HER HONOUR: This is an application brought by notice of motion filed in Court on 7 August 2019, by the second applicant, Mohamad Akram Fawaz, seeking orders pursuant to s 482 of the Corporations Act 2001 (Cth) (Corporations Act) for the termination of the winding up of the first applicant, Fawaz Pty Ltd (in liquidation) (the company), and for the control of the company to be returned to its director.
The second applicant has relied upon the following affidavits in support of the relief sought in the notice of motion: an affidavit affirmed 29 July 2019 by Mr Fawaz, an affidavit affirmed 26 July 2019 by Ms Lorraine El Husseini (the partner of the second applicant) who has responsibility for the day-to-day financial management of the first applicant); an affidavit affirmed 26 July 2019 of Manh Cuong Vu, a tax agent who has been the accountant of the company since 1 July 2017; and an affidavit affirmed 6 August 2019 of the second applicant's solicitor, Mr Jason Green.
Ms El-Husseini deposes to her access to the company's books and records and to the non-receipt by her at the registered office of the company (which is her residential address) of documents in relation to these proceedings, namely, the statutory demand issued by the first respondent on the basis of which the winding up order that is now sought to be set aside was made.
In the matter of Fawaz Pty Ltd [2019] NSWSC 1010 | Case summary | Zoe
The business operated by the company is that of freight hauling and transportation. The company has a number of trucks operated by the director and an employee which transport various goods between locations in accordance with instructions provided by the clients. The company was placed into liquidation on 1 July 2019 by the Registrar in Equity pursuant to an application for winding up filed by the first respondent, Workers Compensation Nominal Insurer. There was no attendance at the hearing for the winding up application on behalf of the company (in the circumstances to which Ms El Husseini has deposed).
The application for orders terminating winding up of the company is on the basis that the company is solvent. In that respect, reliance is placed on the affidavit of Mr Vu. Mr Vu has deposed that the company currently has one outstanding income tax return for the year ending 30 June 2018, which has been finalised but which cannot be lodged in circumstance where the company has now been placed into liquidation. Mr Vu has also prepared a draft income tax return for the year ending 30 June 2019. Mr Vu explains, on the basis of material set out in his affidavit, that he is of the opinion that the company was solvent as at 1 July 2019 and remains solvent.
There is also in evidence communications from the liquidators of the company (who are the second respondents) and who have, amongst other things (while noting that they have had limited time to formally express an opinion on the company's solvency and have based their opinion on the records of the company provided to them, together with representations from Mr Fawaz, Ms El Husseini and Mr Vu, and information provided by their legal representation) stated that there is reason to believe that the company is likely solvent or able to continue operating as a going concern.
The liquidators (the second respondents) and the first respondent have been served with the applicants' notice of motion and supporting affidavits. The first and second respondents neither consent to nor oppose the orders sought in the motion, and the second respondents have reached agreement with the applicants in relation to the payment for costs of liquidation to date. The Australian Securities and Investments Commission (ASIC) has been notified of the second applicant's intention to bring this motion, in accordance with r 2.8 of the Supreme Court (Corporations) Rules 1999 (NSW) and has acknowledged receipt of that application. ASIC's position in relation to the application to terminate the winding up of the company is not known.
Section 482 ('[p]ower to stay or terminate winding up') of the Corporations Act provides:
(1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
(1A) An application may be made by:
(a) in any case - the liquidator, or a creditor or contributory, of the company; or
(b) in the case of a company registered under section 21 of the Life Insurance Act 1995 - APRA; or
(c) in the case of a company subject to a deed of company arrangement - the administrator of the deed.
(2) On such an application, the Court may, before making an order, direct the liquidator to give a report with respect to a relevant fact or matter.
(2A) If such an application is made in relation to a company subject to a deed of company arrangement, then, in determining the application, the Court must have regard to all of the following matters:
(a) any report that has been given to the Court by:
(i) the administrator, or a former administrator, of the company; or
(ii) the liquidator, or a former liquidator, of the company; or
(iii) ASIC;
and that contains an allegation that an officer of the company has engaged in misconduct;
(b) any report that has been lodged with ASIC by:
(i) the administrator, or a former administrator, of the company; or
(ii) the liquidator, or a former liquidator, of the company;
and that contains an allegation that an officer of the company has engaged in misconduct;
(c) the decision of the company's creditors to resolve that the company execute a deed of company arrangement;
(d) any document that accompanied a notice of the meeting under section 439A when the company was under administration;
(da) any notice that has been given to the administrator of the deed of company arrangement or the company's creditors under section 445HA (notification of contravention of deed of company arrangement);
(e) whether the deed of company arrangement is likely to result in the company becoming or remaining insolvent;
(f) any other relevant matters.
