Commonwealth Numbered Acts

CORPORATE LAW REFORM ACT 1992 No. 210 of 1992 - SECT 111

111. After Part 5.7A of the Corporations Law the following Part is inserted:

"PART 5.7B - RECOVERING PROPERTY OR COMPENSATION FOR THE
BENEFIT OF CREDITORS OF INSOLVENT COMPANY
                         "Division 1 - Preliminary
Secured debt may become unsecured

"588D. For the purposes of this Part, a secured debt becomes an unsecured debt
to the extent that the creditor proves for the debt as an unsecured creditor.
Presumptions to be made in recovery proceedings

"588E.(1) In this section:
'recovery proceeding', in relation to a company, means:

   (a)  an application under section 588FF by the company's liquidator; or

   (b)  proceedings begun under subsection 588FH(2) by the company's
        liquidator; or

   (c)  proceedings, in so far as they relate to the question whether a charge
        created by the company is void to any extent, as against the company's
        liquidator, because of subsection 588FJ(2); or

   (d)  proceedings begun under subsection 588FJ(6) by the company's
        liquidator; or

   (e)  proceedings for a contravention of section 588G in relation to the
        incurring of a debt by the company (including proceedings under
        section 588M in relation to the incurring of the debt but not
        including proceedings for an offence); or

   (f)  proceedings under section 588W in relation to the incurring of a debt
        by the company.

"(2) Subsections (3) to (9), inclusive, have effect for the purposes of a
recovery proceeding in relation to a company.

"(3) If:

   (a)  the company is being wound up; and

   (b)  it is proved, or because of subsection (4) or (8) it must be presumed,
        that the company was insolvent at a particular time during the 12
        months ending on the relation-back day; it must be presumed that the
        company was insolvent throughout the period beginning at that time and
        ending on that day.

"(4) Subject to subsections (5), (6) and (7), if it is proved that the
company:

   (a)  has contravened subsection 289(1) by failing to keep accounting
        records that correctly record and explain:

        (i)    its transactions (including any transactions as trustee) during
               a particular period ('the relevant period'); and

        (ii)   its financial position during the relevant period; or by
               failing to keep such accounting records in the manner required
               by paragraph 289(1)(b); or

   (b)  has contravened subsection 289(2) by failing to retain such accounting
        records for the period required by that subsection; it must be
        presumed that the company was insolvent throughout the relevant
        period.

"(5) Paragraph (4)(a) does not apply in relation to a contravention of
subsection 289(1) that is only minor or technical.

"(6) Subsection (4) does not have effect, in so far as it would prejudice a
right or interest of a person for the company to be presumed insolvent because
of a contravention of subsection 289(2), if it is proved that:

   (a)  the contravention was due solely to someone destroying, concealing or
        removing accounting records of the company; and

   (b)  none of those accounting records was destroyed, concealed or removed
        by the first-mentioned person; and

   (c)  the person was not in any way, by act or omission, directly or
        indirectly, knowingly or recklessly, concerned in, or party to,
        destroying, concealing or removing any of those accounting records.

"(7) If the recovery proceeding is an application under section 588FF,
subsection (4) of this section does not have effect for the purposes of
proving, for the purposes of the application, that an unfair preference given
by the company to a creditor of the company is an insolvent transaction,
unless it is proved, for the purposes of the application, that a related
entity of the company was a party to the unfair preference.

"(8) If, for the purposes of another recovery proceeding in relation to the
company, there has been proved:

   (a)  if the other proceeding is of the kind referred to in paragraph (1)(a)
        of this section - a matter of the kind referred to in a paragraph of
        section 588FC or of subsection 588FG(2); or

   (b)  if the other proceeding is of the kind referred to in paragraph (1)(b)
        of this section - a matter of the kind referred to in a paragraph of
        section 588FC or of subsection 588FG(2) or 588FH(1), or a defence
        under subsection 588FH(3); or

   (c)  if the other proceeding is of the kind referred to in paragraph (1)(c)
        or (d) of this section - a matter of the kind referred to in
        subsection 588FJ(3); or

   (d)  if the other proceeding is of the kind referred to in paragraph (1)(e)
        of this section - a matter of the kind referred to in a paragraph of
        section 588G, or a defence under section 588H; or

   (e)  if the other proceeding is of the kind referred to in paragraph (1)(f)
        of this section - a matter of the kind referred to in a paragraph of
        subsection 588V(1), or a defence under section 588X; it must be
        presumed that that matter was the case, or that the matters
        constituting that defence were the case.

