Supreme Court New South Wales Medium Neutral Citation: In the matter of S & W Slade Pty Ltd (in liq) [2020] NSWSC 981 Hearing dates: 22 June 2020 Date of orders: 22 June 2020 Decision date: 22 June 2020 Jurisdiction: Equity - Corporations List Before: Black J Decision: Winding up terminated. Catchwords: CORPORATIONS – External administration – Winding up – Termination of winding up – Liquidator consents – Present creditors paid out – Sufficient funds to meet liquidators' costs Legislation Cited: - Corporations Act 2001 (Cth), s 482, 511; Sch 2, s 90-15; Pt 5.4B - Insolvency Law Reform Act 2016 (Cth) Cases Cited: - Re Glass Recycling Pty Ltd [2014] NSWSC 439 - Re Modena Imports Pty Ltd (in liq) [2010] NSWSC 739 - Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797 - Re Warbler Pty Ltd (1982) 6 ACLR 526 Category: Principal judgment Parties: Stephen Garry Slade and Wendy Maree Slade (Plaintiffs) Benjamin Joshua Ismay and Scott Anthony Newton (Defendants) Representation: Counsel: W Chan (Plaintiffs) Solicitors: Priest Legal (Plaintiffs) File Number(s): 2020/151589 Judgment – ex tempore (revised 24 june 2020) Nature of the application 1. By Amended Originating Process filed on 15 June 2020 the Plaintiffs, Mr and Mrs Slade, apply to terminate the winding up of S & W Slade Pty Ltd (in liq) ("Company"). The application was originally made under s 482 of the Corporations Act 2001 (Cth) but is now pressed under s 90-15 of the Insolvency Practice Schedule (Corporations) ("IPSC"). Agreement has been reached between Mr and Mrs Slade and the liquidators of the Company as to arrangements that will bring about the payment of the liquidators' fees and the amounts due to remaining creditors. 2. The application raises a preliminary question as to whether, following the commencement of the Insolvency Law Reform Act 2016 (Cth), an order for the termination of a creditor's voluntary winding up should be made under s 482 of the Corporations Act or s 90-15 of the IPSC although it is not necessary to determine that question for any practical purpose. I note that s 482 of the Corporations Act appears in Part 5.4B of the Act, under the heading "Winding up in insolvency or by the Court", and in Division 3, headed "General powers of the Court". That section has, in several previous cases, been relied upon in order to terminate the winding up of a company in insolvency. However, in Ford's Principles of Corporations Law [27.129], Dr Austin and Professor Ramsay note that s 482 does not apply of its own force to a company that was wound up voluntarily, although s 511 of the Act previously permitted the Court to exercise the powers in a voluntary winding up that it could exercise in a Court ordered winding up. That section was repealed by the Insolvency Law Reform Act, and a broad power for the Court to make orders in an external administration was introduced in s 90-15 of the IPSC. 3. It does not seem to me to be necessary to determine whether that section is available in its terms because, as Mr Chan who appears for the Plaintiffs recognises, s 90-15 of the IPSC permits the Court to make such order as it thinks appropriate in relation to the external administration of a company, although the orders referred to in that section do not specifically include the termination of a winding-up. Where either s 482 of the Act or s 90-15 of the IPSC would be available, it is not necessary to determine which of them applies here. Chronology and affidavit evidence 1. Mr Chan refers to the chronology of events, by which the Company became subject to a judgment debt in the District Court of New South Wales; the Company was then placed in a creditors' voluntary winding up; Mr and Mrs Slade were found to be liable as guarantors for the judgment debt, on an appeal from the District Court; and, having paid out that debt, obtained rights of subrogation as against the Company by which they became its creditors. They now apply to terminate the winding up, with a view to taking certain steps, including terminating a setoff arrangement which they had established, which would allow them to receive a franking credit on a distribution made to them as shareholders. It is not necessary for the Court to express any view, in this application, as to whether their hope to achieve that result will be achieved. 2. Mr and Mrs Slade rely on their respective affidavits dated 13 March 2020 which recognise the steps which would need to be taken, and which have been taken, to discharge the claims of the liquidator and of the Company's creditors before the winding up could be terminated. Mr Slade refers to his wish to terminate the winding up for several reasons, including his wish to claim franking credits, but also to avoid a reputational impact of the winding up in relation to his son's company of a similar name. Mrs Slade supports that approach. 3. By affidavits dated 7 May 2020, the liquidators, Mr Ismay and Mr Newton, exhibit a number of documents relating to the course of the winding up, and refer to the requirements which they have indicated for their consent to the termination of the winding up, which included payment to the Company of sufficient funds to meet the liquidators' current and future costs and disbursements and to pay out all remaining unsecured claims of creditors of the Company, which were in a relatively small amount. Mr Ismay's affidavit refers to the steps that he would take on an order terminating the winding up, including lodging a current quarter business BAS statement, which would bring about a GST refund, notifying ASIC, and recovering his remaining remuneration and disbursements, and he notes that all proven and admitted claims of the Company's creditors have now been paid in full. 4. By a further affidavit dated 16 June 2020, Mr Slade refers to the arrangements by which he and his wife paid out the claim against the Company which gave rise to the judgment debt, as guarantors, and became creditors of the Company, and forgave a debt owed by the Company to them, and to his wish to terminate the winding up in order to secure franking credits available, if the winding up is terminated before 1 July 2020. An affidavit of the Company's accountant, Mr Grigg, dated 17 June 2020 also outlines