(3) Where the Court has made an order terminating the winding up, the Court may give such directions as it thinks fit for the resumption of the management and control of the company by its officers, including directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up.
(4) The costs of proceedings before the Court under this section and the costs incurred in convening a meeting of members of the company 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.
(5) Where an order is made under this section, the company must lodge an office copy of the order within 14 days after the making of the order.
I have been taken to case law, in which the principles to be applied and the factors to be considered on an application under s 482 of the Corporations Act have been considered, including in In the matter of 311 Hume Highway Liverpool Fund Pty Ltd (in liquidation) [2013] NSWSC 465 (311 Hume Highway) (Black J) (at [4]) (his Honour there quoting the factors summarised by Master Lee QC in Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533), which was applied by Brereton J, as his Honour then was, in In the matter of Glass Recycling Pty Ltd (ACN 001 332 654) [2014] NSWSC 439 (Glass Recycling) (at [15]). In Glass Recycling, Brereton J, as his Honour then was, summarised the relevant factors as including:
• The attitude and interests of the creditors, including future creditors whose interests might be prejudiced if the company were released from winding up;
• The interests of the liquidator, particularly with regard to remuneration;
• The interests of contributories, so that a stay or termination will not generally be granted unless each member either consents to it or is bound not to object to it, or his or her rights are properly secured;
• The public interest, including matters of commercial morality, and whether all the company's debts have been discharged;
• The company's trading position and general solvency; and
• Any explanation for any non-compliance with statutory duties and of the circumstances leading to the winding up.
I note that Brereton J in Glass Recycling also observed that an order terminating the winding up of the company will usually be made if all the creditors are paid, the liquidator's costs and expenses are covered and the members agree (see [18]), but that his Honour also made clear that "more is necessary than merely establishing that the state of affairs that required the company to be wound up no longer exists", having regard to the references to "commercial morality" as a relevant consideration and to the interests of future as well as extant creditors.
At [18] and [19], his Honour said that the second broad consideration that informs the exercise of the Court's discretion (once it is satisfied that the state of affairs that originally required winding up no longer exists) is that it would be reasonable to entrust the affairs of the company once again to the directors under whose management it had previously failed.
In the present case, there is evidence as to the payment of the only creditors known to the liquidators, those being the plaintiff (Workers Compensation Nominal Insurer), the Australian Taxation Office (ATO), and ANZ Banking Group (ANZ Bank). The ATO liability related to business activity statement liabilities in the amount of $530 and there is evidence that that amount has been paid. In relation to the ANZ Bank, there was a deficit bank account balance debt of $5,984.53 at the date of liquidation, in respect of which a formal proof of debt was lodged. There is evidence that on 15 July 2019 a debtor of the company made a payment into the company's bank account of $34,280.69, and the liquidators have subsequently confirmed a credit balance now in the company's account of $28,223. The liquidators have made attempts to confirm with ANZ Bank that there is no longer an outstanding debt. However, they are yet to receive a response. (That said, it is reasonable to infer that the credit balance means that this amount has or can be discharged.) As to the plaintiff, a cheque has been delivered to the plaintiff's solicitors and is being held in the plaintiff's solicitor's trust account in the amount of $17,111.27 on account of the outstanding liabilities, together with the amount of costs ordered by Registrar Walton on 1 July 2019.
There is also evidence as to further liabilities that have accrued with respect to motor vehicle finance with ANZ Bank and St George Bank that the company obtained for its trucks, the payment for which would ordinarily come from a direct debit arrangement from the company's bank account around the middle of each month. That did not occur in the month of July and there is evidence that Mr Fawaz has made payments with respect to those amounts in order to ensure that the finance remains up to date.
