Applicable principles
13 ASIC seeks the winding up of the Companies on just and equitable grounds under s 461(1)(k) of the Act. ASIC has standing to bring that application under s 462(2) and s 464 of the Act.
14 The classes of conduct which justify the winding up of a company on the just and equitable ground are not closed, and each application will depend upon the circumstances of the particular case: Australian Securities and Investments Commission v Kingsley Brown Properties Pty Ltd [2005] VSC 506 at [96].
15 Generally speaking, a company may be wound up on just and equitable grounds where there is a justified lack of confidence in the conduct and management of the company's affairs such as to give rise to a real risk to the public interest that warrants protection: Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd [2016] FCA 371 at [55].
16 Warren J (as her Honour then was) identified three factors of central significance in Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at 469-470:
First, there needs to be a lack of confidence in the conduct and management of the affairs of the company. Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection. Third, there is a reluctance on the part of the courts to wind up a solvent company.
17 The first principle was explained by Sifris J in Galanopoulos v Moustafa [2010] VSC 380 at [32]:
If, after examining the entire conduct of the affairs of the company, the conclusion is that there is a lack of confidence in the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company, that is sufficient to conclude that it is just and equitable that the company be wound up.
18 In respect of the second principle (risk to the public interest warranting protection), Gordon J said in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189 at [23]:
[A] risk to the public interest may take several forms. For example, a winding up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law. Again, there is an overlap between matters which would pose a risk to the public interest for the purpose of s 461(1)(k) and which are relevant to the appointment of a provisional liquidator.
(Citations omitted.)
19 If a company is solvent, that may point against a winding up on the just and equitable ground, but it is not a bar. A case in which there have been numerous contraventions of the Act is one in which it is "precisely the situation where a solvent company should be wound up": Australian Securities and Investments Commission v Planet Platinum [2015] VSC 682 at [95].
20 In Planet Platinum, Efthim AsJ observed that a director cannot rely passively on others to advise him or her of the company's obligations, and cannot abrogate his or her responsibility to manage the company by asserting that someone else has been requested to do so on behalf of the company: [104]-[105]. His Honour held that the manner in which a company has been managed may justify its winding up even where the company is solvent: [106].
21 Conversely, if there is good reason to believe that a company is either cash flow insolvent or balance sheet insolvent, whether or not the formal elements of s 459A of the Act have been satisfied, such circumstances can be taken into account under the just and equitable ground in any event as one of the factors to consider: Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd [2016] FCA 371 at [58].
22 Justice Lander in Australian Securities and Investments Commission v International Unity Insurance Pty Ltd [2004] FCA 1059 at [135]-[139] identified other grounds which may justify a winding up order on just and equitable grounds:
135 The plaintiff is authorised to make an application for winding up on the just and equitable ground where it is in the public interest to do so.
136 There are a number of separate grounds which justify the making of a winding up order under this head. If mismanagement, misconduct, or lack of confidence in the conduct and management of the affairs of a company is established, it may be appropriate to wind up the company under this head.
137 If the plaintiff can establish that there have been breaches of the provisions of the Act, including, but not limited to, breaches of directors' duties, inadequacy of accounts and inadequacy of record keeping, it may be appropriate to make an order under this head.
138 If there is a need to ensure investor protection, a winding up order may be made under this head.
139 An order may be made if a company has not carried on its business candidly and in a straightforward manner with the public. Such an order would also be appropriate where the corporation has acted fraudulently or entered into sham transactions.
(Citations omitted.)
23 There are important public interest considerations when ASIC applies for a winding up order. In Australian Securities and Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110, Gilmour J said at [3]:
The plaintiff stands in a somewhat different position to a private applicant for winding up on this ground because the public interest considerations attaching to ASIC as the corporate regulator are relevant to the application. Where companies are engaged in fund management and where there is evidence of serious mismanagement or repeated breaches of the Act so that there is a risk to the public, and in circumstances where ASIC has lost confidence in the company to comply with the relevant law, the court may act to wind up that company on the just and equitable ground.
(Citations omitted.)
24 In Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504, Finn J said at 531, in relation to statutory bodies authorised to apply for winding up orders:
[T]here seems to be no reason at all why a court entertaining such an application should not have regard to such actual public interest considerations as have … or may have induced the governmental body to seek a just and equitable winding up order.
25 His Honour also said (at 532) that "there is a distinct public interest in the ASC securing compliance with the Corporations Law as such. Its statutory object requires that of it".
26 In Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at 793, Owen J observed that public interest considerations may justify intervention for investor protection or where there have been regular or repeated breaches of the law.