View/Open - Research Commons - The University of Waikato

In Australia, the statutory provisions state that one of the grounds for the court to
order compensation is that it has to be satisfied that the debt is wholly and partly
unsecured. It seems that the sums paid by directors should be for the benefit of the
unsecured creditors. This has further been evidenced in section 588Y which clearly
states that the fruits of compensation as a result of insolvent trading are to be
distributed to unsecured creditors. Secured creditors will be able to benefit from the
order only after all unsecured creditors have been paid off by the liquidator.
Nevertheless, any creditor who was aware that the company was insolvent or would
become so as a result of incurring debt, gets less priority than all the other unsecured
creditors. 236
In Quick v Stoland Pty Ltd, 237 the court explained the destination of the proceeds of
the proceedings depends on the person who made the claim. The sums will form part
of the company‘s estate and be available for distribution according to the law of
distribution in insolvency if it is the liquidator who recovers, but if it is the creditor
who claims, then he or she will retain the benefits of the action. 238
11.3.8.1 Access to the Remedy
The right to have access to legal redress is one of the important elements to ensure an
effective law. Before the court can grant a remedy provided under the law, the
person whose right has been affected must first bring the claim. It is not sufficient to
have provisions which impose a duty on directors or any other person if they can not
be brought before the court. There are many factors that must be taken into
consideration by the person who has been given a right under the law to bring the
action. Generally, a liquidator has the right to bring an action under the Act on behalf
of all unsecured creditors, although in some statutes, creditors and contributories are
given the same right.
236 Section 588Y of the Australian Corporations Act 2001.
237 (1998) 29 ACSR 130 at 146.
238 See also Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699.
364