A principled justification for business rescue laws: A comparative perspective (part II)
1996; Wiley; Volume: 5; Issue: 1 Linguagem: Inglês
10.1002/iir.3940050104
ISSN1180-0518
Autores Tópico(s)Corporate Governance and Law
ResumoInternational Insolvency ReviewVolume 5, Issue 1 p. 47-79 ArticleFree Access A principled justification for business rescue laws: A comparative perspective (part II) G. Dal Pont, G. Dal Pont B. Com. LLB (Hons) (Tas), LLM (Mich), ASA, Solicitor of the Supreme Court of New South Wales. Lecturer-in-Law, University of Tasmania.Search for more papers by this authorL Griggs, L Griggs LLB (Hons), LLM (Tas), Barrister and Solicitor of the Supreme Court of Tasmania, Barrister and Solicitor of the High Court of Australia. Lecturer-in-Law, University of Tasmania.Search for more papers by this author G. Dal Pont, G. Dal Pont B. Com. LLB (Hons) (Tas), LLM (Mich), ASA, Solicitor of the Supreme Court of New South Wales. Lecturer-in-Law, University of Tasmania.Search for more papers by this authorL Griggs, L Griggs LLB (Hons), LLM (Tas), Barrister and Solicitor of the Supreme Court of Tasmania, Barrister and Solicitor of the High Court of Australia. Lecturer-in-Law, University of Tasmania.Search for more papers by this author First published: 1996 https://doi.org/10.1002/iir.3940050104Citations: 2 AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat References p47_68) Dal Pont and Griggs supra n 1. p47_69) See infra nn 157–183 and accompanying text. p48_70) Lightman concludes that generally rehabilitation will rarely be feasible and will often be outweighed by the costs involved: Lightman, “Voluntary Administration: The New Wave or the New Waif in Insolvency Law?” (1994) 2 Insolvency Law Journal 59 at 90. p48_71) 11 USCA section 362. p48_72) Notes of Committee on the Judiciary, Senate Report No. 95–989. See also Kennison v Philadelphia ' Reading Coal ' Iron Co, 38 FSupp 980 (1940); Teledyne Industries Inc v Eon Corp, 373 FSupp 191 (1974); Preferred Surfacing Inc v Gwinnett Bank and Trust Co, 400 FSupp 280 (1975); Bohack Corp v Borden Inc, 450 FSupp 367 (1978). p48_73) Courts have noted that the automatic stay is designed to encourage the rehabilitation of the company. For example, see In re Alycan Interstate Corp, 11 BR 224 (1981); Matter of Haffner, 25 BR 882 (1982). p48_74) 11 USCA section 1121 (a),(b). p48_75) 11 USCA section 1121 (c). p48_76) 11 USCA section 1129. The court is not permitted to alter the terms of the plan. However, it should view all inferences drawn from the contents of the plan in the context most favourable to the debtor. See Re Spanish Lakes Associates, 92 BR 875 (1988). p48_77) Confirmation is more common in Chapter 11 cases involving large, publicly held companies as opposed to smaller companies. See LoPucki and Whitford, “Patterns in the Bankruptcy Reorganisation of Large Publicly Held Companies” (1993) 78 Cornell Law Review 597 at 600–601. See Criterion 4 - “Like treated alike”. p48_78) Jensen-Conklin, supra n 18, at 318–329 (study of bankruptcy court in Poughkeepsie, southern district, New York State); Flynn, Statistical Analysis of Chapter 11, Administrative Office of the United States Courts - Statistical Analysis and Reports Division (SARD), Bankruptcy Division (Oct 1989) (unpublished report), at 10–12. See also Stripp, “Balancing of Interets in Order Authorizing the Use of Cash Collateral in Chapter 11” (1991) 21 Seton Hall Law Review 562 who found that there was a 10–15% success rate. Adams comments that [o]f the firms that have filed Chapter 11 reorganization petitions, over eighty per cent will never reorganize successfully and will not avoid a subsequent conversion to a Chapter 7 liquidation proceeding. The effects of these ‘misfilings’ are enormous. Most fundamentally, an attempted reorganization, when liquidation is the more efficient solution, can unnecessarily increase the overall costs of bankruptcy significantly.” See Adams supra n 7, at 581–582. p48_79) See LoPucki, “ The Debtor in Full control -Systems Failure under Chapter 11 of the Bankruptcy Code?” (1983) 57 American Bankruptcy Law Journal 99 (where the Chapter 11 confirmation rate in the Western District of Missouri during the first year following the introduction of the Chapter 11 procedure was found to be 26%); Kerkman, “The Debtor in Full Control: A Case for Adoption of the Trustee System” (1987) 70 Marquette Law Review 159 at 205–206 (25% confirmation rate). p49_80) On informal workouts, see Dal Pont and Griggs supra n 1, at 123–125. p49_81) Recent case law has highlighted the fact that the automatic stay is not designed merely for the protection of the debtor, but also of the debtor's creditors. See Re Sky Group Intern Inc, 108 BR 86 (1989). The stay preserves the relative position of creditors and serves to assemble all the creditors and their claims into the bankruptcy court or single organised proceeding. See In re Mr D Realty Co, 27 BR 359 (1983); In re White Motor Credit Corp, 37 BR 631 (1984) (aff'd 761 F2d 270); US v Syres, 43 BR 437 (1984); Matter of Kozak Farms Inc, 47 BR 399 (1985); Hunt v Bankers Trust Co, 799 F2d 1060 (1986); In re Stringer, 847 F2d 549 (1988). However, these by products of the stay do not per se operate to increase the possibility of rehabilitation. p49_82) 11 USCA section 1129(a)(11). p49_83) See HR Rep No. 595, 95th Cong, 2d Sess. 413 (1977); S Rep No. 989, 95th Congress, 2d Sess. 128 (1978). p49_84) In re Haardt, 65 BR 697 (1986). p49_85) Matter of Huckabee Auto Co, 33 BR 141 (1981). See also ln re Duplan Corp,9BR 921 (1980); Inre Jartran Inc, 44 BR 331 (1984); Matter of Sound Radio Inc, 103 BR 512 (1989) (on subsequent appeal 908 F2d 964). p49_86) Jensen-Conklin supra n 18, at 329. p49_87) 11 USCA section 1129(a)(1)-(6). p49_88) 11 USCA section 1129(a)(7)-(10). p50_89) 11 USCA section 1129(a)(11). p50_90) Corporations Law, section 436A. The administrator may also be appointed by a liquidator (section 436B) or a chargee (section 436C). p50_91) Corporations Law, section 440D. See also section 440B (unenforceability of a charge during administration) and section 440C (owner or lessor cannot recover property used by the company during administration). p50_92) Corporations Law, section 438A(b). p50_93) Corporations Law, section 439A. p50_94) Corporations Law, section 439C. p50_95) Herzog and King, Collier Bankruptcy Practice Guide 84.02[1] [d] (1992). p50_96) See Criterion 6 - “The potential for court intervention and the need for the matter to be resolved in a short time frame”. p50_97) ASCPA study (First Survey - Questionnaire for Administrator), supra n 31. p51_98) The following statistics, sourced from ASC Releases (CCH) catalogue the meteoric rise of company administrations and deeds of company arrangement. See also Lawson, VAs proving useful in saving firms, insolvency experts say”, Australian Financial Review, 15 February 1994, at 34. p51_99) Bankruptcy and Insolvency Act 1992, section 50.4(1) (statement of cash flow); section 50(6) (proposal). p51_100) Bankruptcy and Insolvency Act 1992, section 50.4(9). p51_101) Dal Pont and Griggs supra n 1. Month ending 11/93 12/93 1/94 2/94 3/94 4/94 5/94 Administrators of company under administration53 57,61 84 81 58 82 Administrators of deed of company arrangement 2 0 15 33 28 39 43 Month ending 6/947/94 8/94 9/94 10/94 11/94 Administrators of company under administration 66 67 73 67 76 93 Administrators of deed of company arrangement 42 41 33 44 29 40 p52_102) This concern has been echoed by American commentators. For example, Sward has observed: “The circumstances in which it makes economic sense to try to save a business will vary. If the business is undergoing a temporary setback, such as a cash-flow problem, but is basically sound and contributing to the economy, it should be saved. But if the business is faltering because it has outlived its usefulness, it is unlikely that a feasible plan of reorganisation could be proposed.” See Sward supra n 28, at 411 (note 44). p52_103) See Bradley and Rosenzweig