"(9) A presumption for which this section provides operates except so far as
the contrary is proved for the purposes of the proceeding concerned.
                 "Division 2 - Voidable transactions
Unfair preferences

"588FA.(1) A transaction is an unfair preference given by a company to a
creditor of the company if, and only if:

   (a)  the company and the creditor are parties to the transaction (even if
        someone else is also a party); and

   (b)  the transaction results in the creditor receiving from the company, in
        respect of an unsecured debt that the company owes to the creditor,
        more than the creditor would receive from the company in respect of
        the debt if the transaction were set aside and the creditor were to
        prove for the debt in a winding up of the company; even if the
        transaction is entered into, is given effect to, or is required to be
        given effect to, because of an order of an Australian court or a
        direction by an agency.

"(2) For the purposes of subsection (1), a secured debt is taken to be
unsecured to the extent of so much of it (if any) as is not reflected in the
value of the security.

"(3) Where:

   (a)  a transaction is, for commercial purposes, an integral part of a
        continuing business relationship (for example, a running account)
        between a company and a creditor of the company (including such a
        relationship to which other persons are parties); and

   (b)  in the course of the relationship, the level of the company's net
        indebtedness to the creditor is increased and reduced from time to
        time as the result of a series of transactions forming part of the
        relationship; then:

   (c)  subsection (1) applies in relation to all the transactions forming
        part of the relationship as if they together constituted a single
        transaction; and

   (d)  the transaction referred to in paragraph (a) may only be taken to be
        an unfair preference given by the company to the creditor if, because
        of subsection (1) as applying because of paragraph (c) of this
        subsection, the single transaction referred to in the last-mentioned
        paragraph is taken to be such an unfair preference. Uncommercial
        transactions

"588FB.(1) A transaction of a company is an uncommercial transaction of the
company if, and only if, it may be expected that a reasonable person in the
company's circumstances would not have entered into the transaction, having
regard to:

   (a)  the benefits (if any) to the company of entering into the transaction;
        and

   (b)  the detriment to the company of entering into the transaction; and

   (c)  the respective benefits to other parties to the transaction of
        entering into it; and

   (d)  any other relevant matter.

"(2) A transaction may be an uncommercial transaction of a company because of
subsection (1):

   (a)  whether or not a creditor of the company is a party to the
        transaction; and

   (b)  even if the transaction is given effect to, or is required to be given
        effect to, because of an order of an Australian court or a direction
        by an agency. Insolvent transactions

"588FC. A transaction of a company is an insolvent transaction of the company
if, and only if, it is an unfair preference given by the company, or an
uncommercial transaction of the company, and:

   (a)  any of the following happens at a time when the company is insolvent:

        (i)    the transaction is entered into;

        (ii)   an act is done, or an omission is made, for the purpose of
               giving effect to the transaction; or

   (b)  the company becomes insolvent because of, or because of matters
        including:

        (i)    entering into the transaction; or

        (ii)   a person doing an act, or making an omission, for the purpose
               of giving effect to the transaction. Unfair loans to a company

"588FD.(1) A loan to a company is unfair if, and only if:

   (a)  the interest on the loan was extortionate when the loan was made, or
        has since become extortionate because of a variation; or

   (b)  the charges in relation to the loan were extortionate when the loan
        was made, or have since become extortionate because of a variation;
        even if the interest is, or the charges are, no longer extortionate.