the history of the relevant events, and refers to the steps which would need to be taken to reverse a set-off of certain debts, in order to pay a distribution to shareholders and give rise to the franking credit. As I have noted above, the Court need not form any view as to the efficacy of those proposed steps in order to deal with this application. By a further affidavit dated 17 June 2020, Mr Ismay also refers to the relevant transactions, and notes that he does not take any objection to the application, as liquidator, where all creditors have been paid and the Company has no outstanding liabilities. The relevant issues and determination 1. The issues which arise in a termination of a winding up are, of course, well-established. At least where a winding up was sought to be terminated under s 482 of the Corporations Act, relevant factors include the attitude and interests of creditors, including future creditors whose interests might be prejudiced if a company were released from the winding up; whether a company's debts have been discharged; its trading position and general solvency; and the circumstances relating to the winding up: Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533. 2. In Re Modena Imports Pty Ltd (in liq) [2010] NSWSC 739 at [13], Palmer J identified relevant considerations including that the applicant must make out a positive case for the favourable exercise of the Court's discretion; the applicant must show the nature and extent of the creditors, and whether all debts have been discharged; the attitude of creditors, contributories and the liquidator is a relevant consideration; the applicant must show the current trading position and general solvency of the company; the applicant must provide a full explanation of any non-compliance by the directors with their statutory duties; the applicant must explain the general background and circumstances leading to the winding up order; and the applicant must show the nature of the company's business and whether the conduct of the company was in any way contrary to "commercial morality" or "the public interest". In Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797 at [24], Bergin CJ in Eq noted that a company's solvency is the most significant matter for consideration in an application of this kind, and other considerations tend to be taken into account in determining whether a company has returned to, or will be returned to, solvency. 3. In Re Glass Recycling Pty Ltd (ACN 001 332 654) [2014] NSWSC 439 at [15], Brereton J summarised the considerations that inform the exercise of the Court's discretion to terminate a winding up pursuant to s 482 of the Corporations Act 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 liquidator's interests, particularly with regard to remuneration; contributories' interests, so that a winding up will not generally be terminated 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. His Honour also observed (at [18]–[19]) that: "Essentially, on such an application, the court must be satisfied, first, that the state of affairs that required that the company be wound up no longer exists. Where the winding up was on grounds of insolvency, it will be necessary for the applicant to demonstrate that the company is not, or is no longer, insolvent. This is usually the most significant consideration [Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797, [24]]. Thus it has been said that an order terminating the winding up would usually be made if all the creditors are paid out, the liquidators' costs and expenses are covered, and the members agree [Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, [58]; Re Kitchen Dimensions Pty Ltd (in liq) [2012] VSC 280]. However, the factors to which the cases refer demonstrate that more is necessary than merely establishing that the state of affairs that required the company to be wound up no longer exists. This appears from, inter alia, the references to "commercial morality" as a relevant consideration, and also from references to the interests of future as well as extant creditors. These factors illustrate that the second broad consideration that informs the exercise of the court's discretion — once 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 previously failed." 1. It seems to me that this application is a finely balanced one. There is no suggestion that, if the winding up is terminated, the Company will then undertake any substantial, or any, trading activities in the evidence led before the Court, although it would, so long as it remained in existence, incur some costs such as, for example, fees payable to the Australian Securities and Investments Commission. It appears that the funds which have been paid by Mr and Mrs Slade, at the liquidators' request, are sufficient to pay out creditors and to pay out the liquidators' costs, but it is not apparent that they will leave any substantial surplus capital in the Company in order to secure its future solvency. However, Mr Chan has pointed out that the company has some existing capital, although it is not large in amount. There is no suggestion that that capital has been dissipated, and no reason to think it would have been where the relevant claim was paid out by Mr and Mrs Slade by the Company. 2. On balance, albeit with a degree of hesitation, it seems to me that the Company has sufficiently established its solvency in the circumstances to warrant an order for reinstatement, where that order is sought for a legitimate commercial reason, and in circumstances that the Company does not propose to continue to trade. However, I reach that result only with a degree of hesitation, and it seems to me that it would have been preferable in this case, and may be required in other cases, that an additional contribution of capital be made, of the kind required by Brereton J in Re Glass Recycling to which I have referred above. Orders 1. Accordingly, I make the orders noting that it is not necessary to specify a particular power in order to terminate the winding-up: 1. The winding-up of S & W Slade Pty Ltd (In Liq) be terminated with immediate effect. 2. The Plaintiffs pay the costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 July 2020