WINDING UP
Winding up (also called ‘liquidation’) is a form of external administration under which a
liquidator assumes control of a company’s affairs to discharge its liabilities in preparation
for its dissolution. The process of winding up usually occupies several months and, in
some cases, years. When a company is dissolved, the ASIC strikes its name off the
register. In some circumstances a dissolved company can be restored to the register.
Bodies wound up under Corporations Law
The Corporations Law Ch 5 governs the winding up of companies incorporated under Pt
2.2 Div 1 and bodies corporate registered under Pt 2.2 Div 2, 3 or 4 and certain other
bodies referred to in Pt 5.7.
The bodies referred to in Pt 5.7 are, in general:
 a registrable Australian body, defined in s 9 to cover:
 certain bodies corporate; and
 certain quasi-corporations,
formed in Australia but outside the jurisdiction which in either case are
registered under Pt 5B.2 or carrying on business in the jurisdiction;
 a foreign company which is registered under Pt 5B.2 or carrying on business in
the jurisdiction;
 a partnership, association or other body (whether a body corporate or not) that
consists of more than five members.
[24.69][24.70]
Types of winding up
Windings up are classified according to the way in which the winding up is commenced:
 winding up by the court, namely:
 the Federal Court of Australia;
 a Supreme Court of a state or territory;
 the Family Court of Australia and the Family Court of a state where
relief under the Family Law Act 1975 (Cth) is involved;
 voluntary winding up which may be:
 a members’ voluntary winding up; or
 a creditors’ voluntary winding up.
A winding up by the court (called ‘compulsory winding up’) can be:
 a winding up in insolvency under Pt 5.4; or
 another compulsory winding up under Pt 5.4A.]
Compulsory windings up
These result from an order of the court on grounds in the Corporations Law. The most
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common ground is insolvency. The court’s order does not itself wind up the company. It
directs that the process of liquidating the company’s assets and winding up its affairs
should begin: Re Crust ‘n’ Crumbs Bakers (Wholesale) Pty Ltd [1992] 2 Qd R 76 at 78;
(1991) 5 ACSR 70; 9 ACLC 912.
Voluntary windings up
Voluntary windings up differ from compulsory ones in being initiated by the members
rather than the court. A members’ voluntary winding up is possible only for solvent
companies, and the winding up by the liquidator is subject to the control of the members.
If the company is insolvent, a voluntary winding up must be a creditors’ voluntary
winding up. Although it is voluntary in the sense that the members initiate it, the
liquidator is subject to control by the creditors. .73]
24.74]
Winding up in insolvency by the court
Winding up in insolvency
The most common windings up by the court are those made on the insolvency ground.
The Corporations Law s 95A declares that a person is solvent if, and only if, the person is
able to pay all the person’s debts, as and when they become due and payable. The test in s
95A is the so-called ‘commercial’ test of solvency as distinct from ‘balance sheet’
solvency constituted by an excess of assets over external liabilities.
Applicants for a winding-up order on the ground of insolvency can prove insolvency by
any admissible evidence but they may be helped by the following statutory presumptions
contained in s 459C(2). This section provides for a rebuttable presumption of insolvency:
 where the company fails to comply with a statutory demand; or
 where execution is returned unsatisfied; or
 where action is taken to enforce a floating charge by appointment of a receiver
(by either the chargee or a court) or by the chargee going into possession,
personally or by agent.
The presumption is available in an application for a winding-up order under ss 246AA,
459P, 462 or 464 or an application for leave to make an application under s 459P. Under
s 459C(2) the event relied on for presuming insolvency goes stale if it does not occur
‘during or after the three months ending on the day the application’ for winding up is
made. As to the effect of the words ‘or after’, see Pinn v Barroleg Pty Ltd (1997) 23
ACSR 541.
The presumptions in s 459C differ from other presumptions of insolvency created by s
588E for the purpose of recovery proceedings.
Another ground related to insolvency is provided by s 461(1)(h). If ASIC states in a
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report that in its opinion the company cannot pay its debts and should be wound up, that
statement is a ground for a compulsory winding up.
[24.74][24[24.75]
Standing to apply for winding up in insolvency
The following persons may apply (in addition to receivers):
 the company;
 a creditor, including one who is secured or is only a contingent or prospective
creditor;
 trustee-creditor;
 debenture stockholders;
 a contributory — this includes the holder of fully-paid shares;
 a director;
 a liquidator or provisional liquidator of the company;
 ASIC;
 certain prescribed agencies (the Insurance and Superannuation Commissioner
has been prescribed: s 459P).
Some persons with standing can apply only with the court’s leave: they are creditors for a
contingent or prospective liability, contributories, directors and ASIC: s 459P(2). The
court is to give leave only if satisfied that there is a prima facie case that the company is
insolvent: s 459P(3).
[24.82][24.83]
Winding up by the court on grounds other than insolvency
The court may order a company to be wound up in the following categories of
circumstances:
 If the company by special resolution resolves that it be wound up by the court:
s 461(1)(a).
 If the company does not commence business within a year from its
incorporation: s 461(1)(c).
 A company can be wound up if it has no members: s 461(1)(d). ASIC can apply
for a winding-up order after giving the company one month’s notice: s 462(2A).
 Where the company’s affairs are being conducted in a manner unfair to some of
the members, or where the directors have acted in the affairs of the company in
their own interests rather than in the interests of the members as a whole, or in
any other manner whatsoever that appears to be unfair or unjust to other
members: s 461(1)(e).
 Where the affairs of the company are being conducted oppressively, unfairly or
in an unfairly discriminatory manner: s 461(1)(f), (g).
 Where a company has been the subject of investigation and ASIC has reported
that it is of the opinion that it is in the interests of the shareholders that it should
be wound up: s 461(1)(h).
 The court may order a winding up if it is of the opinion that it is just and
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equitable that the company be wound up: s 461(1)(k). This will apply where:
 the company’s substratum or basis has disappeared;
 there is a complete deadlock in management;
 in a commercial company there is no reasonable hope of ultimate profit;
 the company cannot be carried on consistently with candid and
straightforward dealings with the public: Re Producers Real Estate and
Finance Co Ltd [1936] VLR 235;
 there is a lack of propriety and competence in the management and
conduct of the company’s affairs and there are public interest
considerations (such as protection of investors in superannuation)
which make it desirable that the company, however solvent, should be
wound up: ASC v AS Nominees Ltd (1995) 133 ALR 1.
 a company’s substratum disappears when the main object for which it
was formed disappears or becomes impossible to achieve, as where a
manufacturing company is formed only to acquire a particular proposed
patent and the patent is never granted: Re German Date Coffee Co
(1882) 20 Ch D 169.
 the company acts in a manner which is entirely outside the general
intention and common understanding of the members when they
became members: Re Tivoli Freeholds Ltd [1972] VR 445.
[24.84]
Standing for grounds other than insolvency
The company may apply if the members pass a special resolution — that is a ground in
itself under s 461. A creditor has standing to apply. However, an application by a
contingent or prospective creditor for an order on a ground other than insolvency is not to
be heard unless and until:
 such security for costs has been given as the court thinks reasonable; and
 a prima facie case for winding up has been established to the court’s
satisfaction: s 462(4).
While s 459P(1), listing those with standing to apply for a winding up in insolvency,
expressly refers to secured creditors, s 462(2), dealing with standing to apply on other
grounds, does not. Section 462(5) provides that, except as permitted by s 462, a person is
not entitled to apply for an order to wind up a company. Normally, a secured creditor
would have no interest in having a solvent company wound up.
Contributories, and liquidators appointed in a voluntary winding up have standing to
apply for a compulsory winding up.
ASIC can apply where there is an investigation under Pt 3 Div 1 of the ASC Law. It can
also apply under the just and equitable ground in s 461(1)(k) when considerations of
public interest require that a delinquent company be wound up. The Insurance and
Superannuation Commissioner can apply if an inspector has been appointed to investigate
under the Insurance Act 1973 s 52 and the company’s liabilities within Pt III of that Act
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exceed its assets within Pt III.
With respect to receivers, s 420, empowers a receiver to apply for a winding up.
Receivers are not listed in s 462 as persons having independent standing, so presumably
they could only apply in the name of the company. Normally, a court would be unlikely
to order that a solvent company be wound up on the application of a receiver.
Procedure to obtain a winding-up order
An application for an order for winding up in insolvency is made by filing the necessary
papers in the court.
The procedural steps of filing the application together with verifying affidavit in the
appropriate office of the court, serving them on the company and other necessary
persons, advertising and gazetting the application, nominating an official liquidator,
obtaining that liquidator’s consent to act and preparing for the hearing are regulated by
the Rules of the Court (Federal Court or Supreme Court of a state or territory) governing
procedure in cases under the Corporations Law.
