Question 1: (10 Marks)
Peter runs a soil testing business. He decides to form a company to take over the business. He is the sole shareholder and sole director. Peter sells his business to the company at an inflated price and lends the company $100,000 to help meet the cost of purchase. As security for the loan, Peter arranges a mortgage over a vacant block of land, which he transferred to the company as part of the business sale. In the first year of operation, the business makes a small profit (after paying both Peter and his daughter’s wages), but by the end of 2004 it is clear that the building industry is going through a major slump. Peter becomes desperate and works even harder. While working late into the night, Peter badly lacerates his hand and needs micro-surgery. His efforts to keep the business afloat are in vain and the company is forced into liquidation. On realization of the assets, it is found that the company has approximately $120,000 to go towards meeting creditors’ claims of $210,000: (i) If Peter is the only secured creditor, will he get his $100,000 back? (ii) Can Peter claim workers’ compensation, assuming that he is otherwise entitled to it?
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