supra n 7, at 1045; Beinenstock, “Conflicts Between Management and the Debtor in Possession's Fiduciary Duties” (1992) 61 Cincinnati Law Review 543 at 561. The ease with which a debtor may secure Chapter 11 protection and the extent of this protection provide persuasive evidence of this objective. Another benefit of encouraging debtors to make use of the voluntary bankruptcy procedure (11 USCA s 301) is that it may serve to ensure that deserving parties are not denied the protections of bankruptcy. For example, creditors with small claims may decide not to pursue an involuntary filing (11 USCA s 303) because its attendant benefits are outweighed by the costs of the procedure. Other creditors who, were they perfectly informed, would institute an involuntary filing, may fail to do so because they lack the relevant information. This means that, in the absence of a procedure such as Chapter 11, “small or uninformed creditors must rely on parties who may be able to profit more outside bankruptcy and who are disinclined to lead the debtor into bankruptcy”. See Warren, “Bankruptcy Policy” (1987) 54 University of Chicago Review 775 at 794 (hereinafter Warren, “Bankruptcy Policy”). p52_104) See Herzog and King supra n 95, at [A6]84.02[1][d]; S Rep No. 989, 95th Cong, 2nd Sess. (1978), at 10. p52_105) In the colourful words of a Massachusetts judge: “Bankruptcy is perceived as a haven for wistfulness and the optimist's valhalla where the atmosphere is conducive to fantasy and miraculous dreams of the phoenix arising from the ruins. Unfortunately, this Court is not held during the full moon, and while the rays of sunshine sometimes bring the warming rays of the sun, they more often bring the bright light that makes transparent and evaporates the elaborate financial fantasies constructed of nothing more than the gossamer wings and of sophisticated tax legerdemain.” (In re Maxim Industries Inc, 22 Bankr 611, 613 (1982) LavienJ.). p52_106) Some courts have even urged bankruptcy as a restructuring method in preference to informal workouts. For example, see Olympia Equipment Leasing Co v Western Union Telephone Co, 786 F2d 794, 802–03 (1986); Levitt v Ingersoll Rand Fin Corp, 874 F2d 1186, 1198 (1989). Professor Baird argues that “any time resources are shifted from one use to another, or from one place to another there are likely to be spill-over effects - both positive and negative”. He proceeds to note that a decision to redeploy business resources “has exactly the same effect on workers and customers and nearby property oweners as does the decision to close up shop of an insolvent business after default to numerous creditors and a bankruptcy petition is filed”. See Baird, “Loss Distribution, Forum Shopping, and Bankruptcy: A Reply to Warren” (1987) 54 University of Chicago Law Review 815 at 829 (hereinafter Baird, “Loss Distribution”). This attitude can serve as a policy justification for viewing Chapter 11 as another type of business strategy, on a plane with changing the location, staff, product or production of a business. What this argument fails to take account of is that other business strategies are not generally designed to avoid debts which are legally due to the providers of funds. If, pursuant to a change in business strategy, a company defaults on a debt obligation, the creditor may seek the assistance of the court in recovering the amount due. However, the use of bankruptcy as a business strategy resresults in many persons who are owed money foregoing the full amount of their claim. p53_107) For example, the bankruptcy filing of Texaco in response to a judgment of $13 billion obtained by Pennzoil, after the battle for Getty Oil. See the comments by Delaney, “Power, Intercorporate Networks, and strategic Bankruptcy” (1989) 23 Law and society Review 643 at 646–647. p53_108) For example, the filing of bankruptcy by Continental Airlines who then abrogated their labour contract. See Delaney supra n 107. p53_109) For example, Robins (who manufactured the