Notice of the making of the application must be lodged with ASIC: s 470. Written notice
of the application should be sent to judgment creditors. Under s 569(3) a creditor who
receives such a notice is prohibited from taking action to attach a debt owing to the
company or to enforce a charge created by law on registration of a judgment or a
charging order against the company.
Under Pt 5.7B certain voidable transactions of the company can be set aside or otherwise
affected if they occurred within a certain period before what is called the ‘relation-back
day’. Under s 9 the relation-back day, where the winding up began on the making of the
order (the usual case), is the day of filing the application.
In the usual case of compulsory winding up where an application for an order is filed, the
date of beginning of winding up is the day when the order is made: s 513A. However,
where the company was under administration or had executed a deed of company
arrangement before the order was made, the winding up generally begins on the day the
administrator was appointed: see s 513A referring to s 513C. If the order was made in
respect of a company already under a voluntary winding up, in most cases the winding up
begins on the day of passing the resolution for winding up. But if the company was then
under administration or had executed a deed of company arrangement the winding up is
taken to have begun, in general, when the administrator was appointed.
The application must, in general, be dismissed if it is not determined within six months
from when it was made: s 459R. However, the court has power under s 459R(2) to extend
the time for application. It can do so where there are special circumstances. But under s
459R application for extension must be made before the six-month period ends or before
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an extended period ends.
It has been held in the Federal Court that once the six-month period or extended period
expires, it cannot be extended: DDB Needham Sydney Pty Ltd v Elyard Corp Pty Ltd
(1995) 131 ALR 213.
At any time after the filing of the application the court, in the exercise of a wide
discretion, can appoint a provisional liquidator from among the official liquidators
when it is shown to the court that there is a need to protect the company’s assets from
dissipation pending the hearing of the application and the assets of the company cannot be
preserved by appropriate undertakings: Zempilas v J N Taylor Holdings Ltd (No 2) (1990)
55 SASR 103. The court can appoint a provisional liquidator to a company even if it is
solvent. That may be needed where the grounds of the application relate to oppression or
other improper conduct of the company’s affairs: Re Back 2 Bay 6 Pty Ltd (1994) 12
ACSR 614.
A provisional liquidator assumes control of the company from the directors. If directors
still wish to do anything on behalf of the company while a provisional liquidator is acting,
they must first have the approval of the provisional liquidator or the court under s
471A(2).
A provisional liquidator’s powers are derived from the Corporations Law, the rules of
court and the order making the appointment or from supplementary orders, and they will
vary according to the reasons for the appointment. Exceptionally, power to sell assets may
be conferred: Re Bayswood Pty Ltd (1981) 6 ACLR 107. In New South Wales, the
Supreme Court Rules 1970 Pt 80 r 29 gives a wide range of powers now in s 477(2),
including a power of sale. A provisional liquidator is expected to preserve the company’s
assets but sometimes the only way to do so is to sell particular assets quickly: Re Codisco
Pty Ltd (1974) CLC 40-126 at 27,906. In general, a provisional liquidator will not be
given power to enter contracts which would commit the company to obligations over a
long period: Newmont Pty Ltd v Laverton Nickel NL (1982) 7 ACLR 339.
A provisional liquidator may apply under Pt 5.9 for an order that persons connected with
the company be examined: Re Rothwells Ltd (No 2) (1989) 15 ACLR 168.
Where a provisional liquidator has been appointed, no action or other civil proceeding
may be begun or continued against the company without the court’s leave: s 471B. In the
absence of such an appointment there is no general stay until a winding-up order is made
but particular proceedings may be stayed by the court on the application of the company,
any creditor or a contributory: s 467(7).
If a winding-up order is later made the provisional liquidator will not necessarily be
appointed liquidator: Re National Safety Council of Australia, Victorian Division [1990]
VR 29. The court will permit the provisional liquidator to deduct proper remuneration
from available funds prior to the making of the order which would result in those funds
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becoming unavailable for that purpose.
[24.85][24.86]
Effect of winding-up order
Within two business days after the making of the order the applicant must lodge with
ASIC notice of:
 the making of the order;
 the date of the order; and
 the name and address of the liquidator: s 470(1).
Within seven days after the passing and entering of the order the applicant must lodge an
office copy with ASIC, serve a copy on the company and other persons designated by the
court and deliver to the liquidator an office copy of the order with a statement as to
service on the company: s 470(2).
The making of the order marks the beginning of the winding up in the usual case where
application was made for winding up and there was no administration or voluntary
winding up in progress. The order also has the following consequences:
 The official liquidator appointed by the court assumes control of the company,
unless the appointee is already in control as a provisional liquidator: s 474.
 The powers of directors are suspended under s 471A.
 General meetings of members can be held only if the court requires them.
 Dividends can no longer be declared.
 Calls of any uncalled capital can be made on contributories.
 Dispositions of property of the company made and executions put in force after
the date of the order are invalid under s 468, subject to some exceptions.
 Pending executions of judgments against the company cannot be completed:
ss 569, 570. This does not affect a solicitor who has a particular lien over
damages recovered for the company before the winding up: Re H & W Wallace
Ltd (in liq) [1994] 1 NZLR 235.
 Takers under certain voidable transactions of the company are at the risk of
recovery or compensation proceedings by the liquidator under Pt 5.7B.
 Proceedings against the company may not be continued or begun, except by
leave of the court. Creditors have to accept the collective enforcement procedure
involved in proving for their debts to the satisfaction of the liquidator unless the
court gives leave to enforce in some other way: s 471B.
 Employees are discharged: employees may prove for their salary in the winding
up upon the basis that notice of discharge was notionally given by the company
on the day of the making of the order: Re Beverage Packers (Aust) Pty Ltd
[1990] VR 446. Dismissed employees may have other remedies under unfair
dismissal legislation: Industrial Relations Act 1988 (Cth) Pt VIA Div 3.
 Transfers of shares after the order are void as against the company unless the
court orders otherwise: s 468.
 Members who claim that their contract of membership is voidable lose any right
7

to rescind.
The company cannot issue certain documents unless they show ‘in liquidation’
after the company’s name: s 541.
Provided a charge over the company’s property is not invalid as against the liquidator,
neither s 471A, suspending the powers of the company’s officers, nor s 471B, imposing a
stay of proceedings, affects a secured creditor’s right to realise or otherwise deal with the
security: s 471C. But if the liquidator is unwilling to give up the security to a secured
creditor, that creditor will need to seek the court’s leave in order to avoid being in
contempt of court: Re Landmark Corp Ltd (in liq) [1968] 1 NSWR 705. A secured
creditor having security over debts owed to the company may sue for them without
having to get the liquidator’s approval.
The liquidator may be able to disclaim a contract which is onerous from the company’s
viewpoint with the court’s leave: s 568(1B). The court has power to order discharge or
rescission of a contract on the application of the other parties to the contract: s 568(9).
Because directors lose their powers the range of their fiduciary duties to the company is
reduced. Under s 471A, while a company is being wound up in insolvency
or by the court, directors do not lose office but they can act only with the written approval
of the liquidator or the approval of the court.
[24.87]
Post-liquidation dispositions and share transfers
Section 468(1) provides that any disposition of the company, other than an exempt
disposition, and any transfer of shares or alteration in the status of the members of the
company made after the commencement of the winding up by the court is, unless the
court otherwise orders, void.
It is settled that ‘void’ means void and not merely voidable.
Statutory exemptions under s 468(2) include:
 dispositions by the liquidator exercising a power given by the Act, court rules or
court order;
 dispositions by an administrator;
 dispositions under a deed of company arrangement executed by the company;
and
 certain payments by Australian banks (see below).
There is no general exemption in favour of purchasers for value without notice.
‘Disposition of property’ in s 468 relates to property in which the company has a
beneficial interest (property that would be available in a winding up — Wiley v
Commonwealth (1996) 136 ALR 527); and only to the extent of that interest: it does not
include the process by which a person with a beneficial interest in property obtains that
8
property or the proceeds of its realisation from the company when that person is entitled
to have it.
There are some post-liquidation dispositions which are outside s 468 even if the recipient
had no pre-existing beneficial interest in any property under the control of the company.
For example, a payment to a third person out of a company’s funds by a receiver who is
enforcing a charge and the payment is to meet expenses properly incurred in carrying on
the business: Wiley v Commonwealth (1995) 131 ALR 712; 18 ACSR 299; 13 ACLC
1556; on appeal (1996) 136 ALR 527; 19 ACSR 720. A payment by the company’s
debtor to a garnishor of an amount equivalent to the garnishor’s judgment debt after
service of a garnishee order under the Local Courts (Civil Claims) Act 1970 (NSW) is not
within s 468(1): Blacktown Concrete Services Pty Ltd v Ultra Refurbishing &
Construction Pty Ltd (in liq) (1998) 26 ACSR 759 at 772 per Santow J.
Payments by an Australian bank out of the company’s account made in good faith and in
the course of the bank’s banking business, on or before the date of the winding-up order,
are expressly exempted: s 468(2).
