Pooling is a process where a group of two or more companies in liquidation can be determined as a pooled group by creditors or the court under certain conditions.
In this article, focus has been placed on making a pooling application to court and key requirements that must be satisfied leading up to filing such an application.
A liquidator can approach the court directly for a pooling order without first calling a creditor meeting to seek a pooling determination, in circumstances where there is a concern that any resolution of creditors may well be challenged by the director or a related entity. The court may order pooling if it is satisfied that it is just and equitable to do so, and if it would not materially disadvantage an eligible unsecured creditor of a company in the group who has not consented to the making of the pooling order.
For a group of Companies to be pooled they must satisfy the gateway requirements for pooling under the provisions of the Corporations Act 2001. In considering the application for a pooling order the Court must consider several questions such as, is there a group of two or more companies; is each company in the group being wound up; is it just and equitable that the order sought be made, does it satisfy at least one of the conditions of section 579E (1)(b) of the Act, does this section prevent the making of the pooling order.
The conditions of section 579E(1)(b) include whether each company in the group is a related body corporate of each other company in the group; whether the companies in the group are jointly liable for one or more debts or claims; whether the companies in the group jointly own or operate particular property that is or was used for use by any or all of the companies in the group in connection with a business in the group.
The court needs to be satisfied that creditors have been fully informed about the implications of the pooling arrangement and that they raise no objections. This cannot be demonstrated merely by the fact that no creditor voices an objection – a vote by the creditors must be conducted. This calls for a close consideration of the position of the creditors both with and without pooling.
The consequences of a pooling order are that each company in the group is taken to be jointly and severally liable for each debt payable by and each claim against each other company in the group, and each debt payable by a company in the group to any other company in the group is extinguished. This simply means that the intercompany loan accounts between the companies are excluded.
In one of our current projects, we are considering a pooling order for six companies that are in liquidation and the following circumstances exists which may lend support to the desirability of the group to be pooled:
There is one director’s and officer’s insurance policy that covers the entire group. This creates some difficulty as to how the respective administration might progress. The practical reality is that this may place the liquidator in a position of a conflict such that he will be faced with several separate liquidations, each of which has available in them insolvent trading claims against the director, and which may be run separately.
Commercial realities dictate that there is a real prospect of those claims may be more attractive to a litigation funder than others. But funding must be obtained for those claims to be advanced. It is possible that the liquidator would be placed in a position where he may need to advance the claims of one company and not of another and where funding is not available to all companies in the group.
The estimated outcome statement prepared for these companies indicates that in pooled scenario ordinary unsecured creditors of each company receive a higher return than they would in the absence of pooling.
We consider that creditors of each of the company in the group will be advantaged by pooling based on the estimated outcome statement and the practical realities that some companies’ claims’ may only be able to be advanced in a pooled scenario. In the absence of pooling, there is a realistic prospect that issues of conflict might arise which will ultimately be to the detriment of creditors.
Here at Cathro & Partners, our team of qualified insolvency practitioners can help provide you with friendly and expert advice regarding the issues surrounding pooling of two or more companies in liquidation. We encourage you to contact me on firstname.lastname@example.org to find out more on how we can help your business.