"(2) In determining:

   (a)  whether interest on a loan was or became extortionate at a particular
        time as mentioned in paragraph (1)(a); or

   (b)  whether charges in relation to a loan were or became extortionate at a
        particular time as mentioned in paragraph (1)(b); regard is to be had
        to the following matters as at that time:

   (c)  the risk to which the lender was exposed; and

   (d)  the value of any security in respect of the loan; and

   (e)  the term of the loan; and

   (f)  the schedule for payments of interest and charges and for repayments
        of principal; and

   (g)  the amount of the loan; and

   (h)  any other relevant matter. Voidable transactions

"588FE.(1) Where a company is being wound up, a transaction of the company
that was entered into at or after the commencement of this Part may be
voidable because of any one or more of the following subsections.

"(2) The transaction is voidable if:

   (a)  it is an insolvent transaction of the company; and

   (b)  it was entered into, or an act was done for the purpose of giving
        effect to it:

        (i)    during the 6 months ending on the relation-back day; or

        (ii)   after that day but on or before the day when the winding up
               began.

"(3) The transaction is voidable if:

   (a)  it is an insolvent transaction, and also an uncommercial transaction,
        of the company; and

   (b)  it was entered into, or an act was done for the purpose of giving
        effect to it, during the 2 years ending on the relation- back day.

"(4) The transaction is voidable if:

   (a)  it is an insolvent transaction of the company; and

   (b)  a related entity of the company is a party to it; and

   (c)  it was entered into, or an act was done for the purpose of giving
        effect to it, during the 4 years ending on the relation-back day.

"(5) The transaction is voidable if:

   (a)  it is an insolvent transaction of the company; and

   (b)  the company became a party to the transaction for the purpose, or for
        purposes including the purpose, of defeating, delaying, or interfering
        with, the rights of any or all of its creditors on a winding up of the
        company; and

   (c)  the transaction was entered into, or an act done was for the purpose
        of giving effect to the transaction, during the 10 years ending on the
        relation-back day.

"(6) The transaction is voidable if it is an unfair loan to the company made
at any time on or before the day when the winding up began.

"(7) A reference in this section to doing an act includes a reference to
making an omission. Court may make orders about voidable transactions

"588FF.(1) Where, on the application of a company's liquidator, the Court is
satisfied that a transaction of the company is voidable because of section
588FE, the Court may make one or more of the following orders:

   (a)  an order directing a person to pay to the company an amount equal to
        some or all of the money that the company has paid under the
        transaction;

   (b)  an order directing a person to transfer to the company property that
        the company has transferred under the transaction;

   (c)  an order requiring a person to pay to the company an amount that, in
        the Court's opinion, fairly represents some or all of the benefits
        that the person has received because of the transaction;

   (d)  an order requiring a person to transfer to the company property that,
        in the Court's opinion, fairly represents the application of either or
        both of the following:

        (i)    money that the company has paid under the transaction;

        (ii)   proceeds of property that the company has transferred under the
               transaction;

   (e)  an order releasing or discharging, wholly or partly, a debt incurred,
        or a security or guarantee given, by the company under or in
        connection with the transaction;

   (f)  if the transaction is an unfair loan and such a debt, security or
        guarantee has been assigned - an order directing a person to indemnify
        the company in respect of some or all of its liability to the
        assignee;

   (g)  an order providing for the extent to which, and the terms on which, a
        debt that arose under, or was released or discharged to any extent by
        or under, the transaction may be proved in a winding up of the
        company;

   (h)  an order declaring an agreement constituting, forming part of, or
        relating to, the transaction, or specified provisions of such an
        agreement, to have been void at and after the time when the agreement
        was made, or at and after a specified later time;

   (i)  an order varying such an agreement as specified in the order and, if
        the Court thinks fit, declaring the agreement to have had effect, as
        so varied, at and after the time when the agreement was made, or at
        and after a specified later time;

   (j)  an order declaring such an agreement, or specified provisions of such
        an agreement, to be unenforceable.

"(2) Nothing in subsection (1) limits the generality of anything else in it.