Dalkon Shield) and Manville Corporation (asbestos-related liability- In re Johns-Manville Corp (1984) 36 Banker 727). p53_110) See the comments by Delaney supra n 107 at 643–649. Whether as a product of corporate debtors viewing Chapter 11 as a strategic tool or possibly another reason, the negative conno- tations previously attached to “bankruptcy” have been somewhat diffused. In fact, Davis notes that the accepted mode of reference to a bankruptcy is “seeking the protection of Chapter 11”. See Davis supra n 6, at 256. This, it has been suggested, encourages businesses to reorganise at a stage soon enough to ensure a good chance of recovery. But at what cost? Chapter 11 contains a procedure which, although aiming for the middle ground, arguably fails to promote debtor behaviour consistent with this objective. p53_111) See Corporations Law, section 439C. p54_112) Trustees may be appointed by the United States trustee under Chapter 11 on request of a party in interest. See 11 USCA section 1104(a). This provision requires the court to order the appointment of a trustee “(1) for cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by the current management, either before or after the commencement of the case, or similar cause, but not including the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor; or (2) if such appointment is in the interests of creditors, any equity security holders, and other interests of the estate, without regard to the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor.” For examples of circumstances where trustees have been appointed, see In re Main Line Motors Inc, 9 BR 782, 784–85 (1981); In re Colby Construction Corp, 51 BR 113, 116 (1985); In re St Louis Globe-Democrat Inc, 63 BR 131 (1985); In re Parker Grande Developments Inc, 64 BR 557 (1986); In re Sharon Steel Corp, 871 F2d 1217 (1989); In re V Savino Oil & Heating Co, 99 BR 528 (1989). The forerunner of Chapter 11, Chapter X of the Bankruptcy Act of 1898, mandated the appointment of a trustee in cases of greater than 250,000 of non-contigent debt. See Bankruptcy Act 1898, section 156 (as amended by 11 USCA section 536). Although the Senate's version of the Bankruptcy Code required the appointment of a trustee in cases involving at least $5 million on non-trade debt and 1,000 security holders (S Rep No 989, 95th Cong, 2nd Sess. 115 (1978) the final version omitted any threshold for the appointment of a trustee because Congress was preoccupied with increasing the probability that management would resort to Chapter 11 while the debtor still had “sufficient assets and vitality to maximise its chances for a successful reorganisation as a going concern”. See Beinenstock supra n 103, at 550. The courts view the appointment of a trustee under Chapter 11 as an extraordinary remedy which should not be made lightly. See In re LS Good & Co, 8 BR 312 (1980); In re Tyler, 18 BR 574 (1982); In re Ford, 36 BR 501 (1983); In re General Oil Distributors Inc, 42 BR 402 (1984). p54_113) See Bankruptcy and Insolvency Act 1992, sections 50(6), 50.4(2),(7), 50.5. p54_114) HR Rep No 595, 95th Cong, 1st Sess. at 232–234 (1977). It has been noted that “a corporation's board of directors would also be less likely to authorize management to invoke Chapter 11 if a trustee's appointment would be automatic”. See Beinenstock supra n 103, at 549 (note 29), 567. p55_115) See HR Rep No 595, 95th Cong, 1st Sess., at 232–234 (1977). See also Beinenstock supra n 103, at 567. p55_116) See Criterion 6 - “The potential for court intervention and the need for the matter to be resolved in a short time frame”. p55_117) See HR Rep No 595, 95th Cong, 1st Sess., at 232–234 (1977). p55_118) “The kindness of Chapter 11”, The Economist, 26 May 1991, at 97. See also Bradley and Rosenzweig supra n 7, at 1045–1046. Similarly, where the insolvent company is controlled by ownermanagers, the owner-managers “remain in a position to benefit from sufficiently large increases in the value of the company. Yet they cannot