[24.88]
Proceedings against the company are stayed
Liquidation under court order involves handling claims against the company in bulk by a
procedure quicker and cheaper than would be possible by allowing each claimant to sue
the company. Each claimant loses the right to litigate in any court and receives instead a
right to make a claim to be paid out of the estate. Each claimant does that by lodging a
proof of debt with the liquidator. The liquidator assesses the claim and either admits or
rejects it, in whole or in part. The possibility of the liquidator
improperly rejecting a claim is reduced by there being an appeal to the court under
s 1321: Re A J Benjamin Ltd (in liq) (1969) 90 WN (Pt 1) (NSW) 107 at 110.
A stay is imposed to prevent harassment of the company in liquidation and to prevent its
assets being wasted by unnecessary litigation: Re David Lloyd & Co (1877) 6 Ch D 339
at 344–5.
Corporations Law s 471B provides that a person needs the court’s leave to begin or
continue a proceeding against the company or in relation to property of the company. Nor
can an enforcement process (defined in s 9) in relation to property of the company be
begun or continued. The Crown and its instrumentalities is subject to the stay.
The term ‘proceeding’ covers claims in both superior and inferior courts and any issue
raised in a court between the company and a claimant. It also includes an arbitration: Re
Vassal Pty Ltd (1983) 8 ACLR 683. It extends to the issue and prosecution of execution
of judgments.
The Federal Court or any state Supreme Court can grant leave even if it is not the court in
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which application was made for winding up. Leave is given to persons seeking such
remedies as an order of specific performance, injunction or rescission of a contract.
An applicant for leave to seek a remedy against the company who has a provable claim
must persuade the court that there is some good reason on the balance of convenience
why his or her claim against the company should be pursued by court action to judgment
rather than by lodging a proof of debt with the liquidator. It is really a matter of which of
two alternative procedures is more appropriate in the circumstances. Court action will
normally carry the risk that the fund of company assets available to the creditors will be
depleted by costs. Applicants who have to proceed by way of proof are not foreclosed
from having a court consider their claim since there is an appeal to the court from a
decision of the liquidator.
On an application for leave the court considers whether the claimant has a case involving
a real dispute which is not futile and involves serious questions, whether the action will
impede orderly winding up, and whether it will cause prejudice to other creditors: J J
Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (1986) 11 ACLR 224.
Factors that the court might consider include:
 the amount and seriousness of the claim, the degree of complexity of the legal
and factual issues involved, and the stage to which the proceedings, if already
commenced, may have progressed;
 whether the claim is in the nature of a test case for the interests of a large class
of potential claimants;
 whether it is clear that the liquidator will reject the claim so that, if the claimant
wishes to press the claim, an appeal to the court will be inevitable in which case
leave may be more readily granted;
 whether the granting of leave will unleash an ‘avalanche of litigation’;
 whether the applicant has claims against other persons raising substantially the
same issues, in which case there is a question whether the inconvenience of the
applicant having to follow different procedures in respect of all its claims
outweighs the prejudice to other creditors that would follow a grant of leave.
A frequent case for leave is where a claimant for damages can show that an insurance
fund may be available to meet an award against the company but the claimant must sue
the company in order to obtain an award: Re Sydney Formworks Pty Ltd [1965] NSWR
646.
[24.89]
Publicity for liquidation status
Every invoice, order for goods or business letter and certain other documents issued by or
on behalf of the company in which the company’s name appears must have the words ‘in
liquidation’ added after the company’s name where it first appears: s 541.
[24.90]
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Setting aside an order for winding up
Once an order is made, although the corporate entity retains its powers, the company
exists only for the purpose of being wound up. However, an order which should not have
been made will be set aside. For example, it has been said in New South Wales that an
order made in the absence of the company may be set aside on prompt application, notice
being given to the liquidator, the applicant for winding up and creditors who appeared at
the hearing, if:
 the company gives an explanation for its non-appearance and shows its solvency;
 the setting aside is not opposed; and
 the liquidator indicates that nothing in his or her investigations to date shows a
reason why the company should be stopped from trading: George Ward Steel Pty
Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464; 7 ACLC 838.
[24.90]
[24.91]
[24.91]
Staying or terminating winding up
Once an order operates, the company’s descent into dissolution will be prevented only in
the unusual event of the court ordering either an indefinite stay of the winding-up
proceedings or termination of the winding up.
The court has inherent jurisdiction to grant a stay. Statutory jurisdiction to grant a stay or
terminate is conferred by s 482.[24.92]
[24.9
The liquidator
Appointment of liquidator
When the court orders winding up it appoints a liquidator from the list of official
liquidators (see s 532(8)) who is not disqualified by major indebtedness to the company,
or by being an officer or auditor of the company.
The applicant for a winding up applies to the appropriate court officer to nominate an
official liquidator to be appointed by the court. It is often said that the person to be
appointed must not only be independent of the company but must be seen to be
independent: Re National Safety Council of Australia, Victorian Division [1990] VR 29.
[24.92]
[24.93]
[24.93]
Disqualification for appointment
A person indebted to a company or a related corporation for more than $5000 may not be
appointed without leave of the court: s 532(2). A person who is a substantial shareholder
in a body corporate similarly indebted is also disqualified.
A person who is a creditor of the company otherwise than in its capacity of liquidator for
an amount exceeding $5000 is disqualified.
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Except in a members’ voluntary winding up of a proprietary company, and a creditors’
voluntary winding up of any company (where a creditors’ meeting agrees to waive the
protection), officers and auditors of the company or a related corporation or of a
corporate mortgagee, and certain partners and employees of officers or auditors, are also
ineligible without the court’s leave: s 532(4).
An insolvent under administration (defined in s 9) is ineligible: s 532(7). No appointment
can be made unless the nominee first consents in writing to act as liquidator: s 532(9).
Where the court appoints more than one liquidator, the court is to declare whether
anything required or authorised by the legislation to be done by the liquidator is to be
done by all or any one or more of them: s 473(8).
The liquidator appointed by the court will normally hold office until the winding-up
process is completed unless he or she resigns or is removed by the court on cause shown:
ss 473(1), 536.
[24.93]
[24.94]
[24.94]
Committee of inspection
A committee of inspection is a group of creditors and contributories or their attorneys
under power elected under s 548 by the general body of creditors and contributories to
approve action by the liquidator.
Any creditor or contributory may request the liquidator to convene separate meetings of
creditors and contributories for the purpose of determining whether they desire the
appointment of a committee of inspection and, if so, who are to be its members: s 548(1).
The detailed regulation of committees of inspection is provided for in ss 548–552.
Members of a committee have a fiduciary character.
[24.94]
[24.95]
[24.95]
The liquidator’s functions
Speaking broadly, the liquidator’s functions are:
 to take possession of the company’s assets;
 to realise them;
 to determine what are the claims against the company;
 to apply the company’s assets towards payment of the costs of liquidation and
those claims;
 to distribute any balance of proceeds after payment of claims; and
 finally, to bring about the dissolution of the company.
A liquidator’s relationship to the company is that of an agent for it: CCA (Vic) v Harvey
[1980] VR 669 at 695.
6]
The liquidator’s duties
Specific duties of the liquidator include:
 lodging notice of appointment with ASIC (s 537) and the Commissioner of
Taxation:
 receiving from the displaced directors a report as to the affairs of the company
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showing the company’s assets and liabilities, the company’s creditors and the
securities held by them: s 475;
carrying out an impartial investigation of the company’s affairs;
the duty to discover not only breaches of companies legislation, but also conduct
which falls short of the requisite standards of commercial morality;
lodging with ASIC a preliminary report as to:
the company’s capital;
the company’s estimated assets and liabilities;
the causes of the company’s failure; and
whether, in the liquidator’s opinion, further inquiry is desirable regarding the
promotion, formation or insolvency of the company or the conduct of its
business: s 476.
lodging with the ASIC a further report if it appears that:
officers, members or contributories have been guilty of offences;
persons involved in the company have misapplied its property or have been
guilty of some misfeasance; or
the company may be unable to pay its unsecured creditors more than 50c in the
dollar, stating whether the liquidator proposes to apply for examination of
officers of the company and others under s 597: s 533;
keeping proper books: s 531;
lodging with the ASIC an account of receipts and payments and a statement of
the position in the winding up at six-monthly intervals: s 539;
collecting the company’s assets: s 478(1).
The liquidator must do everything necessary to increase the assets of the
company. The liquidator may bring proceedings in the name of the company on
its behalf (s 477(2)(a)), prove debts in the bankruptcy of any contributory or
debtor (s 477(2)(e)) and take out letters of administration of the estate of a
deceased contributory or debtor: s 477(2)(h), (5).
