator as to the results of their investigations;
- vote at meetings of creditors; and
- participate in claiming for amounts outstanding prior to the appointment of an external administrator.
All debts prior to the appointment of an external administrator represent unsecured claims in the external administration.
(f) Administrator
The role of the administrator is to act as a suitably qualified, independent party with a view to putting in place a restructuring plan that will allow:
- the business to be restructured; or
- if that is not possible, a better return to creditors than would result from liquidation.
If the administrator is unable to effect a restructuring plan by way of a deed of company arrangement, the company will be placed into liquidation.
(g) Employees
The role of employees during an insolvency event is to assist the insolvency practitioner. All employee entitlements are recorded and ‘quarantined’ as at the date of appointment of the insolvency practitioner. Provided that an employee’s services are still needed during the insolvency event, his or her employment contract will remain ongoing, with wages and entitlements paid by the company under the control of the liquidator.
If an employment contract is terminated during the insolvency event, the employee’s entitlement amount is afforded a priority from circulating security interests in the event of a distribution to creditors by the insolvency practitioner.
(h) Pension creditors
Most employees in Australia are covered by the Superannuation Guarantee Act, which requires employers to pay a set component (currently 10.5%) of an employee’s wage into a superannuation account (retirement fund) that is to be preserved until a condition of release is met – in most circumstances, the age of retirement, which is currently 67. Employers must make payment of their employees’ superannuation on a quarterly basis.
Outstanding wage and superannuation payments are paid in priority to other creditors from the realisation of circulating security interests.
(i) Insolvency officeholder
The insolvency officeholder has a duty to all creditors in an insolvency event, noting that certain classes of creditors – that is, those with perfected security agreements and employees by virtue of the order of priorities – may require a greater focus than unsecured creditors in the event of an insolvency.
(j) Court
In addition to the court’s role in adjudicating on commercial litigation, the court is available to be approached by the insolvency practitioner to provide clarification on a point of insolvency law.
It is a well-established tradition that the court will not adjudicate on commercial decisions on behalf of the insolvency practitioner, but rather confines itself to interpretation and adjudication of the relevant legislation.