Worrells

Glossary

Please find definitions of common words / phrases / terms below.

Australian Financial Security Authority

Liquidators of Voluntary Windings Up (whether Members or Creditors Voluntary Wings Up) are required under section 508 of the Corporations Act to either (i) hold an annual meeting of members and creditors of the company; or (ii) lodge an annual report with ASIC detailing the position of the winding up.

The Australian Securities and Investments Commission.

In relation to a person, means:
(a) an entity (other than a company) that is, or has been, associated with the person; or
(b) a company that is, or has been, associated with the person at a time when the company is, or was, as the case may be, a private company.

A person:
(a) against whose estate a sequestration order has been made; or
(b) who has become bankrupt by virtue of the presentation of a debtor’s petition and remains undischarged (an undischarged bankrupt). A discharged bankrupt is a bankrupt who has been discharged from bankruptcy under Section 149 of the Bankruptcy Act.

A notice issued by the Official Receiver to a debtor under section 41 of the Bankruptcy Act requiring the debtor to satisfy a Judgment debt with a specific time period.

A notice, usually on a register, to place the public on notice that no action of a certain kind may be taken without first informing the person who gave notice. The most common use is placing a notice on the title of Real Property to protect an interest in that property.

(Corporations Act) of a director means:
(a) a relative or de facto spouse of the director; or
(b) a relative of a spouse, or of a de facto spouse of the director.

A smaller body of creditors or its representatives (usually 3 to 7) that have been elected by the main body of creditors to represent them at meetings with the appointee to the insolvency estate. The committee has the same powers as the general body of creditors in making resolutions at meetings.

One of the two types of agreements that can be made between a bankrupt and their creditors (under section 73 of the Bankruptcy Act) during bankruptcy. Acceptance of a proposal for a Composition will annul the bankruptcy.

In relation to property of a corporation:
(a) a receiver, or receiver & manager, of that property; or
(b) anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a charge (Mortgagee in Possession or their agents).

An entity that is owed money by another.

An application (a petition) to the Courts to place a debtor into an insolvent estate (bankruptcy for a person or liquidation for a company) under an Order of the Court. The application is usually made by a creditor, or more than one creditor jointly, that has an unsatisfied Bankruptcy Notice or Statutory Demand. The application must be heard by the Courts.

Is the winding up of an insolvent company under Part 5.5 of the Corporations Act. This type of winding up may be commenced through the Voluntary Administration provisions of the Corporations Act, or through a meeting of the company’s members through the voluntary winding up provisions.

Means an agreement under section 185H of the Bankruptcy Act resulting from the acceptance of a debt agreement proposal under Part IX of the Bankruptcy Act.

Where a company agrees to capitalize a debt, by setting off the amount payable by the company under the debt against an amount due by the creditor for an issue of shares.

An entity that owes money to another (a creditor).

Means a petition presented by a debtor against himself or herself and includes a petition presented against a partnership in pursuance of section 56 of the Bankruptcy Act and a petition presented by joint debtors against themselves in pursuance of section 57 of the Bankruptcy Act.

Means a deed of company arrangement executed under Part 5.3A of the Corporations Act or such a deed as varied and in force from time to time. It is a formal arrangement entered into between an insolvent company and its creditors to resolve it outstanding debt without going into liquidation.

In relation to a bankrupt means a person who:
(1) resides with the bankrupt; and
(2) does not receive any income from a person other than the bankrupt or a spouse or former spouse of the bankrupt and:
(3) is wholly dependant on the bankrupt for economic support or partially dependant on the bankrupt and partially on the spouse or former spouse.

A person who:
(a) is appointed to the position of director; or
(b) is appointed to the position of an alternate director and is acting in that capacity regardless of the name that is given to their position.

Unless the contrary intention appears, it also includes a person who is not validly appointed as a director, if:
(a) they act in the position of a director; or
(b) the director of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

A notice served by the Commissioner of Taxation on a director regarding a remittable amount.

