We​​provide​​independent​​insolvency​​advice​​to​​business​​owners​​who​​are​​unsure​of their business​​future.​​We​​have​​a​​deep​
understanding of the ​​pressures​​faced​​by​​individuals​​and directors​​when​​confronting​​financial​​challenges.​​It​​can​​be​
​overwhelming.
New South Wales Supreme Court “reverses” a liquidation
In CNL Transport Pty Ltd (in liq) [2017] NSWSC 291, the New South Wales Supreme Court terminated a
liquidation where the company was solvent and its debts had been paid.
Background
A company was wound up by the Court on 27 February 2017 following its failure to comply with a creditor's
statutory demand. The statutory demand had been issued by an insurer in respect of unpaid workers'
compensation insurance premiums.
The sole director and shareholder applied to have the liquidation terminated under s 482 of the Corporations
Act, pursuant to which the Court has a discretion to stay or terminate a winding up. Neither the liquidator nor the
insurer opposed the application. There was no suggestion the winding up order had been wrongly made.
The director gave evidence that:
●
●
He was aware there was an outstanding debt to the insurer;
●
He was not aware of the statutory demand, which was properly served by post on the registered office
of the company;
●
He did not open an email attachment from the insurer's solicitors informing him of the winding up
proceedings; and
●
He only became aware of the winding up proceedings the day after the liquidator was appointed.
He had paid around $8,000 to reduce the debt and believed the insurer therefore knew the company
could and would pay;
Result
The Court allowed the application and terminated the liquidation. Crucial to the Court's exercise of discretion
were:
●
A credible explanation of why the winding up order was made, in that the director had separated from
his partner and neglected paperwork during the important period;
●
●
Strong evidence of the company's solvency and previous profitable trading; and
The director contributed more than $200,000 of his personal funds to cover the company's outstanding
debts.
The director's contribution
The Court was concerned that the director's contributions would create a further debt of the company in favour
of the director, which would effectively dilute other creditors' rights.
To address this, the Court ordered that the director capitalize his contribution by subscribing for capital in the
company equivalent to the amount of his contribution. To ensure this occurred, the Court only made the order
terminating the liquidation once the director provided evidence this had been done.
We​​provide​​independent​​insolvency​​advice​​to​​business​​owners​​who​​are​​unsure​of their business​​future.​​We​​have​​a​​deep​
understanding of the ​​pressures​​faced​​by​​individuals​​and directors​​when​​confronting​​financial​​challenges.​​It​​can​​be​
​overwhelming.
Takeaway
Don’t despair, the Court may terminate a liquidation where it becomes apparent it is not appropriate. Liquidators
who participate in such applications should ensure that there is strong evidence the company is solvent and that
a “reversal” will not be detrimental to creditors.
Article by Greg MacDonald
Partner, PBB Advisory
D: 02 8188 2076
greg@pbbadvisory.com.au
Last updated: 19 March 2020
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sheet is written in general terms and you are strongly recommended to seek specific professional advice before taking any action based on the
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