"(3) An application under subsection (1) may only be made:

   (a)  within 3 years after the relation-back day; or

   (b)  within such longer period as the Court orders on an application under
        this paragraph made by the liquidator within those 3 years.
        Transaction not voidable as against certain persons

"588FG.(1) The Court is not to make under section 588FF an order materially
prejudicing a right or interest of a person other than a party to the
transaction if it is proved that:

   (a)  the person received no benefit because of the transaction; or

   (b)  in relation to each benefit that the person received because of the
        transaction:

        (i)    the person received the benefit in good faith; and

        (ii)   at the time when the person received the benefit:

   (a)  the person had no reasonable grounds for suspecting that the company
        was insolvent at that time or would become insolvent as mentioned in
        paragraph 588FC(b); and

   (b)  a reasonable person in the person's circumstances would have had no
        such grounds for so suspecting.

"(2) The Court is not to make under section 588FF an order materially
prejudicing a right or interest of a person if the transaction is not an
unfair loan to the company and it is proved that:

   (a)  the person became a party to the transaction in good faith; and

   (b)  at the time when the person became such a party:

        (i)    the person had no reasonable grounds for suspecting that the
               company was insolvent at that time or would become insolvent as
               mentioned in paragraph 588FC(b); and

        (ii)   a reasonable person in the person's circumstances would have
               had no such grounds for so suspecting; and

   (c)  the person has provided valuable consideration under the transaction
        or has changed his, her or its position in reliance on the
        transaction. Liquidator may recover from related entity benefit
        resulting from insolvent transaction

"588FH.(1) This section applies where a company is being wound up and a
transaction of the company:

   (a)  is an insolvent transaction of the company; and

   (b)  is voidable under section 588FE; and

   (c)  has had the effect of discharging, to the extent of a particular
        amount, a liability (whether under a guarantee or otherwise and
        whether contingent or otherwise) of a related entity of the company.

"(2) The company's liquidator may, by proceedings in a court of competent
jurisdiction, recover from the related entity, as a debt due to the company,
an amount equal to the amount referred to in paragraph (1)(c).

"(3) In deciding what orders (if any) to make under section 588FF on an
application relating to the transaction, the Court must take into account any
amount recovered under subsection (2) of this section.

"(4) If the liquidator recovers an amount under subsection (2) from the
related entity, the related entity has the same rights:

   (a)  whether by way of indemnity, subrogation, contribution or otherwise;
        and

   (b)  against the company or anyone else; as if the related entity had paid
        the amount in discharging, to the extent of that amount, the liability
        referred to in paragraph (1)(c). Creditor who gives up benefit of
        unfair preference may prove for preferred debt

"588FI.(1) This section applies where:

   (a)  a transaction is an unfair preference given by a company to a creditor
        of the company after the commencement of this Part; and

   (b)  at the request of the company's liquidator, because of an order under
        section 588FF, or for any other reason, the creditor has put the
        company in the same position as if the transaction had not been
        entered into.

"(2) The Court must not make under section 588FF, on an application relating
to the transaction, an order prejudicing a right or interest of the creditor.

"(3) The creditor may prove in the winding up as if the transaction had not
been entered into. Floating charge created within 6 months before
relation-back day

"588FJ.(1) This section applies if:

   (a)  a company is being wound up in insolvency; and

   (b)  the company created a floating charge on property of the company at a
        particular time that is at or after the commencement of this Part and:

        (i)    during the 6 months ending on the relation-back day; or

        (ii)   after that day but on or before the day when the winding up
               began.

"(2) The charge is void, as against the company's liquidator, except so far as
it secures:

   (a)  an advance paid to the company, or at its direction, at or after that
        time and as consideration for the charge; or

   (b)  interest on such an advance; or

   (c)  the amount of a liability under a guarantee or other obligation
        undertaken at or after that time on behalf of, or for the benefit of,
        the company; or

   (d)  an amount payable for property or services supplied to the company at
        or after that time; or

   (e)  interest on an amount so payable.

"(3) Subsection (2) does not apply if it is proved that the company was
solvent immediately after that time.

