6) Frank McLennan is one of two directors of Uptown Pty Ltd (“Uptown”) & is seeking your urgent advice. He also holds a large parcel of shares in Uptown which he estimated is worth over $100,000.00.
He tells you that up until about 2 or 3 years ago, Uptown had been trading successfully as a men’s clothing wholesaler and retailer. However, since then, the market for traditional coats, jackets, shirts, suits, and ties had declined dramatically and that the impact of shopping online was also significant. As a result, the company finances had rapidly deteriorated.
Over this period, Uptown had become more reliant on its bank, Which Bank Ltd (“Which Bank”), to provide financial support through firstly an unsecured overdraft of $50,000 and about 18 months ago, a Business Loan which is secured in the sum of a further $100,000 over all plant stock & equipment owned by Uptown.
During late 2019 as the company fell into arrears with its payments to Which Bank in relation to both loans, the directors of Uptown attempted to negotiate with for further funding.
However, in March 2020, Which Bank formally advised that this would not be possible and that it would be seeking to recover all outstanding amounts on both loans. He has been told as part of this process it is likely that his company will be wound up. It was not long after this conversation that Frank contacts you for urgent advice
b) Frank, who tells you that very recently, after being served with a Statutory Demand, Uptown Pty Ltd has also now just been served with an Application to Wind Up the company.
He says he is naturally very upset at what has happened but recognises that there is probably no way out of these problems. He tells that he is terrified that the liquidators “will trash the company” when winding it up, suggesting to you that he has heard that “they can do what they like and are not accountable to anyone”.
In briefly explaining to Frank that it is unlikely that the company will be “trashed” during this process, advise him how the actions of liquidators are supervised and, in doing so, provide two (2) examples of how the Corporations Act can also be used to regulate their behaviour.