Should the application of the voluntary liquidators be dismissed or qualified orders made as proposed by them?
15 The voluntary liquidators acknowledge that by s 490 of the Corporations Act a company cannot resolve that it be wound up voluntarily if an application for the company to be wound up in insolvency has been filed, except with the leave of the Court.
16 Thus, because an application had been made in this regard at material times, and the Court did order on 5 August 2014 that the company be wound up in insolvency, the leave of the Court is required for the company's resolution that it be wound up voluntarily to have any legal effect.
17 The voluntary liquidators note, as is the case, that the leave of the Court may be given retrospectively. See Re Horsham Kyosan Engineering Co Limited [1972] VR 403; Re Pendonna Pty Ltd [2012] NSWSC 631; Re U-Nited Warranties Pty Ltd [2012] NSWSC 1087.
18 As is also acknowledged by the voluntary liquidators, it will generally be necessary for the company to show that it is preferable that a company be wound up voluntarily, rather than compulsorily before such leave will be granted retrospectively. See Re North Western Fruitgrowers Pty Ltd [1965] VR 306 at 310; Re Pendonna at [3].
19 Thus, the voluntary liquidators acknowledge that on an application for retrospective leave, the Court will necessarily take into account such factors as:
Duplication of work.
Powers and duties of the liquidators.
View of the petitioning creditor.
Voidable transactions.
20 In this case, the voluntary liquidators note that they have undertaken a significant amount of work. They also note that the creditors who attended the meeting on 4 July 2014 did not object to their appointment.
21 They accept, however, that an important consideration is whether any voidable transactions would be affected by an earlier relation-back day, as discussed in Re Pendonna at [5] and in Re U-Nited at [6].
22 They note that the difference in this case is only one day, as the relation-back day under the compulsory winding up would be the day the ATO application was filed, which was one day prior to the resolution of the members of the company to wind up the company. The voluntary liquidators say that they do not consider this will affect any transactions.
23 On the hearing of the application, counsel for the voluntary liquidators, in relation to the form of orders proposed at the hearing, submitted that the Court may, under s 490, make the orders proposed by his clients and that it is appropriate for the Court to officially recognise the voluntary liquidation in order to cure any irregularity with the appointment of the voluntary liquidators and any challenge that might possibly arise in the future as to the validity of acts done by them, including the getting in and sale of property of the company.
24 Counsel emphasised that so far as the relation-back day is concerned, there is only one day in issue and there is nothing to suggest that that is likely to be significant. Counsel noted there is no dispute as to the appropriateness of the work done by the voluntary liquidators.
25 Counsel for the official liquidator, however, expresses the concern that there might be some question about the appropriateness of an order, such as that proposed by the voluntary liquidators, pursuant to s 490. Counsel observed she was not aware, from the authorities, of s 490 having been used in the manner proposed before. Other cases of the leave power being exercised involved winding up either by a voluntary liquidator, or by Court order, but not by a voluntary winding up followed by a compulsory winding up.
26 Counsel for the official liquidator also said that the relation-back day would differ on the orders proposed by the voluntary liquidators but accepted it would probably only involve the difference of one day. She also suggested the "relevant day" for the calculation of a creditor's debt could differ, depending on the order.
27 Counsel for the official liquidator observed that the one relation-back day difference may not be material but her client had not seen any books or records of the company and could not say whether it is likely to be so. Similarly, she could not say if the relevant day concern was material.
28 In order to preserve the position, therefore, and to ensure there is no issue from a winding up point of view, her client did not consider the orders proposed by the voluntary liquidators to be appropriate.
29 In reply, counsel for the voluntary liquidators acknowledge there were some "what if" questions so far as the relation-back day and relevant day questions were concerned. But, he submitted, there were also questions about Mr Cribb's proposed orders to the extent they sought, under s 479(3), to acknowledge the validity of acts of the voluntary liquidators as agents of the company, and in giving priority to payment of the remuneration of the voluntary liquidators in the official winding up of the company. Questions of how legally effectual such orders would be, especially against third parties, were raised.
30 Counsel for the voluntary liquidators indicated that the primary area of concern for his clients was in relation to any possibility that third parties might take action against the voluntary liquidators in relation to their actions as purported agents of the company. Counsel submitted that an order in the form proposed by the official liquidator might not effectually provide the voluntary liquidators with any protection from third parties who later claim they had no power to sell or deal with the assets; that they had no ability to convene meetings with creditors or conduct any proceedings in relation to that particular period of time.
