The company Hilbon Transport Pty Ltd ACN 143 822 146 was wound up by order of the court made on 10 May 2016, when Michael Smith was appointed as its liquidator. By interlocutory process filed on 27 July 2017, the liquidator applied for orders that he be released as liquidator and that ASIC deregister the company, and directions under (CTH) Corporations Act 2001, s 542, permitting him to destroy the books and records of the company after the expiry of 30 days from its deregistration (that is to say, within the period of five years after the deregistration of the company, for which that section would otherwise have required that he retain them). At the hearing on 4 September 2017, all matters entitling the liquidator to a release and an order that ASIC deregister the company were established and those orders were made; however, in circumstances where the second tranche of amendments effected by the (CTH) Insolvency Law Reform Act 2016 (ILRA) had commenced on 1 September 2017, a question arose as to whether the order granting permission to destroy the books could be made.
Until its repeal by ILRA, which in this respect was effective from 1 September 2017, [1] Corporations Act, s 542(3) and (4), provided that a liquidator may, in the case of a winding up by the court, apply to the court for directions that he or she may destroy the books within the period of 5 years after the dissolution of the company (for which the liquidator was otherwise required to retain them), and must give ASIC at least 14 days' notice of such application (whereas in the case of a members' voluntary winding up, the company may by resolution direct that the books be destroyed, and in the case of a creditors' voluntary winding up, the committee of inspection, or, if there is no such committee, the creditors, may so direct, while in both the latter cases ASIC must consent to a destruction of the books):
(3) Despite subsection (2) but subject to subsection (4), when a company has been wound up, the books referred to in subsection (1) may be destroyed within a period of 5 years after the deregistration of the company:
(a) in the case of a winding up by the Court - in accordance with the directions of the Court given pursuant to an application of which at least 14 days notice has been given to ASIC; and
(b) in the case of a members' voluntary winding up - as the company by resolution directs; and
(c) in the case of a creditors' voluntary winding up - as the committee of inspection directs, or, if there is no such committee, as the creditors of the company by resolution direct.
(4) The liquidator is not entitled to destroy books as mentioned in paragraph (3)(b) or (c) unless ASIC consents to the destruction of those books.
From 1 September 2017, s 542 is repealed and replaced by s 70-35 of Schedule 2 (The Insolvency Practice Schedule (Corporations)). However, s 70-35 contains no corresponding provision conferring power on the Court to abridge the time for retention of books in the case of a winding up by the Court; rather, it provides:
70-35 Retention and destruction of books
(1) Retention period for books. The last external administrator of a company must retain all books of the company, and of the external administration of the company, that:
(a) are relevant to affairs of the company; and
(b) are in the external administrator's possession or control at the end of the external administration;
for a period (the retention period) of 5 years from the end of the external administration.
(2) Exception - reasonable excuse. Subsection (1) does not apply if the external administrator has a reasonable excuse.
(3) Exception - consent of ASIC etc. Despite subsection (1), the books may be destroyed within the retention period:
(a) in the case of a members' voluntary winding up - as the company by resolution directs; and
(b) in the case of a creditor's voluntary winding up or a court-ordered winding up:
(i) if there is a committee of inspection - as the committee directs; and
(ii) otherwise - as the creditors by resolution direct; and
(c) if the external administrator is appointed as a provisional liquidator - as the Court directs;
if ASIC consents to the destruction.
(4) Destruction of books at end of retention period. The external administrator may destroy the books at the end of the retention period.
(5) A person commits an offence if:
(a) the person is subject to a requirement under subsection (1); and
(b) the person intentionally or recklessly fails to comply with the requirement.
Penalty: 50 penalty units.
Note:
A defendant bears an evidential burden in relation to the matters in subsections (2) and (3) (see subsection 13.3(3) of the Criminal Code).
(6) Subsections (3) and (4) do not apply to the extent that the external administrator is under an obligation to retain the books, or a part of the books, under another provision of this Act or under any other law.
For the liquidator, Mr Narayan submitted that resort could still be had to the power in the repealed s 542, by reason of Corporations Act s 1596, which provides:
1596 Retention and destruction of administration books
(1) Application of the Insolvency Practice Schedule (Corporations). To avoid doubt, section 70-35 of the Insolvency Practice Schedule (Corporations) applies to books relating to an ongoing external administration whether or not the books were kept under a provision of the old Act or of the Insolvency Practice Schedule (Corporations).
(2) Old Act continues to apply in relation to books for old external administrations. If:
(a) an external administration of a company ends before the commencement day; and
(b) immediately before that day, a person was required under section 542 of the old Act to retain books of the company for a period; and
(c) but for the repeal of that section by Schedule 2 to the Insolvency Law Reform Act 2016, that period would have ended on or after the commencement day;
section 542 of the old Act continues to apply (despite its repeal by Schedule 2 to the Insolvency Law Reform Act 2016) on and after the commencement day in relation to the person for the remainder of that period.
(3) Continued effect of consent by ASIC under old Act. If before the commencement day, a person is entitled under subsections 542(3) and (4) of the old Act to destroy books of a company (or of the person's that are relevant to the affairs of the company) then, despite section 70-35 of the Insolvency Practice Schedule (Corporations), those books may be destroyed.
The proposition that s 542 remains applicable on that basis therefore depends on when, for the purpose of s 1596(2)(a), the external administration of a company ends. The dictionary in the Insolvency Practice Schedule provides that "end of an external administration of a company" means, relevantly, in the case of a winding up of a company, "the day on which the affairs of the company are fully wound up".
