Question

Read the case excerpt. Identify the issues and discuss the relevant statutory and common law positions. A model answer is provided for your guidance below and is to be used for all similar assignments.

The directors of collapsed airline company, Miranda Inc, are under investigation after the company's administrators found the group could have been insolvent for almost six months before its collapse. A creditors’ report conducted by administrators into the activities of the company recommended an investigation into whether the company was trading while insolvent. The administrators have also flagged an investigation into the decisions of Miranda's directors in the lead-up to its collapse, including the payment of director bonuses and other hefty entitlements. Miranda went into administration and receivership last month amid estimated debts of $500 million. The Netherlands-based group had a market capitalisation of almost $600m a year ago and posted a healthy profit in the 2015 financial year, but fell apart swiftly after experiencing major difficulties with its airlines. "Based on our preliminary investigations to date, we are of the opinion that the group may have been insolvent as early as November 2016," the report said. The report further revealed that Miranda had racked up an unaudited loss in the seven months to January 31 (2016) of $326.5m, compared with the management's budget of a $52.4m profit for the half-year and the $62.9m profit recorded in 2015. Preliminary investigations had identified several reasons for Miranda's collapse, ranging from a general downturn in the resources sector to cost escalations from inferior engineering work and "insufficient process and risk control measures". The report said Miranda moved into "crisis mode" in its cash management from November 2016 while trying to carry out a series of restructuring efforts. Among them, the report said, was a takeover proposal from an unnamed party in early December, offering a 20 per cent premium to Miranda's share price at the time. Such a takeover would have re-energised the company’s finances and made the company solvent. The report also shed light on the decision in Miranda's final few months in early 2016 to move its executive team and head office from the Netherlands to Sydney. The plan had involved the Miranda board approving a $750,000 budget to move managing director David Simomwell and other executives to Sydney and open an office. Included in the budget was a $550,000 payment to Mr. Simonwell, which was later reduced to $500,000, as well as a $100,000 payment to each member of the executive team as a “relocation fee”.

The creditors, who have not received payment in over six months, are very concerned by the turn of events and come to you for advice as to whether Miranda Inc. was trading while insolvent and what action they can take. Please advise in accordance with the laws of Trinidad and Tobago.

Answer 1

Yes, from the above excerpt about the airlines company it very clear and evident that Miranda Inc. had become insolvent and it was trading while it was being insolvent. The below points support this conclusion:

1) It had reported unaudited loss of seven months till Jan 31, 2016.

2) Reports indicate cost escalations from inferior engineering work and there was poor risk and process control measures.

3) It was trying some capital restructuring measures from an unnamed party to save the company from insolvency

4) Moreover it was also planning to move important people from the management to sydney by paying hefty fees to improve its administration.

The above actions clearly indicate company was facing financial troubles and mostly probably was insolvent.

In my view the creditors of the company should file a suit against the company because according to law the creditors always have a priority over the assets of the company incase a company faces bankruptcy and becomes insolvent. The assets of the company might be auctioned as well to recover the money for the creditors.