31 To the contrary, counsel submitted that under s 490 of the Corporations Act the Court is fully empowered to make an order in the terms sought.
32 Section 490 has been referred to earlier, it provides as follows:
490 When company cannot wind up voluntarily
(1) Except with the leave of the Court, a company cannot resolve that it be wound up voluntarily if:
(a) an application for the company to be wound up in insolvency has been filed; or
(b) the Court has ordered that the company be wound up in insolvency, whether or not the order was made on such an application; or
(c) the company is a trustee company (within the meaning of Chapter 5D) that is in the course of administering or managing one or more estates.
(2) A person with a proper interest (within the meaning of Chapter 5D) in the estate referred to in paragraph (1)(c), or who has any claim in respect of the estate, is entitled to be heard in a proceeding before the Court for leave under subsection (1).
33 The voluntary liquidators rely on para (1)(b) for the order that they seek permitting the voluntary winding up by them of the company from 24 June 2014 to 5 August 2014.
34 In my view, the power of the Court to give leave means that, if it gives leave, the Court thereby enables the company to resolve that it be wound up voluntarily.
35 As noted above, the power of the Court to grant that leave retrospectively is not in doubt.
36 One question here is whether, under s 490(1), the Court can make an order that has the effect of permitting an earlier purported voluntary liquidation to be recognised, and to proceed for a period, to be followed by a compulsory liquidation. I cannot see anything in the text of s 490(1) that precludes such an outcome, if the circumstances otherwise recommend such a course. Indeed, s 513A(a) contemplates that, upon a compulsory winding up, a winding up might already be in progress.
37 In the unusual circumstances of this case, I do not consider there is any impediment, if it is considered appropriate to do so, to grant leave to the voluntary winding up of the company for the period proposed by the voluntary liquidators. If leave is granted, on the terms proposed, it would not affect the official liquidator's responsibility to wind the company up under the order of the District Registrar made 5 August 2014.
38 In other words, the voluntary liquidation and the compulsory liquidation of the company would run seamlessly together.
39 In the unusual circumstances of this case, and accepting there is a theoretical potential for third parties to challenge the actions of the voluntary liquidators during the purported period of their voluntary liquidation of the company, it seems to me appropriate to provide a formal status to the work they have done in the winding up of the company. To that effect, by recognising the voluntary liquidation, there will be no doubt that they, at material times, acted as agents of the company and there could be no effective challenge, so far as their status is concerned, to their actions as voluntary liquidators.
40 The only question left outstanding is in relation to the relation-back day. If the circumstances were such that there was a significant period of time involved, and not the one day that is actually involved between the two relation-back dates when one applies s 513A(a), the Court might pause longer before making the order sought by the voluntary liquidators. There is a theoretical possibility of transactions on that additional day that might give rise to some voidable transaction. But the voluntary liquidators, by Mr Bredenkamp, say that they are not aware of anything in the work they have done which would give rise to that concern. I accept that assurance.
41 In the unusual circumstances of this case, I consider that concern to protect the validity to the actions undertaken by the voluntary liquidators up until the time of the appointment of the official liquidator, should prevail over any concern that there might some voidable transaction in the additional one day relation-back period. I am not satisfied that a direction, as proposed by (2) of Mr Cribb's minute of proposed orders, would be legally effectual to achieve its purposes against third parties.
42 I would, therefore, grant the leave sought in para (1) of the minute of orders proposed on behalf of the voluntary liquidators, as well as what is proposed in para (2) of that minute which provides for the voluntary winding up to be terminated on 5 August 2014, pursuant to s 482 of the Corporations Act.
43 I also consider that it is appropriate to make further orders in terms of (3), (4) and (5) of Mr Cribb's proposed orders, with some amendment to what currently is proposed in (3)(a). After discussion with counsel for the parties, it was agreed that, if orders were otherwise made on the voluntary liquidators' proposed orders, Mr Cribb's minute might be amended to the effect that Mr Cribb be directed to treat the costs incurred by the voluntary liquidators and their remuneration in the winding up in the total amount of $34,129.36, such sum to be treated as if it attracted priority under s 556(1)(a) of the Corporations Act.