Dubolo Pty Ltd v Codrington Investment Corporation Pty Ltd

POWER OF COURT TO TERMINATE WINDING UP UNDER S 482(1) CA 4 At any time during the winding up of a company, the Court may make an order staying the winding up either indefinitely or for a limited time or may terminate the winding up on a day specified in the order: s 482(1) of the CA. 5 By s 482(4) of the CA, the costs of the proceedings before the Court under the section and the costs incurred in convening a meeting of members in accordance with an order of the Court under this section, if the Court so directs, forms part of the costs, charges and expenses of the winding up. 6 Plainly, the power of the Court to terminate a winding up is discretionary and a range of factors may be considered: Metledge v Bambakit Pty Ltd [2005] NSWSC 160; Dubolo Pty Ltd v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723; Re Warbler Pty Ltd (1982) 6 ACLR 526. 7 As did McKerracher J in The King & I Pty Ltd, in the matter of The King & I Pty Ltd [2007] FCA 2085, I accept as relevant factors those factors identified by these authorities and others as follows: (1) The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay. (2) There must be service of notice of the application for a stay on all creditors and contributories, and proof of this. (3) The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged. (4) The attitude of creditors, contributories and the liquidator is a relevant consideration. (5) The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding up is sought. (6) If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given. (7) The general background and circumstances which led to the winding up order should be explained. (8) The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to 'commercial morality' or the 'public interest'. 8 It is also necessary to take into account the broad interests of both present and future prospective creditors, contributories and the 'public interest' including matters of commercial morality. 9 So far as future creditors are concerned an important consideration arises if the proposal for termination of the winding up preserves existing debt. If that is so then it is necessary to ascertain what arrangements exist and whether those arrangements are binding for the subordination of claimants of such debt to newly incurred debts and/or whether there is any proposal to capitalise debts.

CONSIDERATION 10 So far as service of notice of the application on all creditors and contributories is concerned, the following position was disclosed to the Court: (1) The directors and shareholders of the company have provided consents in writing to the application. (2) The company had only two creditors at material times, being the Australian Competition and Consumer Commission (ACCC) and a company related to the company, Mechanical Constructions (WA) Pty Ltd as trustee for the Mechanical Constructions Unit Trust. (3) The ACCC has written off the balance of its debt following a payment of $125,000 having been made to the plaintiff as liquidator. The ACCC is aware of the application to terminate the liquidation. (4) Mechanical Constructions (WA) Pty Ltd is also aware of the application by virtue of the fact that it's sole director and shareholder, David Mark Green, has sworn an affidavit in support of the application for termination of winding up. 11 As to the nature and extent of creditors and whether or not all debts had been or will be discharged, the following was disclosed to the Court: (1) Details of the ACCC debt have been provided, the ACCC was owed $184,105 but has subsequently written off the balance of its debt upon payment of $125,000 having been made to the plaintiff as liquidator. The ACCC has also received its petitioning creditor's costs. (2) The payment of $125,000 received by the liquidator was made from the funds of Mechanical Constructions (WA) Pty Ltd with that loan having been forgiven in full. Mechanical Constructions (WA) Pty Ltd have also written off the debt owed to it by the company of $13,588.32. The consent of the unit holder of the Mechanical Constructions Unit Trust was provided. (3) The plaintiffs affidavit also deposes to the fact that there was no debt owed by the company to the Australian Taxation Office. 12 As to the attitude of creditors, contributories and the liquidator, the liquidator is in favour of the winding up being terminated. 13 As to the current trading position and general solvency of the company, the company will remain a dormant entity for the time being. It will have no assets or liabilities and will not be trading in the foreseeable future. It is anticipated that the company may be used again in the future as part of a group of companies. There are no tax losses which could be claimed against any future income of the company. 14 There is no suggestion of any noncompliance by the directors with their statutory duties as to the giving of information or furnishing a statement of affairs. The winding up order was made on 3 June 2008 and the reports as to affairs from the two directors, dated 15 June 2008 and 15 July 2008 have been provided to the Court. 15 As to the general background and circumstances leading to the winding up orders, these have been fully explained. The plaintiff's affidavit referred to earlier proceedings taken by the ACCC against 39 respondents, including the company leading to a debt owed by the company to the ACCC of $184,105. The winding up order against the company was obtained by the Commonwealth of Australia in relation to that debt owed to the ACCC. 16 The nature of the business carried on by the company was that of a mechanical services contractor. It has also been shown that the company will not have business activities in the immediate future if the winding up is terminated. 17 As to question of "commercial morality" and the "public interest", it is proper to acknowledge the breaches of the Trade Practices Act 1974 (Cth) that led to the debt to the ACCC, were contrary to commercial morality and the public interest. The Court is advised, however, and accepts that injunctions have been put in place with the consent of the company and Mr Blinco, one of the directors. Furthermore, it is apparent from the correspondence of the ACCC, provided to the Court, that the ACCC is satisfied that the Federal Court made orders on 27 July 2007 including permanent injunctions restraining the company from engaging in conduct of the kind the subject of prior proceedings. Mr Green's affidavit, as director, confirmed that there is nothing contrary to commercial morality or public interest insofar as the involvement of Mechanical Constructions (WA) Pty Ltd as trustee for the Mechanical Constructions Unit Trust in this matter is concerned. I accept that that is the case. Conduct by that entity in making payment of $125,000 to the liquidator for the benefit of the company and then writing off that amount, as well as writing off the debt owed to it of $13,588.32, has occurred with consent of its sole unit holder. 18 In these circumstances, the broad interests of present and future prospective creditors, contributors and the general public interest are fully accounted for. 19 So too are the circumstances of future creditors. The company will not be trading and it is proposed to be debt free. 20 The minute of meeting of creditors, provided to the Court, discloses the capping of the liquidator's remuneration in the sum of $25,000 plus out of pocket expenses and disbursements, plus GST with any residual funds after completion of the application for termination of the winding up to be returned to the ACCC. It is apparent from this that there is a benefit to creditors in having the winding up terminated. If the winding up is not terminated, then it is unclear as to how the $125,000 paid to the liquidator should be treated. At best for the creditors, those funds would remain in the hands of the liquidator and be treated in the same manner as set out in the minutes so that there could be no additional benefit in having the winding up continue. 21 In these circumstances, there is no obvious factor weighing against the termination of the company's winding up.

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Judgment (5 paragraphs)

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