Spanish Fine Foods Pty Limited (“Spanish Fine Foods”) owns and runs a restaurant “Spain” situated at Milsons Point just beside Sydney Harbour. The company owns the building in which the business is conducted which includes the restaurant on the ground floor, and storerooms on the second floor. The premises are worth $4 million but are subject to a mortgage of $3.9 million in favour of the Bank of Tokyo. 4 Spanish Fine Foods has various assets including fittings and stock in trade worth $20,000 however very little else. The restaurant is popular with tourists, especially for lunch, however in February and March 2016 construction of a childrens playground (including a large merrygo-round) in a park immediately in front of the building has affected restaurant business. Customers have complained that the noise of construction is disturbing. The suppliers of food and beverages notice the construction work and are worried, however they continue to allow credit. Spanish Fine Foods has 7 main trade creditors each owed $30,000 as well as smaller miscellaneous creditors owed approximately $25,000. On 10 March 2016 one of its major creditors, Rocastle Pty Ltd. threatens to stop supply of its catering products unless paid the $30,000 it is owed. To avoid the possibility of litigation Spanish Fine Foods accordingly pays. Spanish Fine Foods is a small proprietary company run by four brothers who are its only shareholders and its directors. Two of the brothers, Lorenzo and Fernando, manage the restaurant and its finances. Another of the brothers, Ashton, is the head chef. The last of the brothers, Clint, originally helped fund the setting up of the business but injured his leg in a triathlon (a sporting activity) in January 2016 and has been in Melbourne recovering since that time. During the period of construction of the playground the company begins extensive renovations to the second floor of its premises that will cost $200,000. By moving the restaurant upstairs it will have views of the harbour for the first time. The renovations were originally suggested by the company’s interior designer Laura, who is a partner in a leading interior design firm. Unfortunately, although the restaurant now gives a view of the harbour it is also very close to, and gives a clear view of, the playground and merry-go-round. The renovations take one month to complete but business continues to suffer even though the restaurant is now on the second floor. It seems the sound of the children playing is as noisy as the original construction work. The company does not have the funds to pay the builders who carried out the renovations and in July 2016 is served with a Statutory Demand under s.459E of the Corporations Act. Has Spanish Fine Foods traded while insolvent? – are the directors liable? Who can bring proceedings against the directors and what are the possible outcomes if insolvent trading is found?
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