Jack and Jill Lee are the only directors and shareholders of a proprietary company called Lee Teak Furniture Pty Ltd. The company has carried on business for fifteen years although signs of financial difficulty have been evident for some time. On 20 June 2016, a winding up application was filed by a substantial supplier and unsecured creditor of the company. A winding-up order was made on 5 September 2016. In December 2015, the company’s accountant had suggested that it might be possible for the company to execute a deed of company arrangement in order to overcome the concerns of the company’s numerous unsecured creditors. With this in mind, an administrator was appointed on 1 January 2016 but negotiations with the company’s various creditors broke down before a deed could be executed. Much earlier, on 1 March 2015, the company’s position was precarious. Jill, who had been entirely responsible for keeping the company’s books, told Jack that the company would nevertheless be able to repay its debts as they fell due. However, in the light of several substantial claims at the time by trade creditors, Jack and Jill thought it prudent to transfer the company’s real estate - valued at $600,000 - to Jill’s parents at no cost to them. On 1 April 2016, Jack made a $60,000 payment to the company’s major suppliers to ensure continuing supplies. Representatives of the supplier had told Jack that the payment of $60,000 should be made as the suppliers had heard rumors that the company ‘might go under’.

REQUIRED:

What action might be open to any Liquidator appointed by the court in respect of these transactions undertaken by Lee Teak Furniture Pty Ltd? What are the potential liabilities of Jack and Jill?

Answer rating: 100% (QA)

Answer The Liquidator may investigate the companys transactions and take action if they believe that ... View the full answer