[24.96]
[24.97]
[24.97]
The liquidator’s powers
Section 477 gives the court-appointed liquidator many powers. Included are the power to:
 carry on the company’s business: s 477;
 bring proceedings;
 pay for services;
 make agreements;
 compromise claims;
 make calls;
 use company assets for costs of winding up;
 execute documents;
13

get information.
[24.97]
[24.98]
[24.98]
Examination of persons about the corporation’s examinable affairs
Liquidators can apply under Pt 5.9 Div 1 to the Federal Court or a Supreme Court to
summon before it or another court for examination officers and other persons who have
been concerned in the administration of the affairs of a corporation that is under external
administration or may be able to give information about ‘examinable affairs’ of the
corporation. Conduct of examinations can be delegated to a registrar.
An examination is inquisitorial in nature: Emanuele v Emanuel Investments (1996) 21
ACSR 83 at 95. Of a predecessor provision, s 541 of the Companies (NSW) Code, it was
said by Mason CJ in Hamilton v Oades (1989) 166 CLR 486 at 496 that:
There are two important public purposes that the examination is designed to serve. One is
to enable the liquidator to gather information which will assist him in the winding up; that
involves protecting the interests of creditors. The other is to enable evidence and
information to be obtained to support the bringing of criminal charges in connection with
the company’s affairs.24.99]
[24.99]
Liquidator’s remuneration
A liquidator in a compulsory winding up may be paid remuneration as fixed:
 by agreement between the liquidator and the committee of inspection (if any); or
 failing that fixation, by a majority of creditors, being a majority of creditors
present and voting, whose debts admitted to proof in the aggregate amount to
not less than 75 per cent of the total amount of debts of creditors present and
voting that have been admitted to proof; or
 otherwise, by the court: s 473.

[24.99]
[24.100]
[24.100]
The fund available for distribution among unsecured creditors
Components of the fund
The fund consists of the following assets:
 assets beneficially owned by the company when the winding up-order is made
subject to the rights of secured creditors;
 assets coming into the company’s beneficial ownership after the winding-up
order.
A liquidator can enlarge the distributable fund by taking legal proceedings to recover
property or money that the company disposed of before liquidation, or compensation to
which it is entitled for some wrong done to it. Enlargement of the fund may be possible in
the following ways.
[24.100]
[24.101]
[24.101]
Voidable transactions
Certain voidable transactions of the company prior to the winding up can be set aside or
14
varied under Pt 5.6 or Pt 5.7B. Part 5.6 is relevant where the transaction occurred before
23 June 1993, that being the commencing date of Pt 5.7B. Part 5.7B applies to
transactions on or after 23 June 1993. Transactions within Pt 5.7B include:
 uncommercial transactions when the company was insolvent; and
 unfair preferences to some creditors when the company was insolvent.
For transactions on or after 23 June 1993 the relevant provisions are in s 588FB.
The recovery provisions can apply in respect of transactions outside Australia: s 110D.
[24.101]
[24.102]
[24.102]
Compensation from directors and other officers for breach of duty
In some circumstances, former directors may be liable under s 232 for breach of the
duties of honesty, care and diligence or for improper use of position or information.
Liability may extend beyond appointed directors to shadow and de facto directors. The
procedure in s 598 may be available to obtain compensation.
Part 5.7B provides in s 588G for recovery of compensation from directors who fail in the
duty to prevent insolvent trading.
[24.102]
[24.103]
[24.103]
Recovery of property or compensation from persons liable as constructive
trustees
These could be persons outside the company, liable under Barnes v Addy (1874) 9 Ch
App 244 for:
 receiving company property from directors knowing of their breach of fiduciary
duty; or
 knowingly assisting directors to commit a dishonest breach of fiduciary duty.
[24.103]
[24.104]
[24.104]
Disregarding invalid charges
The fund available to unsecured creditors may be enlarged where the liquidator can
administer the company’s property free from certain charges which the company has
given over its property. They are:
 certain floating charges, including those created in the six months immediately
preceding the filing of the application for winding up: s 588FJ;
 any charge, whether fixed or floating, on the company’s property which was
required to be registered but in respect of which notice of charge was not lodged
in the time prescribed in s 266; or
 a charge given to officers (or their associates) and enforced within six months of
creation without leave of the court (s 267).

[24.104]
[24.105]
[24.105]
Calls on contributories
Where, in a limited liability company with share capital, there are partly-paid shares, or
where the company is unlimited or limited by guarantee, calls on contributories are
15
possible.
[24.105]
[24.106]
[24.106]
Recoveries from execution creditors
There may be additions to the fund from amounts recovered from creditors who enforced
a judgment against the company in certain ways within six months immediately before
the commencement of the winding up: s 569.
[24.106]
[24.107]
[24.107]
Voidable transactions
Uncommercial transactions
An uncommercial transaction, according to s 588FB, is one that a hypothetical reasonable
person in the company’s circumstances would not have entered into. Regard may be had
to:
 the benefits (if any) to the company of entering the transaction;
 any detriment to the company in entering into the transaction;
 benefits to other parties respectively; and
 any other relevant matter.
When considering whether s 588FB extends to a particular transaction, the court is
directed by s 109H to prefer a construction which will promote the purpose or object of
the provisions about voidable transactions. The purpose or object is to prevent a depletion
of the assets of a company which is being wound up by certain transactions entered into
within a specified limited time before the winding up, usually transactions at an undervalue: Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535.
Section 588FB(1) speaks of a transaction being an uncommercial transaction if ‘it may be
expected that a reasonable person in the company’s circumstances would not have
entered’ it having regard to the matters specified.
An uncommercial transaction will be liable to be set aside or varied as a voidable
transaction if the liquidator proves that:
 the transaction was an insolvent one — that is to say, the company was insolvent
at the time of the transaction or at the time when an act was done to give effect to
the transaction: Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR; and
 the entry into the transaction or the effectuating act occurred within a prescribed
time frame;
and if the other party cannot show that:
 they became a party in good faith;
 they lacked reasonable grounds for suspecting objectively that the company was
insolvent; and
 they provided valuable consideration or changed position in reliance on the
transaction.
Two dates are critical:
16

The relation-back day as defined in s 9. In the usual compulsory winding up this
will be the day of filing the application for an order. But where, for example, the
company was under administration before being ordered to be wound up, it can
be the day the administrator was appointed.
 The day of commencement of the winding up. In the usual compulsory winding
up — one not preceded by voluntary administration, deed of company
arrangement or voluntary winding up — this is the date of the order: s 513A. See
also ss 513B and 513C.
Section 9 defines ‘transaction’ in Pt 5.7B, in relation to a body corporate or Pt 5.7 body,
as one:
to which the body is a party, for example (but without limitation):
(a) a conveyance, transfer or other disposition by the body of property of the body; and
(b) a charge created by the body on property of the body; and
(ba)
a guarantee given by the body; and
(c) a payment made by the body; and
(d) an obligation incurred by the body; and
(e) a release or waiver by the body; and
(f) a loan to the body;
and includes such a transaction that has been completed or given effect to, or that has been
terminated.
A transaction may be constituted by several steps, some or all of which could be
described individually as transactions: per Lehane J in Tosich Constructions Pty Ltd v
Tosich (1997) 23 ACSR 466 at 473. The company must be a party to the transaction.
An uncommercial transaction (or an unfair preference) will not be liable to be avoided or
varied by the court under s 588FF unless it is an ‘insolvent transaction’. Under s 588FC,
defining ‘insolvent transaction’, the clearest case of an insolvent transaction is one
entered into when the company was insolvent. A transaction can also be an insolvent
transaction when an act giving effect to it is performed when the company is insolvent.
An example would be where a company was solvent when it first incurred an obligation
to do something (item (d) in the definition in s 9 of ‘transaction’) but was insolvent by the
time it performed the obligation. The original transaction is then an insolvent transaction
and the time of the effectuating act is the critical time in s 588FE, dealing with time
frames.
The liquidator has the onus of proving that an uncommercial transaction was an insolvent
transaction. Under s 95A the test of solvency is the ability of the company to pay its debts
as and when they become due and payable. Rebuttable presumptions created by s 588E
assist the liquidator to prove insolvency. They operate only for the purposes of recovery
proceedings. The other presumptions of insolvency authorised by s 459C do not apply for
the purposes of recovery proceedings: see s 459C(1).
Where it is proved that the company was insolvent at a particular time during the 12
months ending on the filing of the application for winding up (or other relation-back day
appropriate in the circumstances — see definition of ‘relation-back day’ in s 9), there is a
rebuttable presumption that the company continued to be insolvent through that period: s
17
588E(3).
There is a similar result if insolvency at a particular time is presumed because of failure in
regard to accounting records or because it was proved in other proceedings under s 588G.
A presumption of insolvency arises in some recovery proceedings when there has been a
contravention of s 289, dealing with the keeping and retention of accounting records.
