Companies Act 2015 (“Act”) Fiji Institute of Accountants Symposium External Administration of a Company Wylie Clarke 14 November 2018

Overview This is a discussion of the relevant parts of Parts 33-41 of the Act. Part 33 deals with registration of auditors and liquidators; Part 34 deals with appointment and removal of auditors; Part 35 deals with appointment of liquidators (but not removal); Part 37 deals with Receivers and Managers; 14 November 2018

Overview (continued) Part 38 deals with winding up of a company generally; Part 39 deals with Company winding up by court; Part 40 deals with voluntary winding up; Part 41 deals with voluntary de-registration. 14 November 2018

What is “External Administration”? External administration of a company occurs because it is not going well. Insolvency or shareholder disputes account for most incidents where external administrators have to be called in; It basically means that the control of the company is taken away from the board of directors and shareholders. Employees may continue but will be subject to the direction of the EA. 14 November 2018

The Difference between EAs There are 2 types of EAs: Liquidators; and Receiver Managers. The end is near: Liquidators are appointed when a company is being wound up; This can be by court when it has ordered its winding up (s.536); By the members when it is a voluntary winding up (s.580). 14 November 2018

The difference between EAs (Continued) The main task of the liquidator is to sell the business and assets of the company to pay off debts and return capital to members (if any left). There is hope (but don’t hold your breath). Receivers Managers take control of the company, assess its position, continue to trade and seek the best way to repay company’s debts. They have wide ranging powers (s.446); 14 November 2018

The difference between EAs (Continued) Most, if not all, receiverships are commenced by secured lenders through a fixed and floating charge or mortgage (appointment is recognised under s.444); Court can also appoint receiver managers; If successful and debts repaid, the company can return to normal operations under control of the board. 14 November 2018

Q.1: Legal Distinctions This question relates to Receiverships, voluntary administration and liquidation. Voluntary administration not dealt with- rare. Have dealt with this generally in the overview. 14 November 2018

Q.1: Legal Distinctions(continued) The legal distinctions: Liquidator is appointed by the Court (Official Receiver appointed by default) [s.538] or by company, Receiver appointed out of court; Receiver is agent of the company, the liquidator in a court ordered winding up conducts liquidation under supervision of the Court (see Part 39 division 7); 14 November 2018

Q.1: Legal Distinctions(continued) Receivers deal can only deal with the property secured under the security under which they were appointed (s.446(2), liquidators take control of all of the company’s property (s.541). Receivers can, if the security and instrument they are appointed under permits it, continue to operate the business of the company (s.446(2), a liquidator may only operate it for the purpose of winding up (s.543(1)(b)). 14 November 2018

Q.2 Rules regarding receiverships Who cannot act as receiver (s.441): A company; A mortgagee of the company; Auditor, director, secretary or employee of the company; A director, secretary or employee of the mortgagee of the company; A person who is not a registered liquidator (see part 31); director, secretary or employee of a Related Body Corporate of the company. 14 November 2018

Q.2 Rules regarding receiverships (continued) Receiver, even though an agent of the company, will be personally liable for contracts entered into (s.444(2)) but is entitled to indemnity out of the assets of the company; Same applies in relation to land or other property Receiver takes, enters possession of or takes control of (s.454(1)). 14 November 2018

Q.2 Rules regarding receiverships (continued) Must open an account with a bank bearing (s.447(1)(a)): The receiver’s name; Title “receiver” if receiver of company’s property; The title “controller” in any other case; and Company’s name. The account is really akin to a trust account: Company money received must be paid within 3 business days (s.447(1)(b)); Account can only hold company money (section 447(1)(c)); Financial records must be kept that explain all transactions (s.447(1)(c)). 14 November 2018

Q.2 Rules regarding receiverships (continued) Every company invoice, order for goods (and services), letterhead must make clear that the company is in receivership by stating “Receivers Appointed” (s.448(1)); Notice must be given: Immediately to company that has been appointed (s.450(1)(a); Statement required under s.451 that is verified by affidavit by any of the directors and secretary. Statement must be given by officers of the company, an employee of the company. 14 November 2018

Q.2 Rules regarding receiverships (continued) Statement must include: Particulars of company’s assets, debts and liabilities; Details of its creditors; Securities held by creditors and when granted; Any other required information. And must be provided within 14 days of receipt of notice from receiver (s.450(1)(b). 14 November 2018

Q.2 Rules regarding receiverships (continued) Receiver must within 2 months of receipt of statement, forward it with any comments to: Registrar and Court; The company; the security holders who appointed the receiver. 14 November 2018

Q.2 Rules regarding receiverships (continued) Reporting: Receiver must, if company is being wound up, also report to Registrar and security holders every 12 months but no more than 14 months from appointment setting out all receipts and payments made for the that period (s.450(2)). Report, in any other case, to the Registrar every 6 months (but no later than 7 months) with an abstract of all receipts and payment during that period (s.452(1)). 14 November 2018

Q.2 Rules regarding receiverships (continued) Exercise of powers when selling property of the company, must: If property has a market value, sell for no less than that value (s.456(1)(a)); Otherwise, the best price reasonably obtainable (s.456(1)(b)) 14 November 2018

Q.4 Rules regarding winding up Winding up can only occur in certain circumstances: By the court; Voluntarily; or Under the supervision of the Court. 14 November 2018

Q.4 Rules regarding winding up (continued) By the court where (s.513): Company has by special resolution resolved to wind company up (ss.(a)); Company doesn’t commence business within 1 year or suspends business for a whole year (ss.(b)); Company is insolvent (ss.(c)) Court determines that it is just and equitable to do so (ss.(d)); In the case of a branch, winding up proceedings where it is incorporated or operates (ss.(e)). 14 November 2018

Q.4 Rules regarding winding up (continued) Insolvent: A company is solvent if, and only if, it is able to pay all of its debts as and when they become due and payable (s.514(1)). Can petition to wind up Company on grounds of insolvency if: Debt must be at least $10,000, demand had been served on company and it is unpaid after the expiry of 3 weeks (s.515(a)); or 14 November 2018

Q.4 Rules regarding winding up (continued) Company is insolvent if (cont.): In the 3 months before application: execution or other process from a court judgment, decree or order is unsatisfied; Receiver or manager is appointed; Otherwise proven to court that company is unable to pay its debts. 14 November 2018

Q.4 Rules regarding winding up (continued) Voluntary Winding Up Directors must make a statutory declaration of solvency within 30 days of meeting at which it is resolved to wind up (s.578(1)). If declaration is not made, winding up will be a “creditors voluntary winding up” s.578(3)). Can only be by company special resolution (s.573(1)); Must give notice to Registrar, in Gazette and in a nationally circulated newspaper within 14 days of resolution (s.574). 14 November 2018

Q.4 Rules regarding winding up (continued) Voluntary Winding Up (cont.) Must cease business except for the purpose of winding up (s.576); Liquidator must be appointed and, on appointment, all powers of directors cease (s.580(1)). 14 November 2018

End 14 November 2018