The process where a liquidator of bankruptcy trustee formally terminates an ongoing lease (or other financial obligation), thereby activating the right of the financier to deal with the financed asset.

A principle in equity law that deals with the rights of co owners of property where one co owner has used that property as security for a loan that solely benefited that person. The Doctrine makes assumptions about the roles of principle and surety over the loan and the security.

A payment from an insolvent estate on a proved claim in that estate. Dividends are paid under the provisions of the Corporations Act or Bankruptcy Act in the set priorities for different classes of creditors and “pro rata” to the creditors within the class.

In relation to a corporation, means:
(a) ASIC; or
(b) a liquidator or provisional liquidator of the corporation; or
(c) an administrator of the corporation; or
(d) an administrator of a deed of company arrangement executed by the corporation; or
(e) a person authorised in writing by ASIC to make:
(i) applications under the Division of Part 5.9 in which the expression occurs; or
(ii) such an application in relation to the corporation.

Amounts owing the employees of the insolvent, usually made up of outstanding wages, commissions etc; outstanding leave entitlements and redundancy payments. These entitlements are generally priority claims in insolvent estates, but the level of that priority and the amount of the entitlement that is priority varies in certain circumstances.

Means a natural person, company, partnership or trust.

In relation to a bankrupt means,
(a) the persons dealings, transactions property and affairs; and
(b) the financial affairs of an associated entity of the person,
in so far as they are, or appear to be, relevant to the person or to any of his or her conduct, dealings, transactions, property and affairs.

In relation to a company means:
(a) the promotion, formation, management, administration or winding up of the corporation; or
(b) any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53); or
(c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation’s examinable affairs because of paragraph (a) or (b).

Means a company:
(a) that is being wound up; or
(b) in respect of property of which a receiver, or a receiver and manager, has been appointed (whether or not by a court) and is acting; or
(c) that is under administration; or
(d) that has executed a deed of company arrangement that has not yet terminated; or
(e) that has entered into a compromise or arrangement with another person the administration of which has not been concluded.

Liquidators of Voluntary Windings Up (whether Members or Creditors Voluntary Wings Up) are required under section 509 of the Corporations Act to hold a final meeting of members and creditors of the company to advise of the finalisation of the winding up and present a the final accounts of the winding up.

Includes a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge.

The application of accounting and business knowledge to the purposes of law. e.g. detecting fraud, analyzing or reconstructing books and records.

In relation to a body corporate, means a body corporate of which the first body corporate is a subsidiary.

An entity that is in liquidation or receivership, or which has a representative appointed; and a person that in bankrupt or who has entered into some arrangement under the Bankruptcy Act.

The assessment of a bankrupt’s income by their Trustee to determine whether the bankrupt is liable under the Bankruptcy Act to pay a contribution to their estate.

An enforceable agreement by one person to pay another person sums of money that are owed, or may become owed, due to a costs, loss or damage, especially in the form of financial compensation.

A state of not being able to satisfy ones debts as and when they become due and payable. Insolvency can also be deemed for non-satisfaction of a Bankruptcy Notice or a Statutory Demand.

Means a person who:
(a) under the Bankruptcy Act 1966 or the law of an external Territory, is a bankrupt in respect of a bankruptcy from which the person has not been discharged; or
(b) under the law of an external Territory or the law of a foreign country, has the status of an undischarged bankrupt;

and includes:
(c) a person any of whose property is subject to control under:
(i) section 50 or Division 2 of Part X of the Bankruptcy Act 1966 ; or
(ii) a corresponding provision of the law of an external Territory or the law of a foreign country; or

(d) a person who has executed a personal insolvency agreement under:
(i) Part X of the Bankruptcy Act 1966 ; or
(ii) the corresponding provisions of the law of an external Territory or the law of a foreign country;

where the terms of the agreement have not been fully complied with.