"(4) Paragraphs (2)(a) and (b) do not apply in relation to an advance so far
as it was applied to discharge, directly or indirectly, an unsecured debt,
whether contingent or otherwise, that the company owed to:

   (a)  the chargee; or

   (b)  if the chargee was a body corporate - a related entity of the body.

"(5) Paragraphs (2)(d) and (e) do not apply in relation to an amount payable
as mentioned in paragraph (2)(d) in so far as the amount exceeds the market
value of the property or services when supplied to the company.

"(6) If, during the 6 months ending on the relation-back day, or after that
day but on or before the day when the winding up began, a debt secured by the
charge was discharged, out of the company's money or property, to the extent
of a particular amount (in this subsection called the 'realised amount'), the
liquidator may, by proceedings in a court of competent jurisdiction, recover
from the chargee, as a debt due to the company, the amount worked out in
accordance with the formula:
Unsecured amount - Realisation costs where:
'Unsecured amount' means so much of the realised amount as does not exceed so
much of the debt as would, if the debt had not been so discharged, have been
unsecured, as against the liquidator, because of subsection (2);
'Realisation costs' means so much (if any) of the costs and expenses of
enforcing the charge as is attributable to realising the realised amount.

"Division 3 - Director's duty to prevent insolvent trading Director's duty to
prevent insolvent trading by company

"588G.(1) This section applies if:

   (a)  a person is a director of a company at the time when the company
        incurs a debt; and

   (b)  the company is insolvent at that time, or becomes insolvent by
        incurring that debt, or by incurring at that time debts including that
        debt; and

   (c)  at that time, there are reasonable grounds for suspecting that the
        company is insolvent, or would so become insolvent, as the case may
        be; and

   (d)  that time is at or after the commencement of this Part.

"(2) By failing to prevent the company from incurring the debt, the person
contravenes this section if:

   (a)  the person is aware at that time that there are such grounds for so
        suspecting; or

   (b)  a reasonable person in a like position in a company in the company's
        circumstances would be so aware.

"(3) This section is a civil penalty provision as defined by section 1317DA,
so Part 9.4B provides for civil and criminal consequences of contravening it,
or of being involved in a contravention of it.

"(4) The provisions of Division 4 of this Part are additional to, and do not
derogate from, Part 9.4B as it applies in relation to a contravention of this
section. Defences

"588H.(1) This section has effect for the purposes of proceedings for a
contravention of section 588G in relation to the incurring of a debt
(including proceedings under section 588M in relation to the incurring of the
debt).

"(2) It is a defence if it is proved that, at the time when the debt was
incurred, the person had reasonable grounds to expect, and did expect, that
the company was solvent at that time and would remain solvent even if it
incurred that debt and any other debts that it incurred at that time.

"(3) Without limiting the generality of subsection (2), it is a defence if it
is proved that, at the time when the debt was incurred, the person:

   (a)  had reasonable grounds to believe, and did believe:

        (i)    that a competent and reliable person ('the other person') was
               responsible for providing to the first-mentioned person
               adequate information about whether the company was solvent; and

        (ii)   that the other person was fulfilling that responsibility; and

   (b)  expected, on the basis of information provided to the first-mentioned
        person by the other person, that the company was solvent at that time
        and would remain solvent even if it incurred that debt and any other
        debts that it incurred at that time.

"(4) If the person was a director of the company at the time when the debt was
incurred, it is a defence if it is proved that, because of illness or for some
other good reason, he or she did not take part at that time in the management
of the company.

"(5) It is a defence if it is proved that the person took all reasonable steps
to prevent the company from incurring the debt.

"(6) In determining whether a defence under subsection (5) has been proved,
the matters to which regard is to be had include, but are not limited to:

   (a)  any action the person took with a view to appointing an administrator
        of the company; and

   (b)  when that action was taken; and

   (c)  the results of that action.