The only remaining liabilities of the company that are unpaid will be those of the liquidator's costs and expenses in the liquidation of the company. The liquidators have advised that they seek an order with respect to their costs in the amount of approximately $27,377.35 and that there are sufficient funds in the company's bank account to make payment to the liquidators from the company's bank account (and as adverted to above payment of that amount has been agreed).
On that basis, it is submitted that the company's creditors have either been paid in full or that there are funds sufficient to ensure that payment in full will occur. The director has been unable to obtain copies of bank statements of the company from St George Bank or ANZ Bank to verify that there are no liabilities outstanding because the banks refused to provide those statements once the company was in liquidation.
As to the solvency of the company, I have referred already to Mr Vu's draft financial statements and to his opinion, as well as to the opinion of the liquidators.
The company's balance sheet shows that the company has net assets in excess of net liabilities. A large part of the liabilities is a loan payable to the director of $57,103. That loan is a loan at call and is not evidenced by any loan agreement. The director has deposed that he will not seek to call for repayment of the loan in the future should it put the company in a compromised cash flow position; and it submitted that it is likely that if the director does call upon the loan it will be in smaller amounts.
As adverted to, by letter dated 5 August 2019, the liquidators, who have undertaken an analysis of the company's financial information (based on the information they have at hand), have advised that it is likely that the company is solvent or able to continue operating as a going concern. It is, thus, submitted by the applicant that the state of affairs that required the company to be wound up no longer exists.
The non-attendance at the winding up hearing by the company has been explained by Ms El Husseini. No criticism is levelled at the plaintiff for the manner in which the plaintiff sought to conduct the matter. It is unclear why it is that the documentation was not received by Ms El Husseini. The registered office of the company was Ms El Husseini's residential address. However, Ms El Husseini has affirmed in her affidavit (at [11]) that she never received any correspondence in the mail and there is no basis on which to doubt that explanation. Mr Fawaz in his affidavit has affirmed (at [12]) that, had he known about the debt to the plaintiff, he would have ensured it was paid to avoid the company's winding up.
It is submitted that the non-attendance by the company or its representative at the hearing of the winding up application was due to the application never coming to the attention of the company's director and is not indicative of any commercial impropriety or lack of commercial morality, such as to warrant refusal of the current application. I am told that if there is likely to be difficulty in relation to receipt of mail at the registered office of the company in the future, its registered office will be changed.
As noted earlier, the submissions for the applicant note that the motion was served on the liquidator, the plaintiff, and ASIC; and that all creditors of the company have been paid in full. Reliance is also placed on the fact that the liquidators and the plaintiff neither consent to nor oppose the orders sought in the motion. Reliance is placed on the liquidator's report for the proposition that there has been compliance by the director in terms of the completion and submission of the report on company activities and property as required by the liquidators. The applicant submits that there has been compliance by the director with respect to his statutory duties in that regard, and that the conduct of the company is not in any way contrary to commercial morality or the public interest.
As noted earlier, the liquidator's costs and expenses are secured by the funds in the company's bank account, albeit that that will reduce the bulk of the credit amount in the company's bank account at the moment. It is, thus, submitted that the facts of the case favour an exercise of the Court's discretion in favour of the company by terminating the winding up and returning the company to the hands of the directors and I am persuaded that that is the case. In those circumstances, I will make the orders sought.
[2]
Orders
For the above reasons, I make the following orders which will now dispose of the originating process:
1. Pursuant to s 482 of the Corporations Act 2001 (Cth), the winding up of Fawaz Pty Ltd (ACN 160 605 774) (in liquidation), be terminated.
2. Pursuant to r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW), the order of Registrar Walton made on 1 July 2019 winding up Fawaz Pty Ltd (in liquidation) on 1 July 2019 be set aside.
3. Control of Fawaz Pty Ltd (in liquidation) be returned to its director.
4. The applicant's originating process be otherwise dismissed.
5. The Court notes the agreement between the first and second applicants and the second respondent that:
1. the second respondent's remuneration and expenses (including legal costs) of acting as the liquidators of the first applicant are agreed in the sum of $27,409.25; and
2. those are to be paid from the bank account of the first applicant before control of that account reverts to the first applicant.
1. Otherwise, no order as to costs.
[3]
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Decision last updated: 12 August 2019