suffer major financial losses from even the largest decreases in its value. Because they retain the benefits of risk taking without suffering a corresponding share of the losses, it may be in their interests that the company take risks not justified by the expected returns to the company.” See LoPucki, “The Trouble with Chapter 11” supra n 6, at 733. See also the comments of Bogart, “Liability of Directors of Chapter 11 Debtors in Possession: ‘Don't Look Back-Something May Be Gaining On You’” (1994) 68 American Bankruptcy Law Journal 155 at 159. From a different perspective, consider the workings of “agency theory”. Under this theory, company management is characterised as an agent for the investor (the shareholder), who acts as principal. It is argued that the agent expects that the principal will act in its own interests and, for this reason, in the absence of adequate disclosure as a means of monitoring the activities of the principal, the agent will price the company's securities according to the expectation of the principal's opportunistic behaviour. As a result, the value of the principal's human capital is reduced. Therefore, agency theorists contend that the principal possesses an incentive to enter into “binding and monitoring contracts” with the agent in an effort to engender the trust of the agent. This is clearly in the interest of the principal in that the pricing of the company's securities and the value of its human capital influences how the principal is rewarded. Agency theory serves to provide a perspective upon the reasons why management act in the interests of shareholders rather than creditors. An extended analysis of “agency theory” may be found in the following works: Jensen and Meckling, “Theory of the firm: Managerial behaviour, agency costs and ownership structure” (1976) 3 Journal of Financial Economics 305; Watts, “Corporate financial statements, a product of the market and the political process” (1977) 2(1) Australian Journal of Management; Fama, “Agency problems and the theory of the firm” (1980) 88(2) Journal of Political Economy. p56_119) Beinenstock supra n 103, at 544–545. p56_120) Commodity Futures Trading Commission v Weintraub, 471 US 343, 355 (1985). The Bankruptcy Code provides that “a debtor in possession shall have all the rights.… and powers, and shall perform all the functions and duties.… of a trustee serving under [Chapter 11]” (11 USCAsection 1107(a)). The duties of a trustee are contained in 11 USCA section 1106 (a). p56_121) In re V Savino Oil & Heating Co, 99 BRE 518 (1989). See also Jordan and Warren, Bankruptcy (Mineola, NY, 1985) at 684. American courts have held that, in circumstances where the corporation is insolvent, the directors are fiduciaries for creditors. For example, see Clarkson v Shaheen, 660 F2d 506, 512 (1981); Federal Deposit Insurance Corp v Sea Pines Co, 692 F2d 973 (1982); Unsecured Creditors' Comm. of Debtor STN Enters v Noyes, 779 F2d 901 (1985). Courts in Australia, New Zealand and the United Kingdom have intimated that directors of insolvent companies must act in the interests of creditors. See Walker v Wimbourne (1976) 137 CLR 1,6–7 per Mason J; Nicholson v Permakraft (1985) 3 ACLC 453 at 457–460 per Cooke J, at 463 per Richardson J, at 464 per Somers J; Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 ACLC 215, 221–223 per Jacobs J; Grove v Flavel (1986) 4 ACLC 654 at 660–662, per Jacobs J; Winkworth v Edward Barron [1987] 1 All ER 114 at 118, per Lord Templeman; Hilton International Ltd (in liq) v Hilton (1988) 4 NZCLC 64,721. But see Kuwait Asia Bank EC v National Mutual Life Nominees Ltd (1990) 5 NZCLC 66,509 at 66,523 per Lord Lowry (PC); ANZ, Executors & Trustee Co Ltd v Qintex Australia Ltd (receivers and managers appointed) (1990) 8 ACLC 980 at 985, per McPherson J. For an analysis of these issues, see Heydon, “Directors' Duties and the Company's Interests” in Finn, Equity and Commercial Relationships, at 126–134; Farrar, “The responsibility of directors and