A claim that a Liquidator of a company may make against a Director of that company for compensation. The amount of compensation is calculated on the amounts of debts incurred by the company, that remains unpaid at the time liquidation and that were incurred when the director knew or should have known, that the company was insolvent.

Ownership of land by two or more persons who have identical interests in the whole of the land. Joint Tenancy can arise only when 4 conditions are satisfied:
1. Each joint tenant is entitled to possession at the same time;
2. The interests must be identical
3. Each must have the same title
4. The interests must exist at the same time.

Means a judgment, decree or order, whether final or interlocutory, obtained by way of a decision of a Court, made pursuant to an application to the Court to make that decision.

A contract under which the lessor grants the lessee exclusive possession of the property for an agreed period, usually in return for rental and, sometimes, a capital sum called the premium. These are to be distinguished from Chattel Mortgages that are a security over assets owned by the entity or person.

The process of winding up a company’s affairs, having a liquidator appointed to the company, whether it is solvent (members voluntary winding up) or insolvent (creditors voluntary winding up or Official Liquidation by the Courts).

A person able to be appointed to oversee the winding up of a company. See “Registered Liquidator”.

Under the Bankruptcy Act means a maintenance agreement, within the meaning of the Family Law Act 1975, that has been registered in or approved by a Court in Australia or an external territory or any other agreement with respect to the maintenance of a person that has been so registered or approved.

This is the process of winding up a solvent company, done when the members no longer wish to retain the company structure. There can be a number of reasons for the members wanting to do this, but usually it is because the company has reached the end of its useful life. This is the only process for fully winding up the affairs a solvent company. It ensures that outstanding creditors are paid in full and protects the members’ interests while the company structure is dismantled.

In relation to proving a claim; where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:
(a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
(b) the sum due from the one party is to be set off against any sum due from the other party; and
(c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

In Bankruptcy, means the Index of that name established under the Bankruptcy regulations.

In relation to property, means:
(a) if the property is unencumbered: the value of the property;
(b) if the property is encumbered and the unencumbered value of the property exceeds the amount or value of the encumbrances: the amount of the excess; or
(c) in any other case: a nil amount.

In Bankruptcy; in relation to an entity, in relation to a time, means:
(a) if the entity is a trust and the total value of the trust property as at that time exceeds the total of the amounts of the trustee’s liabilities as at that time (other than liabilities constituted by the rights of persons as beneficiaries under the trust): the amount of the excess;
(b) if the entity is not a trust and the total value of the entity’s assets as at that time exceeds the total of the amounts of the entity’s liabilities as at that time: the amount of the excess; or
(c) in any other case: a nil amount.

A process where a Trustee in Bankruptcy may apply for the extension of the term of a bankruptcy (effectively keeping someone bankrupt for an extended period). Objections to Discharge must be based on some ‘Ground’ and – depending on that Ground – the extension may be for 2 or 5 years. This process is possible under Division 2 of Part VII of the Bankruptcy Act.

Means:

(a) a director or secretary of the corporation; or
(b) a person:

(i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii) who has the capacity to affect significantly the corporation’s financial standing; or
(iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation); or

(c) a receiver, or receiver and manager, of the property of the corporation; or
(d) an administrator of the corporation; or
(e) an administrator of a deed of company arrangement executed by the corporation; or
(f) a liquidator of the corporation; or
(g) a trustee or other person administering a compromise or arrangement made between the corporation and someone else.

Part IX (Nine) of the Bankruptcy Act, dealing with the administration of smaller insolvent estates outside bankruptcy.

Part X (Ten) of the Bankruptcy Act, dealing with administration of insolvent estates outside of bankruptcy leading to a proposal by a debtor to their creditors to enter into a Personal Insolvency Agreement.

The name of the agreement that can be made between a debtor (being a real person) and their creditors under Part X of the Bankruptcy Act.

A payment(s) to a creditor made under certain circumstances whilst the payer is insolvent, where that payment is recoverable from the recipient by a Liquidator of a company or a Trustee of a Bankrupt Estate.