Insolvency throughout a particular period will be presumed if it is proved that:
 the company contravened s 289(1) (otherwise than by a ‘minor or technical’
contravention) by failing to keep accounting records that correctly record and
explain (a) its transactions during the period and (b) its financial position during
the period; or
 the company contravened s 289(1) (otherwise than by a ‘minor or technical’
contravention) by failing to keep such accounting records for the period in the
manner required by s 289(1)(b); or
 the company contravened s 289(2) by failing to retain such accounting records
for the period required by s 289(2) (seven years after the relevant transactions)
unless it is proved that the contravention resulted solely from their destruction,
concealment or removal by persons other than the one whose interest would be
prejudiced by the presumption of insolvency and without that person’s
participation. The company is presumed to have been insolvent during the
period of the contravention. Section 289(2) will not apply to prove insolvency in
an application under s 588FF regarding an unfair preference unless a ‘related
entity’ of the company is shown to have been a party to the unfair preference: s
588E(7). ‘Related entity’ is defined widely in s 9. Among others it includes,
besides directors, ‘relatives’ (defined in s 9) of directors, bodies corporate
having a director in common with the company and certain trusts.
If in some earlier recovery proceedings under Pt 5.7B it was proved that the company
was insolvent at a particular time, there is a rebuttable presumption for the purpose of
other recovery proceedings that the company was insolvent at that time: s 588E(8).
Either an uncommercial transaction or an unfair preference can be a voidable transaction
if it was entered into at or after 23 June 1993 and it was entered into, or action was taken
to give it effect:
 within one of a number of periods ending on the relation-back day; or
 within the interval between the relation-back day and the day of commencement
of winding up, where those two days are different.
The relation-back day and the day of commencement of winding up will be different
where the winding up is a compulsory winding up in insolvency not preceded by a
voluntary winding up, an administration or an administration under a deed of company
arrangement. In such a compulsory winding up the relation-back day is the day of the
filing of the application for a winding-up order and the day of commencement of the
winding up is the day of making the order. In other windings up the relation-back day is
the same as the day of commencement of the winding up: it will be the day of passing the
resolution for winding up or the day the administrator was appointed (as the case may
18
be). See s 9 defining ‘relation-back day’ and ss 513A–513C.
The longest period applicable to uncommercial transactions and unfair preferences is 10
years ending on the relation-back day. It applies where the company became a party to
the uncommercial transaction or unfair preference and one of its purposes was the
purpose of defeating, delaying or interfering with, the rights of any or all of its creditors
on a winding up. So far as consideration is now relevant to transactions voidable under s
588FE, it is for the party opposing the liquidator to prove the presence of valuable
consideration as one of the elements of the statutory defence in s 588FG.
The onus of proving intent to defeat any or all creditors is on the liquidator. However,
there is no need to show an intent to defeat creditors as a class: it is enough to show intent
to defeat a single creditor: cf PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515;
107 ALR 199.
The next longest period is four years ending on the relation-back day. It applies where the
company cannot be shown to have a purpose of defeating creditors but a related entity of
the company is a party to either an uncommercial transaction or an unfair preference. An
example would be an uncommercial transaction with a director. ‘Related entity’ is
defined widely in s 9. Among others it includes, besides directors, ‘relatives’ (defined in s
9) of directors, bodies corporate having a director in common with the company, related
companies and certain trusts.
A period of two years ending on the relation-back day is prescribed for transactions
which are uncommercial transactions as defined in s 588FB, regardless of the company’s
purpose and regardless of whether a related entity is a party. An unfair preference could
be an uncommercial transaction where the company has transferred property to a creditor
so as to cause detriment to the company as where the transfer is at a gross undervalue in
relation to the creditor’s debt.
In all other cases of unfair preferences, regardless of whether the company has a purpose
of defeating creditors and regardless of whether any other party is a related entity, the
period is six months ending on the relation-back day.
[24.107]
[24.108]
[24.108]
Liquidator’s recovery where transaction is voidable
The liquidator applies under s 588FF to the Federal Court or the Supreme Court or,
depending on the amount to be recovered, to a lower court. If the court is satisfied that
the transaction is a voidable one, the court can make one or more types of order. Orders
directing payment or transfer of property are to require payment or transfer to the
company.
On an application under s 588FF the court may make one or more of a number of
specified types of order. Orders directing payment or transfer of property by an unfairly
preferred creditor are to require payment or transfer to the company.
[24.108]
[24.109]
[24.109]
Protection for parties acting in good faith etc
Section 588FG(2) directs the court not to make an order materially prejudicing a right or
interest of another party to an uncommercial transaction or unfair preference if it is
19
proved that:
 the person became a party to the transaction in good faith;
 at the time of becoming a party the person had no reasonable grounds for
suspecting insolvency and a reasonable person in the person’s circumstances
would have lacked such grounds; and
 the person provided valuable consideration under the transaction or changed
position in reliance on the transaction: s 588FG(2). An example of change of
position could be a charity taking a gift and expending it.
The onus is on the person seeking to rely on s 588FG(2): Olifent v Australian Wine
Industries Pty Ltd (1996) 19 ACSR 285 at 290. Section 588FG(2) does not specify the
matters in respect of which there must be good faith. One meaning of good faith refers to
an honest state of mind of a person, however caused, whether by carelessness of that
person or not: so-called ‘honest ineptitude’. The other meaning introduces objectivity. A
person acts in good faith only when they have an honest state of mind in circumstances
where a reasonable person would have an honest mind. Which standard is to be applied
depends on the particular legislation: Mid Density Developments Pty Ltd v Rockdale
Municipal Council (1993) 44 FCR 290; 116 ALR 460.
Under s 588FG(2) the other party to the company’s transaction gains protection only on
proving:
 good faith; and
 absence of reasonable grounds for that person suspecting insolvency; and
 absence of grounds for a reasonable person so suspecting.
The test under s 588FG(2) of the payee’s appreciation of whether the transaction was an
uncommercial one or an unfair preference is subjective: Smith v DCT (1997) 23 ACSR
611. The test of whether a transaction is uncommercial within s 588FB so as to be
possibly voidable under s 588FE is objective.
Where the liquidator, aiming to reach back 10 years, has proved that the purpose of the
transaction was to defeat or delay creditors, there would seem to be no scope for the other
party to prove the defence. The liquidator has to show a subjective purpose. Where that
purpose can be proved the person would lack good faith.
The burden is on the payee to prove not only good faith but also absence of objective
considerations that could lead to suspicion of insolvency. The critical thing is suspicion
of insolvency at the time of the transaction: not suspicion as to the effect of the
transaction.
The Commissioner of Taxation has special protection under these provisions:
s 588FG(3).
[24.109]
[24.110]
[24.110]
Unfair preferences
Unfair preferences are, in general, payments and transfers of property to particular
creditors made when winding up in insolvency is imminent. The following is a summary
description of an unfair preference which can be avoided or varied by the court on the
application of the liquidator.
20
An unfair preference is a transaction:
 between the company and a creditor;
 by which the creditor receives more for an unsecured debt than would have been
received if the creditor had had to prove for it in the winding up.
The unfair preference will be liable to be set aside or varied as a voidable transaction if:
 the company was insolvent at the time of the transaction or at the time when an
act was done to give effect to the transaction;
 the entry into the transaction or the effectuating act occurred within one of the
time frames noted earlier before the relation-back day or where the relation-back
day and the day of commencement of winding up differ, in the interval between
them.
But it will not be set aside or varied where the other party:
 became a party in good faith;
 did not have reasonable grounds for suspecting objectively that the company was
insolvent; and
 provided valuable consideration or changed position in reliance on the
transaction.


[24.111]
[24.111]
Types of transactions that can be unfair preferences
company transaction as element of preference
Section 9 defines ‘transaction’ in Pt 5.7B, in relation to a body corporate or Pt 5.7 body,
as one:
to which the body is a party, for example (but without limitation):
(a) a conveyance, transfer or other disposition by the body of property of the body;
and
(b) a charge created by the body on property of the body; and
(ba)
a guarantee given by the body; and
(c) a payment made by the body; and
(d) an obligation incurred by the body; and
(e) a release or waiver by the body; and
(f) a loan to the body;
and includes such a transaction that has been completed or given effect to, or that
has been terminated.
[24.111]
[24.112]
[24.112]
Company and preferred creditor as parties
That the company and the preferred creditors are parties to a transaction is required by s
588FA(1)(a). It is immaterial that a third person is a party also.
It seems that if the only parties to the transaction are the company’s creditor and persons
other than the company, the transaction will not be an unfair preference.
[24.112]
[24.113]
[24.113]
21
Payments by receivers
According to the majority in the High Court in Sheahan v Carrier Air Conditioning Pty
Ltd (1997) 147 ALR 1, a decision on s 565 applying Bankruptcy Act 1966 (Cth) s 122,
where a receiver of a company which has no prospect of enjoying a surplus pays a prereceivership debt of the company out of the bank account maintained in compliance with
s 421 and the debenture contains the usual provision for application of moneys received
by the receiver, the receiver is not acting for the company. Hence it would seem that the
company is not a party to the payment.