shareholders for a company's debts” (1989) 4 Canta L Rev 12. For American literature on this area, see Kelbon, Herman and Bell, “Conflicts, the Appointment of ‘Professionals’, and Fiduciary Duties of Major Parties in Chapter 11” (1991) 8 Bankruptcy Developments Journal 348 and Kelch, “The Phantom Fiduciary: The Debtor in Possession in Chapter 11” (1992) 38 Wayne Law Review 1323; Miller, “Corporate Governance in Chapter 11: The Fiduciary Relationship Between Directors and Stockholders of Solvent and Insolvent Corporations” (1993) 23 Seton Hall Law Review 1467. p56_122) In re Paolino, 53 BR 399 (1985) (aff'd 60 BR 828); In re Cole, 66 BR 75 (1986). p56_123) Agency theory proponents assume that, in the absence of incentives which serve to correlate the objectives of management with those of the investor, management (as agent) will behave in a manner consistent with its self-interest. See supra n 118. p56_124) Bradley and Rosenzweig supr n 7, at 1049–1050. Interestingly, this study proceeds on the assumption that bankruptcy is an “endogenous” event, that is, management chooses to take the company into insolvency by burdening the firm with debt because it knows that it will not personally pay the price for business failure. See Warren, “The Untenable Case for Repeal of Chapter 11” supra n 6, at 439. Professor Warren criticises the methodology of Bradley and Rosenzweig and seeks to identify plausible alternative hypotheses to their conclusions. She cites a survey the results of which indicate that 71% of managers of companies that filed for bankruptcy lost their jobs within two years of the filing (at 449, citing Gilson, “Management Turnover and Financial Distress” (1989) 25 Fin Econ 241). See also LoPucki, “Strange Visions in a Strange World: A Reply to Professors Bradley and Rosenzweig” supra n 6, at 81, 94–97. However, what neither LoPucki nor Warren dispute is that Chapter 11 does not encourage managers to act for the benefit of anyone bar themselves and shareholders. See also Bhandari and Weiss, supra n 7, at 137ff. p57_125) Franks and Torous, “How firms fare in workouts and chapter 11 reorganisations” (London Business School, Working Paper, May 1991). Both management and shareholders will benefit particularly in the case of a small organisation, in which there is identity between the two. p57_126) See generally, Beinenstock supra n 103, at 559–567. p57_127) 11 USCA section 1129(a) (5). This provision was designed to insure able and trustworthy management who could successfully operate the reorganised company. See In re Spectrum Arena Inc, 340 FSupp 794 (1971) (aff'd 462 F2d 156). p57_128) 11 USCA section 1121(d) For example, see In re Lake in the Woods, 10 BR 338 (1981); In re Ravenna Industries, 20 BR 886 (1982). p57_129) Beinenstock supra n 103, at 559. p57_130) See supra nn 12–14 and accompanying text. p57_131) LoPucki, “The Trouble with Chapter 11” supra n 6, at 753. p57_132) Bankruptcy and Insolvency Act 1992, section 47. Cf. 11 USCA section 1104(a). p57_133) This period represents an amalgamation of the 30-day period between the filing of a notice of intention to make a proposal (Bankruptcy and Insolvency Act 1992, section 50.4(8)) and the period of 21 days following the filing of the proposal during which the trustee must convene a meeting of creditors (Bankruptcy and Insolvency Act 1992, section 51(1)). p57_134) Bankruptcy and Insolvency Act 1992, section 50.4(11). p58_135) Bankruptcy and Insolvency Act 1992, section 50.4(9). p58_136) Bankruptcy and Insolvency Act 1992, section 13. p58_137) Bankruptcy and Insolvency Act 1992, section 50.4(1). p58_138) Except with court permission, a trustee may not act if he or she was a director, officer, employer, employee, auditor, accountant, solicitor or partner of the insolvent person within the preceding two-year period. See Bankruptcy and Insolvency Act 1992, section 13.3(1). See further Ogilvie, supra n 5, at 310. p58_139) Bankruptcy and Insolvency Act 1992, section 50.4(2) (b). p58_140) Bankruptcy and