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Week 12 tutorial Answer.docx - 12. Week beginning 17 May –...

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12.Week beginning 17 May – Insolvency –Assessable Tute - Assessment Task One andThreeBlack Cockatoo Airways Ltd (“Black Cockatoo”) was an Australian domestic carrier whichhad started business with much fanfare in January 2007. By January 2008, it was feeling thefinancial strain of rising jet fuel prices and the fact that rising local interest rates and stockmarket uncertainties were quelling consumer sentiment and demand. Black Cockatoo was amajority owned member of a group of companies, Parrot Enterprises. The pressures facingBlack Cockatoo were facing all major players in the airline industry throughout the world.In March 2008, Black Cockatoo appointed a voluntary administrator, Gordon, to assess itsposition. Obviously, Gordon turns his mind to the mandatory procedural steps, such asconvening of the creditors meeting. In sifting through the books of the airline, Gordon findsthe following evidence:the directors of Black Cockatoo had sold one of Black Cockatoo’s planes to anothercompany in the Parrot Enterprises group in what appeared to be a fire-sale that sawthe aircraft sold for three quarters of its original value. The notes that the BlackCockatoo directors had made about that transaction simply stated: “Must sell,liquidity crisis – aircraft surplus to requirements, in any event.”after entering into the above sale contract, the directors of Black Cockatoo enteredinto a contract with the catering company, “Better than Birdseed Ltd” for a substantialsum. That contract was for the supply of catering to Black Cockatoo for the next fiveyears. Better than Birdseed Ltd’s directors agreed to enter the contract with BlackCockatoo because of the assurances from the directors of Black Cockatoo (alsopublished in the financial press) that “the airline was interested in a long termbusiness relationship for the two growing, bright and prosperous, promisingbusinesses.” Better than Birdseed Ltd passed up a potential contract with a differentairline by entering the contact with Black Cockatoo.(a)Advise Gordon on all the legal issues raised above, paying particular attention to the typeof evidence Gordon would consider and the sorts of applications/provisions he would have tomake. Note that at the creditors meeting, it is agreed that Black Cockatoo should be woundup and Gordon become the liquidator.In advising Gordon issue arising relation to both transactions.For the first transaction some of the issues involve un s 588 if a company is approachinginsolvency and starts to engage in certain types of transaction such as uncommercial that maybe regarded as a voidable transaction and will be struct down and any money raised will go tothe general pool of creditors. On the evidence even though they did it in a fire sale and sold itfor ¾ of it value after a year it was purchased but the notes of the directors states that it mustsell hence, such statement may justify the sale.

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Term
One
Professor
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Tags
Bankruptcy, Debt, United Kingdom company law, Black Cockatoo

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