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Liquidations - You Can't Hide The Assets |
Running down the assets of a company in advance of a likely bankruptcy can be invalidated by the courts, if it is seen as an attempt to defraud creditors. |
Two companies had set up a joint venture. Company A, a civil engineering company, carried out development, contracting and subdivision works; Company B laid stormwater and sewerage pipes in subdivisions. Company A approached Company B proposing a joint venture to contract for and carry out earth- moving and pipeline laying, with the profits to be divided. Company B would do the field work and Company A the paperwork. |
Following a falling out between the two, Company A commenced court action against Company B to recover its investment in the project, but before the hearing Company A started a voluntary wind up and a liquidator was appointed. |
After reviewing Company A's assets, the liquidator found insufficient funds to pay all creditors. Company B claimed that Company A had been running down its assets. |
Searches established that Company A owned five acres of land which it was in the process of transferring through another complicated joint venture agreement. To Company B this was a clear case of Company A trying to defeat its creditors. |
The court decided that Company A was not able to transfer the land out of its ownership, and highlighted some disturbing elements, including a falsely dated document and false documents presented to the liquidator. The stop gave the liquidator around $1.3 million for the benefit of all creditors, but since the proceeds must be shared it remains to be seen how much will go to company B. |