Insolvency Act 1992, section 50.4(7)(b). p58_141) The court's principal role is in the approval or otherwise of the proposal accepted by creditors. See Bankruptcy and Insolvency Act 1992, sections 59, 60. See further Criterion 6 - “The potential for court intervention and the need for the matter to be resolved in a short time frame”. The court may also control events prior to the acceptance of the plan. For example, see Bankruptcy and Insolvency Act 1992, section 50(1.5) (court may determine classes); section 50(8), 50.4(4) (court may order non-disclosure of cash flow statement); sections 50(10), 50.4(7) (court may order reports); section 50.4(9) (court may deny extension of stay); section 50.4(11) (court may terminate stay). See Rhodes, supra n 8. p58_142) Hence, the persons who originally caused the company to go into financial difficulties (if the causes of insolvency were endogenous factors) will not have the power of authority to initiate high risk strategies on the basis that they have nothing to lose and a lot to gain by speculative investment of the company's resources. p58_143) Corporations Law, section 437A. The administrator may also remove from office a director of the company; appoint a person as a director; execute a document, bring or defend proceedings, or do anything else in the company's name or on its behalf; or whatever else is necessary for the purposes of Part 5.3 A. See section 442A. p58_144) Corporations Law, section 448C. The disqualification extends to persons who are shareholders and creditors (being indebted in an amount greater than $5,000), officers (and partners/employees/employers of officers) and auditors (and partners/ employees of auditors) of the company. The Bankruptcy Code (US) and the Bankruptcy and Insolvency Act 1992 (Can) also favour the policy that trustees be independent. See 11 USCA section 1104(c) and section 13.3(1) respectively. p59_145) Explanatory Memorandum to section 448C. p59_146) Corporations Law, section 438A(b). p59_147) Corporations Law, section 439C. p59_148) Corporations Law, section 438A(b). p59_149) See comments of Brian McCann (Chairman of ACSR Insolvency and Reconstruction Centre of Excellence) reported in Dwyer, “Volutnatary code triples return to unsecured creditors” Austrlian Financial Review, 20 January 1994, at 3. p59_150) See Corporations Law, section 588G. See also Commonwealth Bank v Friedrich (1991) 9 ACLC 946; Morley v Group Four Industries (1992) 8 (1992) 10 ACLC 1437. p59_151) Corporations Law, section 588H(5). p59_152) Corporations Law, section 588H (6). p59_153) See Income Tax Assessment Act 1936 (Cth), sections 222AOC (liability for directors failing to remit under Division 2, 3A, 3B or 4) and 222APD (liability for directors failing to pay estimate under Division 8). p60_154) Income Tax Assessment Act 1936 (Cth), sections 222AOB, 222APB. p60_155) The ASCPA study found that the estimated dividend on a winding up would be 6.81 cents per dollar whereas the estimated return on a voluntary administration would be 19.82 cents per dollar. See ASCPA study, supra n 31. This is not, however, to suggest that the incentives to appoint an administrator under Part 5.3A necessarily outweigh disincentives in every given case. In a recent letter to the Australian Financial Review a Brisbane insolvency specialist recounted his experience that many administrations have been a precursor to liquidation because administrators have been appointed too late. See Australian Financial Review, 9 February 1994, at 21. See also Lawson, “Many too late in calling for doctor” Australian Financial Review, 15 February 1994, at 34. p60_156) The following statistics are sourced from ASC Releases (CCH). The numbers in parentheses represent the figure for the same month of the previous year. Month ending 11/93 1/94 3/94 5/94 Court winding up 72 (320) 19 (191) 72 (320) 62 (303) Creditors winding up 58 (63)17 (47) 49 (83) 31 (77) Members winding up 202 (251) 121 (
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