Specific forms under the Corporations Act and Bankruptcy Act for a creditor to prove the existence and quantum of their claim against the insolvent estate in the estate for voting and dividend purposes. The forms have to be in accordance with form 535 (or form 536 for employee claims) under the Corporations Act and Form 8 under the Bankruptcy Act.

The agency, function, or office of a deputy who acts as a substitute for another. Authority or power to act for another by a document giving such authority. In Insolvent estates, the appointment of a proxy is performed by the creditor for attendance at meetings of creditors under the appropriate forms.

In relation to a company: a common name given to the process of examining parties that are connected to the company about the affairs of the company. These examinations are conducted by the Courts under section 596A and section 596B of the Corporations Act.

In relation to a bankrupt: a common name given to the process of examining parties that are connected to the bankrupt about the affairs of the bankrupt. These examinations are conducted by the Courts under section 81 of the Bankruptcy Act.

In relation to the Corporations Act, a quorum consists of:
(a) if the number of persons entitled to vote exceeds 2: at least 2 of those persons; or
(b) if only one person is, or 2 persons are, entitled to vote: that person or those persons;
present in person or by proxy or attorney.

In relation to the Bankruptcy Act, a quorum is constituted by:
(a) the presence in person of the trustee (or the trustee’s representative); and
(b) a creditor, or a proxy or attorney of a creditor, participating in person or by telephone.

Note: A meeting requires at least 2 persons. Therefore the person covered by paragraph (2)(a) cannot also be the proxy or attorney of the creditor covered by paragraph (2)(b).

A receiver of property of a body corporate is also a manager if the receiver manages, or has under the terms of the receiver’s appointment power to manage, affairs of the body.

Means a person registered as a liquidator under subsection 1282(2) of the Corporations Act.

Means a person that has been registered to act as a Trustee under Division 1 of Part VIII in appointments under the Bankruptcy Act.

Where a company is:
(a) a holding company of another company; or
(b) a subsidiary of another company; or
(c) a subsidiary of a holding company of another company; the first-mentioned company and the other company are related to each other.

In relation to a company, means any of the following:
(a) a promoter of the body;
(b) a relative, or de facto spouse, of such a promoter;
(c) a relative of a spouse, or of a de facto spouse, of such a promoter;
(d) a director or member of the body or of a related body corporate;
(e) a relative, or de facto spouse, of such a director or member;
(f) a relative of a spouse, or of a de facto spouse, of such a director or member;
(g) a body corporate that is related to the first-mentioned body;
(h) a beneficiary under a trust of which the first-mentioned body is or has at any time been a trustee;
(i) a relative, or de facto spouse, of such a beneficiary;
(j) a relative of a spouse, or of a de facto spouse, of such a beneficiary;
(k) a body corporate one of whose directors is also a director of the first-mentioned body;
(l) a trustee of a trust under which a person is a beneficiary, where the person is a related entity of the first-mentioned body because of any other application or applications of this definition.

In relation to a winding up of a company means:
(a) if, because of Division 1A of Part 5.6, the winding up is taken to have begun on the day when an order that the company or body be wound up was made-the day on which the application for the order was filed; or
(b) otherwise-the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun.

A motion moved at a meeting of creditors (or a committee)that is approved by the required majority of creditors (more than 50% in number and 50% in value) voting for the motion. For a Special Resolution under the Bankruptcy Act a majority of 50% in number and 75% in value is required. The Corporations Act has no special resolutions.

In relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee’s employment by the company, whether the amount becomes payable before, on or after the relevant date.

An apparently plausible business “opportunity” offered to cashed up investors anxious to capture an improbably large gain over a short period, in a business that they know nothing about.

One of the two types of agreements that can be made between a bankrupt and their creditors (under section 73 of the Bankruptcy Act) during bankruptcy. Acceptance of a proposal for a scheme of arrangement will annul the bankruptcy.