[24.113]
[24.114]
[24.114]
Transactions complying with court orders etc
Section 588FA makes it clear that a transaction is capable of being an unfair preference
even when it is entered into, is given effect to, or is required to be
given effect to, because of an order of an Australian court or a direction by an agency.
‘Australian court’ means a federal court or a court of a state or territory: s 9.
[24.114]
[24.115]
[24.115]
The element of preference
Under s 588FA(1), a transaction is an unfair preference ‘if, and only if’, two conditions
are satisfied. The conditions are that:
the transaction results in the creditor receiving from the company, in respect of an
unsecured debt that the company owes to the creditor, more than the creditor would
receive from the company in respect of the debt if the transaction were set aside and
the creditor were to prove for the debt in the winding up.
Section 588FA(1)(b) by looking to whether ‘the transaction results’ in a certain way
rather than whether it ‘would result’ seems to require attention to the position in the actual
winding up rather than some hypothetical winding up supposed to have occurred at the
time of the transaction. The question is whether there is less money available for the
liquidator to administer the winding up than would have been available if the payment or
other disposition had not been made.
A secured creditor could be affected by s 588FA(1). Section 588FA(2) provides that a
secured debt is taken to be unsecured to the extent of so much of it (if any) as is not
reflected in the value of the security. It requires ascertainment of the extent (if any) to
which the secured debt is not reflected in the value of the security.
It seems necessary to distinguish between debts which start as unsecured debts and are
later secured and debts which have been secured all along. The first are within
s 588FA(1) but not s 588FA(2).
Section 588FF empowers the court to make orders on the application of the liquidator.
Under s 588FJ a floating charge created at or after 23 June 1993 within six months before
the relation-back day prior to a winding up in insolvency, or between the relation-back
day and the making of the winding-up order, can be void unless certain conditions apply.
In general, it will be void, except so far as it secures some benefit received by the
company at the time of giving the charge or subsequently, unless it is proved that the
company immediately after giving the charge was solvent.
22
Unlike the effect of applying ss 588FA–588FE, which make an unfair preference
voidable, the effect of applying s 588FJ is that the charge is void. If the charge is to
escape invalidity it must secure:
 an advance (to the company or a third person at its direction) made at the time of
the charge, or later, as consideration for the charge; or
 interest on such an advance; or
 a liability under a guarantee or other obligation undertaken at the time of the
charge, or later, for the benefit of the company; or
 an amount payable for property or services supplied to the company at the time
of the charge, or later; or
 interest on the amount of that liability.
An unfair loan to the company made at any time on or before the winding up began (in
most cases the date of the order: s 513A) but on or after 23 June 1993 is voidable: s
588FE(6), (1). ‘Unfair loan’ is defined in s 588D as a loan to the company where the
interest on the loan (or charges in relation to the loan) were extortionate. ‘Loan’ is not
defined.
Not every credit transaction is a loan. Non-loan credit transactions on unfair terms may be
caught as ‘uncommercial transactions’, which have been discussed earlier.
The liquidator can, under s 588FF, apply to a court for relevant orders such as an order
releasing the company wholly or partly from the debt or any security given. No order can
be made against an assignee of the debt (or other person not a party to the unfair debt)
who took in good faith without reasonable grounds for suspecting insolvency of the
company where a reasonable person would have no such grounds: s 588FG(1). If the loan
or security has been assigned, the court can direct a person (other than a bona fide
assignee) to indemnify the company in respect of its liability to the assignee.
An uncommercial transaction or an unfair preference will often involve a payment or
transfer of property which can be recovered in the way described earlier. But it may have
been so structured that the company undertook a personal obligation to do something. In
that event the other party might have a claim under the transaction for which a proof
could ordinarily be lodged. But if the transaction is an uncommercial transaction or an
undue preference, the liquidator may be able to get the company released from the
obligation in an application to the court under s 588FF.
[24.115]
[24.116]
[24.116]
Proof of debts and claims
A creditor claiming out of the company’s estate proves the debt by lodging a proof of
debt with the liquidator and having it admitted by the liquidator under Corporations
Regulations regs 5.6.39ff.
Under s 553, provable debts and claims can be present or future, certain or contingent,
ascertained or only sounding in damages. Claims for unliquidated damages or
compensation, whether in tort, contract or other cause of action, can be proved. The value
of unliquidated claims can be estimated in accordance with s 554A.
23
A debt or claim must have arisen from circumstances occurring before the ‘relevant date’:
s 553. Under s 9 the ‘relevant date’ is the day on which the winding up is taken to have
begun, which in most cases of compulsory winding up is the date of the winding-up order.
But where, for example, the company was previously under a deed of company
arrangement the relevant date is the date the administrator was appointed when the
company originally came under administration.
Penalties or fines imposed by a court (apart from a pecuniary penalty order, or an interState pecuniary order, within the Proceeds of Crime Act 1987 (Cth)) are not provable
against an insolvent company.
Debts owed to members as such (for example, declared but unpaid dividends) cannot be
admitted to proof unless the member has paid all that the person is liable to pay as a
member: s 553A. The typical liability to pay as a member is the liability to pay a call on
partly-paid shares.
Section 553D allows informal proof. A creditor is not allowed to prove a statute-barred
debt: Re General Rolling Stock Co (1872) LR 7 Ch App 646.
Under s 554E, a secured creditor may choose between:
 surrendering the security and proving for the whole debt;
 realising the security and proving for any deficiency; or
 valuing the security and proving for any estimated deficiency: Harvey v
Commercial Bank of Australia Ltd (1937) 58 CLR 382.
Under s 554F, if a secured creditor elects to lodge a proof for the deficiency after
deducting the creditor’s estimate of the value, the liquidator may redeem on payment of
the estimated amount.
A liquidator dissatisfied with the secured creditor’s estimate may require that the property
be offered for sale on terms agreed between the liquidator and the creditor. In a public
auction both the liquidator and the creditor may bid for and purchase the property.
Secured creditors can require liquidators to choose between redemption or sale. Failure to
choose within three months leads to any equity of redemption vesting in the creditor,
subject to any relevant registration requirements. The creditor’s debt is then taken to be
reduced by the creditor’s estimate of value.
Sections 554G and 554H govern amendment of proofs on revised estimates of value.
Section 554J regulates amendment of proofs where, on realisation, an estimated value is
not obtained.
[24.116]
[24.117]
[24.117]
Liquidator’s duties regarding claims
The liquidator cannot ignore creditors of whom the liquidator knows. Moreover, if the
liquidator holds documents which would have disclosed possible claims, the liquidator
should communicate with each of the possible claimants: Re Armstrong Whitworth
Securities Co Ltd [1947] Ch 673. Otherwise, the liquidator may be personally liable to
meet the claims of those creditors: Pulsford v Devenish [1903] 2 Ch 625. However, if
after sending them notice the creditors do not prove, the liquidator is under no duty to
24
make them prove.
Corporations Regulations reg 5.6.52 governs the procedure. After the liquidator receives
a proof the liquidator must admit it or reject it wholly, or in part, or require further
evidence supporting it. The liquidator’s duty when examining a proof is to require some
satisfactory evidence that the debt on which the proof is based is a real debt. In some
cases of real doubt, the liquidator may be able to obtain directions from the court.
A liquidator who rejects a claim wholly, or in part, is to state in writing to the creditor the
ground of objection. If the liquidator rejects the proof of the debt, the creditor may appeal
to the court. If the liquidator admits it, a creditor or contributory can appeal to the court
under s 1321.
[24.117]
[24.118]
[24.118]
Set-off of mutual claims
The clearest case of set-off is where an insolvent company is owed a debt by its creditor.
Where a company is insolvent there would be injustice if the law allowed the liquidator
to insist upon receiving 100 cents in the dollar on the whole debt due to the company and
to
insist
at
the
same
time
that
the
company’s
debtor
must
be satisfied with receiving less than 100 cents in the dollar on the whole of the debt owed
by the company: Gye v McIntyre (1991) 171 CLR 609; 98 ALR 393 at 398.
Set-off in liquidations and bankruptcies is governed by special statutory rules established
by companies and bankruptcy legislation rather than general statutory set-off or equitable
set-off which apply in other situations.
In the liquidation of companies, the governing provision is s 553C. It allows set-off of
opposing claims that exist or are inchoate (meaning ‘incipient’) at the time of the
commencement of winding up; in the usual case, this will be the date of the order. When
set-off applies, only the balance between the claims is admissible to proof against the
company, or is payable to the company, as the case may be.
Section 553C allows set-off where there have been ‘mutual credits, mutual debts or other
mutual dealings’ between the company and the other party: MPS Constructions Pty Ltd
(in liq) v Rural Bank of NSW (1980) 49 FLR 430.
