All may not be lost: terminating the winding up of a company
29th June, 2012
ALL MAY NOT BE LOST:
Terminating the winding up of a company
In a previous article we discussed the consequences of a company served with a statutory demand failing to pay the demanded debt, negotiate a compromise of the debt, or file an application to set aside the demand within 21 days (a copy of our previous article is available here).
Ultimately, where a company fails to act diligently within the 21 day period, it may be presumed insolvent and wound up by the court. Obviously, this does not bode well for a company’s future. However, where a winding up order is made, all may not be lost.
ALL MAY NOT BE LOST...
Although a company might be placed into liquidation, the situation is not irretrievable. Section 482 of the Corporations Act 2001 ("Act") provides an avenue for a liquidator, shareholder or creditor of a company to apply to the Supreme Court to terminate the winding up - that is, to bring the liquidation to an end and enable the directors to start operating the company once again.
RECOVERING THE COMPANY - TERMINATION OF THE WINDING UP
At Scoglio Law we were recently successful in applying to the Supreme Court on behalf of liquidators to terminate the winding up of a company.
The background facts were:
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The company failed to comply with a statutory demand.
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This failure arguably deprived the company of the right to rely upon a defect in the statutory demand (the affidavit accompanying the statutory demand pre-dated the statutory demand by one day).
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At the original winding up hearing, the company failed to present sufficient evidence of its current financial position to convince the Supreme Court that it was solvent. The financial records produced to the court were about 1½ years old.
The Supreme Court ordered that the company be wound up, citing a lack of confidence in the company’s financial position.
However, despite the winding up order, the company was extremely solvent. It had a substantial excess of assets over liabilities and extremely healthy liquidity ratios.
OUR STRATEGY
In preparing the court application on behalf of the liquidators, we addressed the numerous criteria essential for a successful application to terminate a winding up, including:
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Obtaining current valuations of the company’s extensive property portfolio.
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Obtaining up-to-date and independently audited financial records of the company.
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Offering detailed explanations of the circumstances which led to the original winding up order.
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Liaising with, and meeting the requirements of, various creditors of the company including its major secured creditor.
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Establishing to the court’s satisfaction that the company would remain solvent after any termination order was granted.
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Convincing the court that the termination of the company’s winding up would not be contrary to ‘commercial morality’ or the ‘public interest’. In doing so, we explained how the conduct of the director prior to the winding up was competent and did not include instances of mishandling of the company such as non-payment of tax liabilities or creditors.
THE RESULT
The Supreme Court ultimately agreed to terminate the winding up of the company and placed control of the company back into the hands of the director.
While the brief period of liquidation of the company came at a cost, the consequences of not making the application would have been far worse. The liquidators would likely have had to sell the company’s properties to satisfy the debts owing to both secured and unsecured creditors in a flat market and the costs of a lengthy administration would have been extensive.
LIQUIDATORS, CREDITORS AND SHAREHOLDERS... BE AWARE!
The winding up of a company is not necessarily final. Assuming the company is truly solvent, liquidators, creditors or shareholders should act quickly if they wish to remedy the situation by applying to the Supreme Court for appropriate orders to terminate the winding up.
WHAT WE DO
At Scoglio Law we have significant experience in all aspects of insolvency law, including:
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Applying to terminate the winding up of companies in liquidation;
- Advising and acting for liquidators in matters that arise throughout the course of a winding up;
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Representing the interests of creditors;
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Advising parties on voluntary corporate administration; and
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Securities enforcement.
If you think we can help, please feel free to contact Tony Scoglio or David Tooth on (07) 3833 2100 or email tony@scogliolaw.com.au.
This article is a service to clients and associates of Scoglio Law. The contents are of a general nature and, for particular legal problems, it is always best to seek one-to-one advice.
- Terminating the winding up of a company
- Proof of solvency critical
- Enable directors to start operating the company again
- Winding up is not necessarily final