From time to time, Court-appointed liquidators field enquiries from directors or shareholders concerning the termination of a winding up.
The factors that are relevant to such an application (which is formally made under section 482 of the Corporations Act) will depend upon the basis on which the Company was wound up. The key considerations in an application to terminate a winding up on just and equitable grounds will vary slightly from those relevant to terminating a winding up in insolvency.
The basic principles below were summarised in Re Warbler Pty Ltd (1982) 6 ACLR 526 (and developed in subsequent cases stemming from that decision):
- The granting of a termination order is discretionary with the applicant bearing the onus of proof;
- The application must be served on all creditors and contributories;
- The Court will want to know and consider:
- The attitude and interests of creditors;
- the attitude and interests of the liquidator, including whether the liquidator’s remuneration and outlays are covered;
- the interests of shareholders;
- the public interest, including in particular whether there was any untoward, illegal or commercially immoral conduct by the company or its directors;
- the trading position of the company at the date of liquidation, in particular its solvency position;
- a frank and thorough explanation of the circumstances leading to the winding up and any non-compliance with statutory duties;
- details of the company’s creditors and, in particular, whether it is intended all or only some of the debts of the company will be discharged;
- information as to the nature of the business carried on by the company, including future commercial prospects;
- whether there has been co-operation by the directors in the winding up.
These considerations are not exhaustive.
Ultimately, the key question for the Court is whether the circumstances which led to the winding up no longer exist. In relation to a winding up on just and equitable grounds, it requires the applicant to demonstrate that the circumstances which led to the Court order have ceased, for example a management impasse has been resolved. This may include the appointment of new directors, changes in shareholding arrangements, etc.
In the context of a winding up in insolvency, this essentially requires the applicant to establish that the company is no longer insolvent.
The position of the liquidator is of critical importance to the Court when considering an application to terminate a winding up. This reflects the liquidator’s status as an officer of the Court.
Accordingly, the liquidator will need to decide whether to support or oppose the application, or adopt a neutral position ensuring, however, that they properly discharge their duty to the Court. Liquidators need to carefully consider the evidence in the context of the abovementioned factors, and ensure that such evidence paints a complete (and truthful) picture to the Court.
In the event that solvency is clearly in issue, the Court will look to the liquidator to provide a considered opinion. While the extent of evidence will vary, having regard to the size of the company, the nature and complexity of its business undertakings, etc., the Courts have been critical of liquidators who fail to provide a properly considered analysis of the issue. For example, an unsupported statement or assertion by a liquidator that the company is solvent is not likely to be satisfactory to the Court.
Practically speaking, the key determining factor for the Court is almost always whether the debts of all creditors will be paid out prior to a termination order taking effect. From the Court’s perspective, this goes a long way to establishing that the circumstances giving rise to the winding up in insolvency no longer exist. The Court will likely also want some comfort that the company will not simply slide back into insolvency in the foreseeable future. As such, liquidators should consider this when determining their position in relation to a termination application.