"Division 4 - Director liable to compensate company

"Subdivision A - Proceedings against director On application for civil penalty
order, Court may order compensation

"588J.(1) Where, on an application for a civil penalty order against a person
in relation to a contravention of section 588G, the Court is satisfied that:

   (a)  the person committed the contravention in relation to the incurring of
        a debt by a company; and

   (b)  the debt is wholly or partly unsecured; and

   (c)  the person to whom the debt is owed has suffered loss or damage in
        relation to the debt because of the company's insolvency; the Court
        may (whether or not it makes an order under subsection 1317EA(3))
        order the first-mentioned person to pay to the company compensation
        equal to the amount of that loss or damage.

"(2) A company's liquidator may intervene in an application for a civil
penalty order against a person in relation to a contravention of section 588G,
unless the application was made under Division 4 of Part 9.4B.

"(3) A company's liquidator who so intervenes is entitled to be heard:

   (a)  only if the Court is satisfied that the person committed the
        contravention in relation to the incurring of a debt by that company;
        and

   (b)  only on the question whether the Court should order the person to pay
        compensation to the company. Criminal court may order compensation

"588K.(1) If:

   (a)  a court finds a person guilty of an offence constituted by a
        contravention of section 588G in relation to the incurring of a debt
        by a company; and

   (b)  the court is satisfied that:

        (i)    the debt is wholly or partly unsecured; and

        (ii)   the person to whom the debt is owed has suffered loss or damage
               in relation to the debt because of the company's insolvency;
               the court may (whether or not it imposes a penalty) order the
               first-mentioned person to pay to the company compensation equal
               to the amount of that loss or damage. Note: Section 73A defines
               when a court is taken to find a person guilty of an offence.

"(2) If:

   (a)  a court declares under Division 4 of Part 9.4B that a person has, by
        failing to prevent a company from incurring a debt, contravened
        section 588G in relation to the company; and

   (b)  the court is satisfied that:

        (i)    the debt is wholly or partly unsecured; and

        (ii)   the person to whom the debt is owed has suffered loss or damage
               in relation to the debt because of the company's insolvency;
               the court may (whether or not it makes an order under
               subsection 1317EA(3)) order the first-mentioned person to pay
               to the company compensation equal to the amount of that loss or
               damage. Enforcement of order under section 588J or 588K

"588L. An order to pay compensation that a court makes under section 588J or
588K may be enforced as if it were a judgment of the court. Recovery of
compensation for loss resulting from insolvent trading

"588M.(1) This section applies where:

   (a)  a person (in this section called the 'director') has contravened
        section 588G in relation to the incurring of a debt by a company; and

   (b)  the person (in this section called the 'creditor') to whom the debt is
        owed has suffered loss or damage in relation to the debt because of
        the company's insolvency; and

   (c)  the debt was wholly or partly unsecured when the loss or damage was
        suffered; and

   (d)  the company is being wound up; whether or not:

   (e)  the director has been convicted of an offence in relation to the
        contravention; or

   (f)  a civil penalty order has been made against the director in relation
        to the contravention.

"(2) The company's liquidator may, by proceedings in a court of competent
jurisdiction, recover from the director, as a debt due to the company, an
amount equal to the amount of the loss or damage.

"(3) The creditor may, as provided in Subdivision B but not otherwise, by
proceedings in a court of competent jurisdiction, recover from the director,
as a debt due to the creditor, an amount equal to the amount of the loss or
damage.

"(4) Proceedings under this section may only be begun within 6 years after the
beginning of the winding up. Avoiding double recovery

"588N. An amount recovered in proceedings under section 588M in relation to
the incurring of a debt by a company is to be taken into account in working
out the amount (if any) recoverable in any other proceedings under that
section in relation to the incurring of the debt. Effect of sections 588J,
588K and 588M

"588P. Sections 588J, 588K and 588M:

   (a)  have effect in addition to, and not in derogation of, any rule of law
        about the duty or liability of a person because of the person's office
        or employment in relation to a company; and

   (b)  do not prevent proceedings from being instituted in respect of a
        breach of such a duty or in respect of such a liability. Certificates
        evidencing contravention

"588Q. For the purposes of this Part, a certificate that:

   (a)  purports to be signed by the Registrar or other proper officer of an
        Australian court; and

   (b)  states:

