FEDERAL COURT OF AUSTRALIA De Groot and Sydney Dive Centre Pty Limited (ACN 109 900 898), in the matter of AFIYF Pty Limited (in Liq) (ACN 074 864 805) [2006] FCA 159 CORPORATIONS – insolvency – application for termination of winding up order Anderson v Palmer [2002] NSWSC 192 cited Brolrik Pty Ltd v Sambah Holdings Pty Ltd (2001) 40 ACSR 361followed Deputy Commissioner of Taxation, in the matter of Northview Developments Pty Limited (in liq) (ACN 092 804 254) v Northview Developments Pty Limited (in liq) (ACN 092 804 254) [2005] FCA 1825cited IN THE MATTER OF AFIYF PTY LIMITED (IN LIQUIDATION) ACN 074 864 805; PETER RUSSELL DE GROOT AND SYDNEY DIVE CENTRE PTY LIMITED ACN 109 900 898 NSD 340 OF 2006 GYLES J 24 FEBRUARY 2006 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 340 OF 2006 IN THE MATTER OF AFIYF PTY LIMITED (IN LIQUIDATION) ACN 074 864 805 PETER RUSSELL DE GROOT FIRST PLAINTIFF SYDNEY DIVE CENTRE PTY LIMITED ACN 109 900 898 SECOND PLAINTIFF JUDGE: GYLES J DATE OF ORDER: 24 FEBRUARY 2006 WHERE MADE: SYDNEY UPON THE UNDERTAKING OF SYDNEY DIVE CENTRE PTY LTD, PATRICIA JOY DE GROOT AND PETER RUSSELL DE GROOT: 1. That each of them personally guarantee the payment of all creditors of the Corporation as at 10 January 2006 except each other. 2. That in the event of the winding up of the Corporation each of them will make no claim in respect of the loan accounts they currently hold with the Corporation in priority to any other unsecured claims of the Corporation at the time except themselves. 3. That they will not make demand for, nor sue for or in any way seek to recover any part of the debt owing to them by the Corporation or interest in future accruing thereon unless either upon a winding up of the Corporation and subject to undertaking 2 above or in any other circumstances unless upon such repayment: a. current assets of the Corporation will exceed current liabilities; b. total assets of the Corporation exceed total liabilities; and c. the Corporation remains solvent. 4. Each of Patricia Joy de Groot and Peter Russell de Groot undertake that they will procure Sydney Dive Centre Pty Limited to comply with these undertakings. THE COURT ORDERS THAT: 1. The winding up of AFIYF PTY LIMITED (IN LIQUIDATION) ACN 074 864 805 ('the Corporation') be terminated. 2. Pursuant to s 473(3) and/or s 473(5) of the Corporations Act 2001 (Cth), the fees of the Official Liquidator of the Corporation be determined to be the sum of $12,350 inclusive of legal costs and GST. 3. The Liquidator be entitled to disburse the funds held in his trust account to the extent required to pay his fees. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 340 OF 2006 IN THE MATTER OF AFIYF PTY LIMITED (IN LIQUIDATION) ACN 074 864 805 PETER RUSSELL DE GROOT FIRST PLAINTIFF SYDNEY DIVE CENTRE PTY LIMITED ACN 109 900 898 SECOND PLAINTIFF JUDGE: GYLES J DATE: 24 FEBRUARY 2006 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The order to wind up AFIYF Pty Limited (in liquidation) ACN 074 864 805 (the company) was made on 10 February 2006. The application was made on behalf of the Deputy Commissioner of Taxation. As I understand the position, no external creditor appeared on that occasion notwithstanding the usual advertisements and notifications. I am satisfied from the evidence that the non-appearance and non-defence on the part of the company on that occasion was due to inadvertence and was in no sense to be regarded as an admission. 2 The matter having come to the attention of those concerned with the company, an application was promptly made to bring this proceeding for termination of the winding up. I have had the benefit of evidence from Mr De Groot and Mrs De Groot, the principals, if I may put it that way, behind the company concerned and companies associated with it, and an affidavit from the employee of the liquidator who has had carriage of the matter. 3 The application requires some scrutiny. Although it is a case, in effect, of winding up by inadvertence and although it is very promptly brought and although no external creditor appeared, the authorities are quite clear that caution needs to be exercised before a winding up is stayed or terminated lest an insolvent company is returned to commerce. So, even though this is a matter in which the insolvency was purely based upon a non-compliance with the statutory demand which was not in fact received, it is my duty to ensure that I do not, so far as I can, permit an insolvent company to return to trading. 4 I will not deal with the fine detail of the evidence which relates to the question of solvency. That appears sufficiently from the affidavits. I say that because it is clear enough that, although it is contended that there is an excess of current assets over current liabilities and although it is said that current trading will be profitable, the overall position is that liabilities exceed assets if account is taken of all liabilities, including liabilities which are described as subordinated. In my opinion, a company in which the assets are exceeded by liabilities is not solvent, although it may be able to continue trading because it has excess liquidity for the time being. 5 With that in mind, the matter was adjourned to enable consideration to be given to a cure for that. I have now received written undertakings along the lines of those accepted by Barrett J in Brolrik Pty Ltd v Sambah Holdings Pty Ltd (2001) 40 ACSR 361 particularly at [49]. The effect of those undertakings to the Court are to ensure that what were described as the subordinated liabilities will be in truth subordinated to the claim of any unsecured creditor. 6 Under the particular circumstances of this case, notwithstanding the principles that I referred to in Deputy Commissioner of Taxation, in the matter of Northview Developments Pty Limited (in liq) (ACN 092 804 254) v Northview Developments Pty Limited (in liq) (ACN 092 804 254) [2005] FCA 1825 based upon the decision of Barrett J in Anderson v Palmer [2002] NSWSC 192, I propose to make the orders sought. 7 I should note that the plaintiff, the Deputy Commissioner who appeared on the last occasion, has endorsed consent to a previous form of short minutes of order which was less protective of creditors than the one I have finally approved and the solicitor for the liquidator is present and consents. In those circumstances I make orders in accordance with short minutes of order which I have initialled and dated and placed with the papers. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles. Associate: Dated: 28 February 2006 Counsel for the Plaintiffs: BAM Connell Solicitor for the Plaintiffs: John M Barbouttis Solicitor for the Defendant: Mr Chow of the Australian Tax Office Date of Hearing: 22 February 2006 Date of Judgment: 24 February 2006