Arrangements that are made by bankrupts with their creditors to provide for the annulment of the bankruptcy and the creation of a formal obligation for the ex-bankrupt to satisfy their creditors (wholly or in part) over time.

An Order made by the Federal Court at the hearing of a creditor’s petition against a personal debtor (a real person as opposed to a company) that makes that person an undischarged bankrupt.

Means being able to pay all ones debts as and when they fall due.

Under the Bankruptcy Act, means a resolution passed by a majority in number and at least three-fourths in value of the creditors present at a meeting of creditors and voting on the resolution.

A demand in the appropriate form (Form 509H) served by a creditor on a debtor company requiring the company to satisfy or otherwise secure or compound the debt to the creditors satisfaction within a 21 day period from service of the notice. Non-satisfaction of the debt under the notice is used to deem that the company is insolvent is winding up proceedings.

An appointment under a state’s property law legislation (for example: section 38 of the Qld Property Law Act) of Trustees to be held by them on the statutory trust for sale or on the statutory trust for partition.

The substitution of one person for another so that the person substituted succeeds to the rights of the other.

In relation to a body corporate, means a body corporate that is a subsidiary of the first-mentioned body by virtue of Division 6.

A body corporate is a subsidiary of another body corporate if, and only if:

(a) the other body:
(i) controls the composition of the first body’s board; or
(ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or
(iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or

(b) the first body is a subsidiary of a subsidiary of the other body.

To treat as less important. In relation to a claim in a insolvent estate: to place it behind other claims in priority.

In relation to a company, means a contribution by the company to a fund for the purposes of making provision for, or obtaining, superannuation benefits for an employee of the company, or for dependants of such an employee.

Equitable ownership of land by two or more persons in equal or unequal undivided shares. The share does not automatically pass to the other owners under a right of survivorship (as with joint tenancy).

Means:
(a) in relation to a bankruptcy: the trustee of the estate of the bankrupt;
(b) in relation to a Personal Insolvency Agreement under Division 6 of Part IV: the trustee of the Personal Insolvency Agreement;
(c) in relation to the estate of a deceased person in respect of which an order has been made under Part XI: the trustee of the estate; or
(e) in relation to a trust:

(i) if only one person is a trustee of the trust: that person; or
(ii) if 2 or more persons are trustees of the trust: any one or more of those persons;

In his, her or its capacity as a trustee, or in their respective capacities as trustees, as the case may be, of the trust.

In relation to a body corporate, means a body corporate that:
(a) is a holding company of the first-mentioned body; and
(b) is itself a subsidiary of no body corporate.

Beyond the powers. Describes an act that goes beyond the limits of the powers conferred upon the entity or person. Ultra Vires acts are usually invalid.

A transaction undertaken by a company that is later wound up where the benefits to the company are not commercial when considered against the cost or the detriment to the company. Uncommercial transaction may be voided under section 588FB and associated sections of the Corporations Act.

A transfer of property from a person who later becomes bankrupt where the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property. Undervalued transaction may be voided under section 120 and associated sections of the Bankruptcy Act.

An action brought for the purpose of annoying the opponent and with no reasonable prospects of success. The actions may be struck out and the Court may order that no legal proceedings may be begun or continued without the leave of the Court.

A person who regularly brings vexatious actions.

The common name given to the process of trustees passing a single Creditors’ Resolution without calling a physical meeting of creditors – done under section 64ZBA of the Bankruptcy Act.

In relation to a body corporate, means a body corporate none of whose members is a person other than:
(a) the first-mentioned body; or
(b) a nominee of the first-mentioned body; or
(c) a subsidiary of the first-mentioned body, being a subsidiary none of whose members is a person other than (i) the first-mentioned body; or (ii) a nominee of the first-mentioned body; or
(d) a nominee of such a subsidiary.

Part X (Ten) of the Bankruptcy Act, dealing with administration of insolvent estates outside of bankruptcy leading to a proposal by a debtor to their creditors to enter into a Personal Insolvency Agreement.

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