Question 3 (15 marks) (1000 words maximum)
Bill and Bob are the directors and shareholders of a very small company which imports soft toys from overseas for sale to various retail outlets. The company has a small warehouse where it keeps its goods, and from which all products are distributed.
The company recently entered into a contract to supply a large chain with soft toys, and they accordingly ordered large amounts of goods from overseas. The company ordered four shipments of goods from a supplier and have paid them a large deposit. However, after only one delivery to the retailing chain, a defect is discovered and the government puts a banning order on the sale of the toys, the retailer cancels all further orders.
The company now has no future revenue; there are stocks of goods which cannot be sold. The shipping company which brings the goods into Australia for Bill and Bob is now waiting for payment. There are also various bills to the tax office, employees and others who have provided services to be paid.
Bill and Bob are desperate. Advise what they need to do. Is the company insolvent, and if it is, what must Bill and Bob do?
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