[24.118]
[24.119]
[24.119]
Order of payment of debts
After collecting the assets and after the time fixed for the proving of claims, the liquidator
can distribute to creditors. Liquidation can last several years and the liquidator may make
several interim payments over that time.
In an insolvent company there is a prescribed order of payment of debts. Even in a
company which appears to be solvent a liquidator should follow the order: there may be
creditors who have not proved but the liquidator may be deemed to know of them, and the
addition of their debts may make the company insolvent.
The order for priority is set out in s 556.
[24.119]
[24.120]
[24.120]
25
Types of voluntary winding up
A voluntary winding up is controlled by the members if the company is solvent and
primarily by the creditors if it is insolvent. The first type of voluntary winding up is called
a ‘members’ voluntary winding up’; the second is a ‘creditors’ voluntary winding up’.
[24.120]
[24.121]
[24.121]
A members’ voluntary winding up
A company may be wound up voluntarily if the members in general meeting so resolve by
special resolution. But the court’s leave is needed if:
n an application has already been filed with the court for the winding up of the company
on the ground of insolvency; or
n the court has ordered that the company be wound up in insolvency: s 490.
In most cases the passing of the resolution marks the beginning of the winding up: s
513B.
Public notice of the passing of the resolution must be given by lodging a copy with ASIC
and advertising it in the Commonwealth of Australia Gazette: s 491.
When a voluntary winding up is proposed, the directors are required by s 494 to consider
the company’s financial position. The voluntary winding up can be a members’ voluntary
winding up if the directors make a written declaration of the company’s solvency before
sending out the notice of meeting, otherwise it will be a creditors’ voluntary winding up.
Directors can make the declaration where they have reasonable grounds for thinking that
the company will be able to pay its debts in full within a period of not more than 12
months after the commencement of winding up. It is not a declaration as to the
commercial solvency of the company — that is to say, as to its ability to pay its debts as
they fall due — but as to its ability to discharge all its debts, of whatever character.
Section 494 can be read as allowing the directors to make a declaration even if the
company is insolvent, so long as they have reasonable grounds for expecting the
company to become solvent within 12 months. If the declaration satisfies certain
conditions, the winding up resolved upon will be a members’ voluntary winding up.
To satisfy the conditions the declaration must:
 be made at a meeting of directors;
 be made within the five weeks immediately preceding the passing of the
resolution or within such further period as ASIC allows;
 be lodged with ASIC before the date for sending out notices of meeting; and
 have attached to it a statement of the company’s assets and liabilities and
estimated expenses of winding up to the latest practicable date before the
making of the declaration.
A director who makes a declaration of solvency without reasonable grounds commits an
offence. If the company is later wound up voluntarily in pursuance of a resolution passed
within five weeks after the making of the declaration but its debts are not paid or
provided for in full within the period stated in the declaration, the director is presumed to
26
have lacked reasonable grounds for his or her opinion: s 494(5). The presumption is
rebuttable.
Where a creditors’ voluntary winding up has commenced that does not bar the right of a
creditor or a contributory to have the company wound up by the court.
If it is desired to terminate a voluntary winding up and to have the company restored to
normal operation, the court will have to be asked under s 511 to exercise its power under
s 482. If a members’ voluntary winding up is not successfully carried through in the time
estimated in the declaration of solvency, the creditors are entitled to participate in the
control of the winding up: Commonwealth of Australia v Duncan [1981] VR 879 at 884.
If the liquidator in a members’ voluntary winding up is of the opinion that the company
will not be able to pay or provide for the payment of its debts in full within the period
stated in the declaration of solvency, the liquidator must convene a meeting of creditors,
to lay before them a statement of the company’s assets and liabilities: s 496. The notice
convening the meeting is to be accompanied by a list showing the name, address and
estimated claims of each creditor save that, unless the court otherwise orders, a creditor
for $200 or less need only be told where the list is obtainable. In the notice convening the
meeting the liquidator is to draw the attention of creditors to their right under s 496(5) to
appoint some other person as liquidator. Whether or not the creditors do that, the winding
up thereafter proceeds as a creditors’ winding up.
The main effects of a company going into a members’ voluntary winding up are as
follows:
 All the powers of the directors cease except so far as their continuance may be
approved by (a) the liquidator or (b) the company in general meeting with the
consent of the liquidator: s 495(2).
 The company is to cease to carry on its business except so far as is, in the
opinion of the liquidator, required for the beneficial winding up of the
company: s 493(1).
 Transfers of shares after the commencement of the winding up, unless made
with the sanction of the liquidator, are void: s 493(2).
 Any alteration in the status of the members made after the commencement of
the winding up is void: s 493(2).
 Every invoice, order for goods or business letter issued by or on behalf of the
company in which the company’s name appears must bear the words ‘in
liquidation’ added after the company’s name where it first appears: s 541.
Unlike the position where a company is being wound up in insolvency there is no
provision imposing a general stay of proceedings against a company subject to a
member’s voluntary winding up.
[24.121]
[24.122]
[24.122]
Creditors’ voluntary winding up
If no declaration of solvency is made, the company must cause a meeting of its creditors
to be summoned for the day, or the next day, on which the meeting of members is to
take place to consider passing a members’ special resolution for winding up. The
27
meeting of creditors is to be notified to creditors by post: s 497.
A full statement of the company’s affairs, including the method of valuation of assets
and a list of creditors, is to be laid before the meeting. The creditors can, if they wish,
choose a liquidator and theirs is the final choice. If they do not exercise that choice, the
liquidator is the person nominated by the members.
Where a company comes under administration or, having been under administration,
comes under a deed of company arrangement, its creditors have an option to vote to
cause the company to be wound up in a creditors’ voluntary winding up. They will do
that if they cannot see any prospect of recovering more on their claims than they could
recover in a winding up.
There may also be an incentive where the administrator discovers that the company
entered uncommercial transactions, gave unfair preferences, gave an invalid floating
charge, took an unfair loan or its directors caused it to engage in insolvent trading. In
such a case there can be a creditors’ voluntary winding up even though the members did
not pass any special resolution. Once a company comes under administration the
members are, as it were, shut out. They are deemed by s 446A to have passed the
special resolution without there being a declaration of insolvency. The administrator
becomes the liquidator. That saves expense because a new appointee does not have to
become familiar with the company’s affairs.
The creditors’ voluntary winding up is deemed to have commenced when the company
earlier came under administration: ss 513B, 513C.
The liquidator, if so requested by a creditor or a contributory, is to convene separate
meetings of the creditors and contributories to determine whether a committee of
inspection should be appointed: s 548. A committee may be appointed in either a
creditors’ voluntary winding up or a members’ voluntary winding up.
The main effects of a company going into a creditors’ voluntary winding up are as
follows:
 All the powers of the directors cease except so far as their continuance may be
approved by (a) any committee of inspection or (b) in the absence of a
committee of inspection, the creditors: s 499(4).
 The company is to ‘cease to carry on its business except so far as is in the
opinion of the liquidator required for the beneficial winding up’ of the company:
s 493(1).
 After the commencement of the winding up all actions are stayed and may not
be proceeded with except by leave of the court: s 500(2): Oceanic Life Ltd v
Insurance and Retirement Services Pty Ltd (in liq) (1993) 11 ACSR 516 at 520.
[24.122]
[24.123]
[24.123]
The liquidator
In a members’ voluntary winding up the members in general meeting appoint a
liquidator: s 495. In a creditors’ voluntary winding up the creditors may nominate a
liquidator, but if they do not, then the members nominate: s 499. By contrast, in a
compulsory winding up the court appoints the liquidator.
28
In a members’ voluntary winding up the company appoints the liquidator. But in a
creditors’ voluntary winding up the liquidator is nominated by the creditors or members
and, presumably, the appointment stems from the Act operating on the nomination.
The court may, on cause shown, remove a liquidator and appoint another: s 503.
The liquidator’s function is first to distribute the proceeds of realisation of the company’s
assets in payment of the company’s debts and lastly to distribute any surplus amongst the
members.
A liquidator in a voluntary winding up is under a duty, if the winding up continues for
more than one year, to call a general meeting of the company (in the case of a members’
voluntary winding up) or of the company and the creditors (in the case of a creditors’
voluntary winding up) and thereafter at yearly intervals to lay before them an account of
the liquidator’s operations during the preceding year: s 508. Section 508 requires separate
meetings of the company and of the creditors in a creditors’ voluntary winding up.
If it appears to the liquidator that the company may be unable to pay its unsecured
creditors more than 50 cents in the dollar or that persons connected with the company
have committed offences in relation to it or have misapplied its property or have
committed wrongs against it, the liquidator is to report the matter to ASIC: s 533.