        (i)    that that court has declared that a specified person has, by
               failing to prevent a specified company from incurring a
               specified debt, contravened section 588G in relation to the
               company; or

        (ii)   that a specified person was convicted by that court for an
               offence constituted by a contravention of section 588G in
               relation to the incurring of a specified debt by a specified
               company; or

        (iii)  that a specified person charged before that court with such an
               offence was found in that court to have committed the offence
               but that the court did not proceed to convict the person of the
               offence; is, unless it is proved that the declaration,
               conviction or finding was set aside, quashed or reversed,
               conclusive evidence:

   (c)  that the declaration was made, that the person was convicted of the
        offence, or that the person was so found, as the case may be; and

   (d)  that the person committed the contravention.

"Subdivision B - Proceedings by creditor Creditor may sue for compensation
with liquidator's consent

"588R.(1) A creditor of a company that is being wound up may, with the written
consent of the company's liquidator, begin proceedings under section 588M in
relation to the incurring by the company of a debt that is owed to the
creditor.

"(2) Subsection (1) has effect despite section 588T, but subject to section
588U. Creditor may give liquidator notice of intention to sue for compensation

"588S. After the end of 6 months beginning when a company begins to be wound
up, a creditor of the company may give to the company's liquidator a written
notice:

   (a)  stating that the creditor intends to begin proceedings under section
        588M in relation to the incurring by the company of a specified debt
        that is owed to the creditor; and

   (b)  asking the liquidator to give to the creditor, within 3 months after
        receiving the notice:

        (i)    a written consent to the creditor beginning the proceedings; or

        (ii)   a written statement of the reasons why the liquidator thinks
               that proceedings under section 588M in relation to the
               incurring of that debt should not be begun. When creditor may
               sue for compensation without liquidator's consent

"588T.(1) This section applies where a notice is given under section 588S.

"(2) The creditor may begin proceedings in a court under section 588M in
relation to the incurring by the company of the debt specified in the notice
if:

   (a)  as at the end of 3 months after the liquidator receives the notice, he
        or she has not consented to the creditor beginning such proceedings;
        and

   (b)  on an application made after those 3 months, the court has given leave
        for the proceedings to begin.

"(3) If:

   (a)  during those 3 months, the liquidator gives to the creditor a written
        statement of the reasons why the liquidator thinks that such
        proceedings should not be begun; and

   (b)  the creditor applies for leave under paragraph (2)(b); then:

   (c)  the creditor must file the statement with the court when so applying;
        and

   (d)  in determining the application, the court is to have regard to the
        reasons set out in the statement. Events preventing creditor from
        suing

"588U.(1) A creditor of a company that is being wound up cannot begin
proceedings under section 588M in relation to the incurring of a debt by the
company if:

   (a)  the company's liquidator has applied under section 588FF in relation
        to the debt, or in relation to a transaction under which the debt was
        incurred; or

   (b)  the company's liquidator has begun proceedings under section 588M in
        relation to the incurring of the debt; or

   (c)  the company's liquidator has intervened in an application for a civil
        penalty order against a person in relation to a contravention of
        section 588G in relation to the incurring of the debt.

"(2) Subsection (1) has effect despite sections 588R and 588T.

"Division 5 - Liability of holding company for
insolvent trading by subsidiary When holding company liable

"588V.(1) A corporation contravenes this section if:

   (a)  the corporation is the holding company of a company at the time when
        the company incurs a debt; and

   (b)  the company is insolvent at that time, or becomes insolvent by
        incurring that debt, or by incurring at that time debts including that
        debt; and

   (c)  at that time, there are reasonable grounds for suspecting that the
        company is insolvent, or would so become insolvent, as the case may
        be; and

   (d)  one or both of the following subparagraphs applies:

        (i)    the corporation, or one or more of its directors, is or are
               aware at that time that there are such grounds for so
               suspecting;

        (ii)   having regard to the nature and extent of the corporation's
               control over the company's affairs and to any other relevant
               circumstances, it is reasonable to expect that:

   (a)  a holding company in the corporation's circumstances would be so
        aware; or

   (b)  one or more of such a holding company's directors would be so aware;
        and

   (e)  that time is at or after the commencement of this Part.

