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Wind Back the Clock: Terminating a Winding Up – Part 1

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Wind Back the Clock: Terminating a Winding Up – Part 1

MMRB recently acted for a successful applicant of an order under s. 482 of the Corporations Act 2001 (Cth) to terminate the winding up of a company.  These applications are difficult, must be brought promptly and require a substantial amount of evidence to satisfy the Court that the orders should be made.

This two part series will consider two recent cases involving applications to set aside a winding up order – and how much information a Court requires to get an application across the line.

In 2019, MMRB acted for the director and shareholder of a company wound up by the SRO in the Supreme Court of Victoria on 18 December 2018.

You may be aware that a creditor can issue a Creditor’s Statutory Demand for Payment of Debt to a company where a debt is due and payable. This demand is addressed to the registered office of the company as disclosed in ASIC’s records. Companies served with a statutory demand have 21 days to apply to the Court to have it set aside, failing which the creditor may apply to the Court to have the company wound up in insolvency.

It is very common for companies to have their registered office at the office of their accountant or other advisor.

In this matter, the statutory demand and winding up application were issued to the registered office, which was the director’s mother’s address. These were not received by the director and he was not aware of the winding up application until he was telephoned by the liquidator on the day of the liquidator’s appointment.

This obviously came as a huge shock to the director, who operated the company as a vehicle through which he conducted residential property investment and development.

The company operated (and owned assets) both in its own right and as trustee of a trust.

Additionally:

  1. The company (in its own right and as trustee of the trust) was involved in two undocumented joint ventures entered into for the purpose of completing various building and construction jobs;
  2. The company owned a number of real properties. The majority of the real properties owned by the company were secured;
  3. There were a number of related party loans owed by the company (in its own right and as trustee of the trust) to the director, and related entities;
  4. There were other unsecured creditors (including the SRO’s debt and costs of the winding up application).

The director instructed us to apply to the Supreme Court on the basis that the company was solvent as at the date of the winding up, remained solvent and was able to pay all creditors in full.

Orders made – Winding up order terminated

The application was successful on the first return date. The winding up order was terminated pursuant to s. 482(1) upon the giving of certain undertakings by the director, including to lodge the Company’s tax returns for the last three financial years and to cause the Company to execute the proposed deeds of forbearance put before the Court (more on this below).

The following factors were relevant to the application and substantiated by affidavit material filed with the Court:

  1. The company and trust both had a substantial positive net asset position as at the date of winding up;
  2. All unsecured creditors were paid as at the date of the hearing and did not oppose the application;
  3. The secured loans were not in default prior to the winding up order and continued to be serviced after the winding up order was made. The mortgagee did not oppose the application and expressly agreed to continue to support the company in the event the winding up was terminated;
  4. The company agreed to enter into debt subordination agreements in respect of related entities, providing comfort that the interests of creditors were not disadvantaged as against the interests of related parties. Draft agreements were prepared and exhibited to affidavit material filed with the Court;
  5. The company engaged its accountant to prepare all outstanding tax returns and BAS returns and these were exhibited to affidavit material filed with the Court;
  6. The liquidator was satisfied that the company was solvent and did not oppose the application;
  7. The Court also had the benefit of the opinion of the liquidator that the Company had a surplus of assets and a capacity to borrow, and therefore was able to meet its debts as and when they fell due;
  8. The director agreed to pay the costs of the liquidation pending agreement.

Key take away points

  1. The message for all companies is to ensure that the company details on ASIC’s register are accurate and that your registered office has a reliable and timely internal system for collecting mail.
  2. Courts require a great deal of information to be satisfied that the company is solvent and that the orders should otherwise be made.
  3. Some relevant factors which will be considered in an application to terminate a winding up order include, showing that the company’s debts have been discharged, including the costs of the liquidation, the attitude of creditors, contributories and the liquidator, the general background and circumstances leading to the winding up and a full explanation of any non-compliance by the directors with any statutory duties.

Our next article will consider a recent case brought by a company in the Supreme Court of New South Wales – with not as favourable an outcome.

If you would like more information, please don’t hesitate to contact Paul Marsh or Annabel Clarke on (03) 9604 9400.

Disclaimer: This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

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