In a voluntary winding up the liquidator has many powers which may be exercised
without any special authority but in a creditors’ voluntary winding up the exercise of
some powers requires the approval of (1) the court; (2) any committee of inspection; or
(3) in its absence, a meeting of the creditors: s 506(1) referring to s 477. The liquidator
may summon general meetings of members to obtain the company’s sanction by special
resolution in respect of any matter: s 506(1)(f). The liquidator may apply to the court to
determine any question arising in the winding up or to exercise any power which the
court might exercise if the winding up were compulsory: s 511.
The liquidator is under the same equitable fiduciary and statutory duties as attach to a
liquidator in a compulsory winding up.
In a members’ voluntary winding up the liquidator’s remuneration is fixed by the general
meeting: s 495(1). In a creditors’ voluntary winding up it is fixed by any committee of
inspection, or if there is none, by the creditors: s 499(3). Remuneration may be reviewed
by the court in either type of voluntary winding up on the application of a member,
creditor or the liquidator.
[24.123]
[24.124]
[24.124]
Deregistration of companies
The making of a winding-up order or the passing of a resolution for winding up does not
end the existence of the company as a corporate entity. The company exists until it is
deregistered: s 601AD(1).
Deregistration can be:
 voluntary;
 initiated by ASIC; or
 ordered by the Federal Court or a Supreme Court.
[24.124]
[24.125]
29
[24.125]
Voluntary deregistration under s 601AA
Voluntary deregistration can follow application to ASIC by:
 the company;
 a director or member; or
 a liquidator.
The conditions of being able to apply for deregistration are that:
 all members must assent;
 the company is not carrying on business;
 the company’s assets must be worth less than $1000;
 the company must have paid all fees and penalties payable under CL;
 the company must have no outstanding liabilities; and
 the company must not be a party to any legal proceedings.
The applicant must give to ASIC any information that ASIC requests about the current
and former officers (defined in s 82A).
Unless ASIC is aware of failure to comply with any of those requirements it must give
notice of the proposed deregistration on its database and in the Commonwealth of
Australia Gazette. After two months after the Gazette notice ASIC may deregister the
company. ASIC must give notice of the deregistration to the applicant or, where the
company was the applicant, the person nominated by the company to receive it.
[24.125]
[24.126]
[24.126]
Deregistration initiated by ASIC under s 601AB
Deregistration at the instance of ASIC may occur if the company has failed to lodge
documents, that is to say:
 the company’s annual return is at least six months late; and
 the company has not lodged any other documents under the Corporations Law in
the last 18 months; and
 the ASIC has no reason to believe that the company is carrying on business.
The ASIC may decide to deregister a company that is being wound up and the ASIC has
reason to believe that:
 the liquidator is no longer acting; or
 the company’s affairs have been fully wound up and a liquidator’s return is six
months late; or
 the company’s affairs have been fully wound up and the company is unable to
get a court order for deregistration.
The ASIC will have to deregister a company if three months have passed since a
liquidator in a voluntary winding up has lodged the return stating that the company’s
30
affairs are fully wound up and the final meeting of creditors and members has been held
unless the court has ordered deregistration: s 601AA.
On deciding to deregister under s 601AB, the ASIC must give notice of the proposed
deregistration to the persons listed in s 601AB(3) and notify on its database and in the
Commonwealth of Australia Gazette. The ASIC may deregister when two months have
passed since that notice appeared in the Gazette. Notice of the deregistration must be
given in the same way.
[24.126]
[24.127]
[24.127]
Deregistration ordered by the court
Deregistration by the ASIC may be ordered by the court:
1. under s 413(1)(d) in reconstruction proceedings in respect of any redundant
company;
2. under s 481(5)(b) when ordering releases of a liquidator on the completion of a
winding up;
3. under s 509(6) following the final meeting in a voluntary winding up.
[24.127]
[24.128]
[24.128]
Deregistration following compulsory winding up
Deregistration by the ASIC under an order of the court may follow an application by the
liquidator under s 480 to the court for an order that the liquidator be released and that the
company be deregistered. For practice on applications under s 480 in New South Wales,
see Nut Trading Co (Aust) Pty Ltd v KKL (Kangaroo Line) Pty Ltd (1997) 25 ACSR 580
and in Queensland, see Re Autistic Therapy Society of Queensland Ltd (in liq) (1981) 5
ACLR 658.
[24.128]
[24.129]
[24.129]
Deregistration following voluntary winding up
In either type of voluntary winding up, when the company’s affairs are fully wound up,
the liquidator is to make up an account showing how the winding up has been conducted
and the company’s property disposed of and is to call a meeting of the company or, in the
case of a creditors’ voluntary winding up, a meeting of the members and the creditors, for
the purpose of laying before it the account and explaining it: s 509.
Within seven days after this final meeting the liquidator is to lodge with the ASIC a
return of the holding of the meeting and a copy of the account. The ASIC must deregister
the company when three months have elapsed after the liquidator has lodged with the
ASIC a return stating that the final meeting has been held with a copy of the final account
attached.
[24.129]
[24.130]
[24.130]
The consequences of deregistration generally
When a company ceases to exist upon deregistration it is treated as dissolved not only by
courts in the place of incorporation but also courts elsewhere. A liquidator loses power in
relation to the company and the liquidator’s statutory duty to the creditors and the
contributories is ended. The liquidator remains liable to creditors for any previous breach
31
of that duty unless the liquidator has obtained a release under s 481.
Because the company ceases to be a legal person it cannot commence any proceeding and
proceedings instituted by it or on its behalf or against it before the dissolution cannot be
continued. But a prosecution for an offence committed while the company existed can
still be begun: CAC (Vic) v Lightbody [1987] VR 900; (1987) 12 ACLR 294. It would
seem that where proceedings are pending against a company which is about to be
dissolved the court has power under s 482 to stay proceedings in the winding up for the
purpose of delaying the dissolution.
Because the company ceases to exist its debts and liabilities cease to exist so far as
enforcement against the company is concerned. But any security, other interest or claim to
which the company’s property was subject when the company held it (s 601AD(3)); and
any charge imposed by law (s 601AE(3)) continue.
The liability of a person who has indemnified the company against liability on an
obligation is discharged. But a guarantor who has guaranteed to a third person
performance of an obligation by the company is not discharged; discharge of the principal
obligor’s obligation does not discharge the guarantor when the discharge is by operation
of law: Re Fitzgeorge [1905] 1 KB 462. Officers of the company remain liable for
conduct before the company was deregistered.
On deregistration all the company’s property vests in ASIC by force of s 601AD(2).
[24.130]
[24.131]
[24.131]
Reinstatement of companies
The ASIC may reinstate the registration of a company if ASIC is satisfied that the
company should not have been deregistered: s 601AH(1). For example, ASIC could
reinstate when a company was deregistered but is still carrying on business.
Reinstatement is also possible by the Federal Court or a state or territory Supreme Court.
Under s 601AH(2) the court has jurisdiction to make an order that ASIC reinstate
registration if:
(a)
(i)
(ii)
(b)
an application is made by:
a person aggrieved by the deregistration; or
a former liquidator of the company; and
the court is satisfied that it is just that the company’s registration be reinstated.
The expression ‘person aggrieved’ is given a wide meaning: see Re Proserpine Pty Ltd
(1980) 5 ACLR 603. From the decisions, it would seem that apart from the
liquidator, the persons with standing to apply are persons with a proprietary or pecuniary
interest in the restoration of the company’s name. For example:
 a mortgagee of land owned by the company: ANZ Banking Group Ltd v Barns
(1994) 13 ACSR 592;
 a creditor who wishes to have the company reinstated so that it can be wound
up: Scott v Janniki Pty Ltd (1994) 14 ACSR 334;
 a person who had a claim for unliquidated damages in tort against the company
at the time of its dissolution could apply: Re Formcrete Services Pty Ltd (1976)
32
2 ACLR 46; CLC 40-261;
a claimant for workers’ compensation may apply: Venn v Direct Line Freight
Pty Ltd (1983) 1 ACLC 998;
 if the company would be solvent, a shareholder with a right to dividends would
have standing: Re Stolidus Nominees Pty Ltd (1986) 11 ACLR 344; 5 ACLC
380;
 a director co-plaintiff with the company in proceedings on foot at the time of
deregistration could seek reinstatement: Denis v McMahon (1989) 7 ACLC 283.
Reinstatement may be opposed by those who have a sufficient interest.
When the registration is reinstated by ASIC, whether on ASIC’s initiative or by order of
the court, the company is taken to have continued in existence as if it had not been
deregistered: s 601AH(5). The company occupies the status it had when it was
deregistered. Hence, if at that time the company was in liquidation, it is a company in
liquidation after the reinstatement and, for example, if the liquidation was by way of
compulsory winding up or creditors’ voluntary winding up, the court’s leave will be
needed before proceedings can be brought against it: Bianchi v Crewe & Sons Pty Ltd
(1996) 22 ACSR 152.

33