"(2) A corporation that contravenes this section is not guilty of an offence.
Recovery of compensation for loss resulting from insolvent trading

"588W.(1) Where:

   (a)  a corporation has contravened section 588V in relation to the
        incurring of a debt by a company; and

   (b)  the person to whom the debt is owed has suffered loss or damage in
        relation to the debt because of the company's insolvency; and

   (c)  the debt was wholly or partly unsecured when the loss or damage was
        suffered; and

   (d)  the company is being wound up; the company's liquidator may, by
        proceedings in a court of competent jurisdiction, recover from the
        corporation, as a debt due to the company, an amount equal to the
        amount of the loss or damage.

"(2) Proceedings under this section may only be begun within 6 years after the
beginning of the winding up. Defences

"588X.(1) This section has effect for the purposes of proceedings under
section 588W.

"(2) It is a defence if it is proved that, at the time when the debt was
incurred, the corporation, and each relevant director (if any), had reasonable
grounds to expect, and did expect, that the company was solvent at that time
and would remain solvent even if it incurred that debt and any other debts
that it incurred at that time.

"(3) Without limiting the generality of subsection (2), it is a defence if it
is proved that, at the time when the debt was incurred, the corporation, and
each relevant director (if any):

   (a)  had reasonable grounds to believe, and did believe:

        (i)    that a competent and reliable person was responsible for
               providing to the corporation adequate information about whether
               the company was solvent; and

        (ii)   that the person was fulfilling that responsibility; and

   (b)  expected, on the basis of the information provided to the corporation
        by the person, that the company was solvent at that time and would
        remain solvent even if it incurred that debt and any other debts that
        it incurred at that time.

"(4) If it is proved that, because of illness or for some other good reason, a
particular relevant director did not take part in the management of the
corporation at the time when the company incurred the debt, the fact that the
director was aware as mentioned in subparagraph 588V(1)(d)(i) is to be
disregarded.

"(5) It is a defence if it is proved that the corporation took all reasonable
steps to prevent the company from incurring the debt.

"(6) In subsections (2), (3) and (4):
'relevant director' means a director of the corporation who was aware as
mentioned in subparagraph 588V(1)(d)(i).

"Division 6 - Application of compensation under
Division 4 or 5 Application of amount paid as compensation

"588Y.(1) An amount paid to a company under section 588J, 588K, 588M or 588W
is not available to pay a secured debt of the company unless all the company's
unsecured debts have been paid in full.

"(2) Where:

   (a)  under section 588J or 588K, or in proceedings under section 588M or
        588W, a court orders a person to pay to the company compensation, or
        an amount, equal to the amount of loss or damage suffered by a person
        in relation to a debt because of the company's insolvency; and

   (b)  the court is satisfied that, at the time when the company incurred the
        debt, the person who suffered the loss or damage knew that the company
        was insolvent at that time or would become insolvent by incurring the
        debt, or by incurring at that time debts including the debt, as the
        case requires; the court may order that the compensation or amount
        paid to the company is not available to pay that debt unless all the
        company's unsecured debts (other than debts to which orders under this
        subsection relate) have been paid in full.

"(3) Subsection (2) does not apply in relation to proceedings under section
588M in relation to the incurring of a debt by a company if the proceedings
are begun by a creditor of the company (as provided for in Subdivision B of
Division 4).

"Division 7 - Person managing company while disqualified
may become liable for company's debts Court may make order imposing liability

"588Z. Where:

   (a)  a company is being wound up; and

   (b)  at or after the commencement of this Part and within 4 years before
        the relation-back day, a person contravened:

        (i)    section 229, 230, 599, 600 or 1317EF; or

        (ii)   a previous law corresponding to a section referred to in
               subparagraph (i); by managing the company (as defined by
               section 91A); the Court may, on the application of the
               company's liquidator, order that the person is personally
               liable for so much of the company's debts and liabilities as
               does not exceed an amount specified in the order.".