The Mining Industry & Insolvency

The Mining Industry & Insolvency

On July 24, 2015, Posted by , In Bankruptcy,Insolvency,Liquidation, By ,,,, , With Comments Off on The Mining Industry & Insolvency

Some very prominent and well recognised mining industry and insolvency professionals have stated, “2015 is set to be a tough year for the mines and related industries. The creation of the Mackay Port cargo facility will see the region heavily involved with the industry as it becomes the first point of contact for machinery and equipment. With these changes ahead mining companies need to be wary of insolvent practices and proceedings“.

Where a company is insolvent, that is unable to pay its debts as and when they fall due, and continues to transact, the company may have committed an offence. The offences are pursued under the Corporations Act 2001 and include insolvent trading and entering uncommercial transactions.

Uncommercial Mining Transactions

Where a company enters a transaction while insolvent that has no financial benefit, or was damaging, the transaction may be receded. This will mean that the asset, or its value, will be returned to the liquidator. Where this occurs the party that the company transacted with may be liable for the loss unless they can establish one of the defences available in the legislation.

Take for example an insolvent mining company who transacts with a supplier of mining machinery. The supplier receives money for supplying the machinery and it can be assumed that the insolvent mining company is not benefited financially from the transaction. The supplier will bear the loss where the liquidator recovers the money unless they can show that valuable consideration was provided, they acted in good faith and they had no reason to suspect that the mining company was insolvent.

Mining Industry Insolvent Trading

Where a director allows their company to incur debts while insolvent, and they remain unpaid upon the commencement of liquidation, the director may be held personally liable to repay the funds. There are defences available to a director in these circumstances such as where;

  1. They could reasonably expect or believe that the company was solvent
  2. The director had a good reason to not take part in the management of the company at the time
  3. The director took all reasonable steps to stop the company incurring debt, including attempting to appoint a voluntary administrator.

Take for example the recent investigation into insolvent trading with the Forge Group. The company responded by claiming that their financial institution had advised that they would continue to deliver financial support which provided the director with a reasonable expectation of solvency.

Insolvency proceedings

Companies in the mining industry, from earthmoving companies to mines themselves, are subject to insolvency proceedings. This most commonly occurs through liquidation.

Mining Industry and Liquidation

Liquidation occurs where a company is insolvent or where its members want to terminate the company. The liquidation process involves winding up any financial affairs of the company so as to make the termination process as simple as possible. It involves dismantling the company’s structure in an orderly fashion and distributing assets to creditors in accordance with the prescribed priority.

Due to the offences discussed above there is an obligation to place your company into administration if it is insolvent. Apart from avoiding the penalties associated with the offences, entering into voluntary administration also avoids the court ordering that you do so. This allows you to appoint a liquidator of your choosing which in turn alleviates the stress associated with the winding up of company affairs.

Mackay Rockhampton Northern Queensland

If you work in or around the mining industry and want to know more about mining company liquidations and mining industry insolvency then contact us today

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