Golf Pty Limited (“Golf”) owns premises at Coogee from which it runs a cafe called Cafe LCQ. The premises are worth $1.2 million but are subject to a mortgage to Manila Bank of $1.18 million. Golf has 7 main trade creditors each owed $40,000. The company has assets including fittings and stock in trade worth $10,000 however very little else. As well as its mortgage Manila Bank has a security interest over the cafe’s equipment. In December 2016 Randwick City Council begins construction of a children’s playground at the south end of the beach near to Cafe LCQ. The noise of the construction can be heard very loudly in the cafe and has a negative effect on business. Just before this, Sydney Fine Food Magazine reviewed Cafe LCQ in its November 2016 edition and noted that “the fish and chips were the best in town”. In fact Cafe LCQ was named in the magazine as one of the top 3 beach cafes for 2016. Golf has 3 directors: Paulo Palermo who manages the cafe; his sister Jenny, who cooks; and his wife Laura who has been very involved with the marketing of Cafe LCQ, however she has 4 been travelling in South America and has been unable to assist in relation to the business during the second half of 2016. Golf had planned to renovate Cafe LCQ since early 2011. One of Golf’s customers, Lola Letish a television news reader, has been telling Paulo that with newly renovated premises, and the exciting atmosphere at Coogee, the cafe would certainly become a preferred destination for celebrities. After reading an article in a Sydney newspaper on 11th December 2016 about how the eastern suburbs beaches from Bondi to Coogee were likely to have an increase in tourists in the first 3 months of 2017, Paulo decides that Golf should go ahead with the renovation and on 19th December 2016 enters a contract with Ashton Building Pty Ltd and the work begins. The renovations cost $300,000 and will give the cafe even better views of the beach. The renovations were originally the idea of Paulo’s brother, Chas, of Chas and Davidson, commercial architects. In September 2016 Paulo had instructed a firm of accountants, Face and Lock, to assess the company’s cash flow. Although the accounting firm prepared the report together with a letter of advice for Paulo, a fire at their premises destroyed all of their documents as well as their computers. By the end of February 2017 the children’s playground is completed. The renovations are also completed to the cafe and payment due. Paulo is not happy with the quality of the renovations and believes that the poor work will be noticed by customers. He is considering suing the architects. Unfortunately Cafe LCQ’s business does not recover even though the children’s playground is now complete. It seems that the noise of the children playing is as loud as the noise from the construction. Without the expected level of trade Golf has few funds and does not pay the builders who carried out the renovations. In July 2017 Ashton Building Pty Ltd serve Golf with a Statutory Demand under s.459E of the Corporations Act and 4 months later the company is placed into liquidation. ASIC has now brought proceedings against the directors of Golf under the insolvent trading provisions of the Corporations Act. Analyse the defences that are available to them and advise of the consequences if the proceedings are successful.
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