Written by Hakki Hassan in February, 2011

Background

On 31 December 2007 updated pooling provisions were introduced as part of a range of amendments to the Corporations Act 2001 (“the Act”).

The relevant provisions in regard to pooling are Sections 571 to 579Q of the Act.

Broadly speaking, under Section 571 of the Act, the Liquidator of one or more companies, may make a “pooling determination” if:

1. there is a group of two or more companies

1. each of the companies are being wound up

1. each company is a related body corporate of the other

1. one or more companies own property that was used by any of the companies in connection with a business carried on jointly by companies in the group

Application of Pooling

The pooling of assets and liabilities is designed to overcome the situation in a group scenario where all the assets are held in the name of one company, but the administrative activities, including the incurring of liabilities, are conducted in another company within the group. A good example of “group activities” is the construction industry where construction staff and administrative staff are usually employed by different companies within the group to avoid complete shutdown of business because of a union dispute, and the trading/operating assets of the group held in the name of another company.

In the above construction industry case, in the event of a winding up of two or more companies in the group, the funds realised from the sale of assets in the “asset rich” company would not usually be available for distribution amongst all the creditors of the group unless all inter-company transactions (including loans) were properly recorded in the books of account and records of each company within the group.

The wording of the determination is quite simply words to the effect that “In accordance with Section 571 of the Corporations Act 2001, I (or, we, if joint appointees) am satisfied that each of the companies in the Group is being wound up and that one or more companies in the Group own particular property that is or was used by any or all of the companies in the Group in connection with a business, or an undertaking, carried on jointly by the companies in the Group.”

To give effect to a pooling determination, the Liquidator must lodge a copy of the pooling determination with the Australian Securities and Investments Commission within 7 days of it being made (Section 573 (1) of the Act and, within 5 business of the determination, convene separate meetings of the eligible unsecured creditors of each company in the Group. However, the Act allows consolidated meetings to be held of the companies within the Group.

At these separate meetings, the eligible unsecured creditors may resolve to approve (or vary) the Liquidator’s determination. The resolution must be agreed by a majority in the number and 75% in value of eligible unsecured creditors entitled to vote and who are present in person or by proxy.

If the resolution is not passed at the separate meeting of the creditors of any member of the Group, the determination is cancelled.

The determination comes into force immediately after the passing of the resolution of the last meeting of creditors of the companies in the Group.

Consequences of a Pooling Determination

If a pooling determination comes into effect, each company in the Group is taken to be jointly and severally liable for each debt payable by and claim against each other company in the Group irrespective of whether the claim is present, future, certain, contingent, ascertained or sounding in damages only;

Each claim that a company in the Group has against any other company in the Group is extinguished (includes present, future, certain, contingent, ascertained or sounding in damages only);

The priorities afforded by Sections 556, 560 and 561 of the Act are not altered.

PLEASE NOTE: All information contained in the articles below was correct at time of publishing.