In Re London and Caledonian Marine Insurance Co, [2] it was held that the words "as soon as the affairs of the company are fully wound up" meant "when the liquidator has done all that he can to wind up the company, when he has disposed of the assets as far as he can realise them, got in the calls as far as he can enforce them, and paid the debts as far as he is aware of them, and has done all that he can do in winding up the affairs, so that he has completed his business so far as he can, and is functus officio". That passage was cited in Bianchi v Crewe & Sons Pty Ltd, [3] by Franklyn J who said (in the context of the then Corporations Law):
The liquidator's obligation under subs 509(1) in such case is to make up his account, convene the meeting there provided for and, within seven days thereafter lodge a return of the holding of that meeting together with the account (subss 509(2), (3) and (4)). By virtue of subs (5), the company was dissolved at the expiration of three months after the lodgement of that return. It was thereupon no more: John Birch and Co Ltd v Patent Cork Asphalt Co Ltd [1895] 21 VLR 268. That the liquidator, having fully wound up the affairs of the company and so being functus officio, ceased to so act on 27 January 1994 save to comply with his obligations under s 509, could in no way affect the status of the company between that date and the dissolution on 27 April 1994. It remained a company the subject of a resolution for its voluntary winding up and so one to which subs 500(2) applied. That the point was not argued does not affect the status of the company at law and confer on it, by virtue of the order of 11 October 1994, an immunity from the application of that section.
That indicates that the completion of the winding up of the affairs of the company may not coincide with, but may precede, the release of the liquidator and the deregistration of the company. Thus, in Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd, [4] Barrett J accepted that there is a distinction between completion of the process of winding-up the company's "affairs" (as referred to in s 509(1) of the then Corporations Law), and the status of the company as one that "is being wound up", so that the latter may endure notwithstanding that the former has been achieved. His Honour said:
It follows that Mr Zahra is correct in submitting that there is a distinction between completion of the process of winding-up the company's "affairs" (that being the process referred to in s 509(1)) and the status of the company as one that "is being wound up" - and that the status of "being wound up" may continue even though "the company's affairs have been fully wound up". It also follows, I think, that one cannot accept the observation of Master Sanderson in Keith v Verge [2009] WASC 338 at [20] that a company is not "being wound up" after the liquidator has made the final lodgement called for by s 509 and before deregistration has occurred.
These authorities are reflected in the statement in Keay, [5] to the effect that a winding up is completed when all the property of the company (or so much as can be realised without needlessly protracting the liquidation) has been realised, and the liquidator has distributed a final dividend to the creditors, adjusted the rights of the contributories, and made a final return, if any, to the contributories:
Release is a further means of terminating the appointment of a liquidator in compulsory winding up … the liquidator remains in office until winding up is completed. This occurs when all the property of the company (or so much as can be realised without needlessly protracting the liquidation) has been realised, the liquidator has distributed a final dividend to the creditors, adjusted the rights of the contributories, and made a final return, if any, to the contributories.
Accordingly, "the end of the external administration" occurs when the affairs of the company have been fully wound up, which is when the matters referred to in s 480 have been completed: that is to say when the Liquidator has completed the process entrusted to him or her by realising property, distributing a final dividend to creditors, adjusting the rights of contributories and making any final return to contributories.
In this case, those matters had been completed in June 2017, prior to the filing of the interlocutory process. It follows that, by operation of s 1596(2), s 542 continues to apply, and the Court has power under that provision to make a direction for the early destruction of the books and records of the company.
The same result can be reached by an alternative route under Corporations Act, s 1617, which provides that if proceedings are brought under the old provisions of the Act before the commencement day of the new provisions, which is relevantly 1 September 2017, then the old provisions continue to apply on and after the commencement day in relation to the proceedings, despite the amendments and repeals made by Schedule 2 to the Insolvency Law Reform Act 2016, and nothing in that Schedule affects the power of the Court to make orders in relation to the proceedings. As the interlocutory process was filed for relief under the old provisions (in particular, s 542) before 1 September 2017, s 542 continues to apply in relation to the present application.
[3]
Conclusion
For those reasons:
1. an external administration ends, for the purposes of Corporations Act, s 1596(2), when the affairs of the company have been fully wound up, which is when the matters referred to in Corporations Act, s 480, have been completed: that is to say when the Liquidator has completed the process entrusted to him or her by realising property, distributing a final dividend to creditors, adjusting the rights of contributories and making any final return to contributories;
2. in this case, those matters had been completed in June 2017, prior to the filing of the interlocutory process, and it follows that, by operation of s 1596(2), Corporations Act, s 542, continues to apply, and the Court has power under that provision to make a direction for the early destruction of the books and records of the company; and
3. alternatively, as the interlocutory process was filed for relief under s 542(2) before 1 September 2017, by operation of Corporations Act s 1617, s 542 continues to apply in relation to the present application.
The Court orders that:
1. Pursuant to Corporations Act, s 542(2), s 1596(2) and/or s 1617, the books of Hilbon Transport Pty Ltd ACN 143 822 146 in the possession of the applicant Michael John Morris Smith as liquidator may be destroyed after the expiry of 30 days from the deregistration of the company.
[4]
Endnotes
For a detailed explanation of the statutory provisions which produce this result, see Re Glengrant Civil Pty Ltd (In Liq) [2017] NSWSC 843 at [11]-[27] (Robb J).
[1879] 11 Ch D 140.
(1996) 22 ACSR 152 at 156-157.
(2010) 80 ACSR 670 at [21]; cited with approval by the Full Federal Court in Oreb v Australian Securities and Investments Commission (No 2) [2017] FCAFC 49.
Keay, A, The Law of Company Liquidation (1999, 4th ed, LBC Information Services) at pp 315-316.
[5]
Amendments
28 September 2017 - Typographical errors at paragraphs [9] and [12].
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Decision last updated: 28 September 2017