In the matter of Deccan Holdings Pty Ltd (in liquidation) [2016] NSWSC 122

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Deccan Holdings Pty Ltd (in liquidation) [2016] NSWSC 122 Hearing dates: 20 January 2016 Decision date: 20 January 2016 Jurisdiction: Equity - Corporations List Before: Black J Decision: Order that winding up of company be terminated. Catchwords: CORPORATIONS – Winding up – Application under s 482 of the Corporations Act 2001 (Cth) to terminate a winding up – where applicant offered undertaking to contribute equity to company – whether company is and will be solvent in future – whether to terminate winding up. Legislation Cited: - Corporations Act 2001 (Cth), s 482 Cases Cited: - Re Deccan Holdings Pty Ltd (in liquidation) [2015] NSWSC 1989 - Re Glass Recycling Pty Ltd [2014] NSWSC 439 Category: Procedural and other rulings Parties: Marie-Louise Florian-Kellett (Plaintiff) Deccan Holdings Pty Ltd (in liquidation) (Defendant) Glenn Reindel (Applicant) Representation: Counsel: J Brown (Solicitor) (Applicant)

Solicitors: Matthews Folbigg Lawyers (Applicant) File Number(s): 2015/259744

Judgment – ex tempore 1. By Interlocutory Process filed on 15 December 2015 the Applicant, Mr Glenn Reindel, sought an order under s 482 of the Corporations Act 2001 (Cth) that the winding up of the Defendant, Deccan Holdings Pty Ltd (in liq) ("Company"), be terminated. That order was sought by consent of the applicant for the winding up order and, at that time, by consent of the liquidator appointed to the Company. It appears that the liquidator's position may since have shifted so that, on evidence led before the Court today, the liquidator's position is that he neither opposes nor consents to the termination of the winding up, and, in effect, leaves that question to the Court. 2. The application was supported by several affidavits, to which I referred in my earlier judgment delivered on 18 December 2015 ([2015] NSWSC 1989). I set out the history of the matters which led to the winding up in that earlier judgment, and the evidence that had been led as to the circumstances in which the Company had not appeared in the winding up application and winding up orders had been made. I also referred to evidence of Mr Pereira, who is currently a director of the Company, of an intention to deregister the Company within the next few months, if the winding up of the Company was terminated. 3. I reviewed the relevant authorities and pointed to the importance, in applications of this kind, of proof of the Company's financial position and, most importantly, the Company's ongoing solvency. I also referred to the important decision of Brereton J in Re Glass Recycling Pty Ltd [2014] NSWSC 439, where his Honour undertook a comprehensive review of the relevant authorities, which has subsequently been referred to in decisions of this Court and of the Federal Court of Australia. In my judgment delivered on 18 December, I particularly referred to his Honour's observation that, where a 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 and his Honour's recognition that that was the most significant consideration in such an application. 4. I noted, at paragraph 20 of my 18 December judgment, that there were several matters which might be said to support a termination of the winding up, including a then undertaking offered by the applicant, Mr Reindel, to contribute an amount which would be applied to capitalise shares in the Company. The Short Minutes of Order which are provided to the Court today also offer an undertaking, broadly of that character, so far as amounts that are to be paid to the liquidator and to the petitioning creditor would be capitalised as shares in the Company and would not give rise to a debt to the Company. I will refer below, however, to an additional undertaking which has been offered by the applicant in the course of the application today. I also there referred to several matters which seem to me to tend against an order for termination of the winding up, including issues as to the adequacy of the then financial statements of the Company, and, in particular, the extent of a disclaimer by the accountant who had prepared them as special purpose financial statements, which seems to me to be of such a comprehensive nature that those financial statements provided little useful information to the Court. 5. I concluded, at that hearing, that the application should be dismissed, but nonetheless stayed that order, to allow the opportunity for Mr Reindel, with the benefit of my judgment, to lead further evidence that could have been, but was not, led in support of that application. I noted that relevant matters for such evidence might include an adequate review of the Company's financial statements; evidence of the liquidator as to the steps which had been taken to investigate the Company's position, and confirm the view expressed by the Company's directors that it did not have any debts; and the possibility of a tax clearance from the Australian Taxation Office to confirm the director's belief that the Company need not lodge tax returns. 6. Those matters, and one additional matter, have now been addressed by further evidence led by Mr Reindel in this application. First, Mr Reindel relies on an affidavit of one of the joint liquidators appointed to the Company, Mr Porter, in respect of the application. Mr Porter refers to material which was not before the Court at the time of the earlier application, including inquiries which he had made with third parties to determine whether there were outstanding liabilities owed by the Company, which included inquiries of the Australian Taxation Office and advertisement of his appointment in the Sydney Morning Herald. Mr Porter gives evidence that his inquiries of the Australian Taxation Office indicate that it has no records of a tax account held by it by the Company. That, in itself, might not seem to go very far, since it would raise the question whether such an account should have existed. However, that is a matter which is in turn addressed by other evidence led by Mr Reindel to which I will refer below. 7. Mr Porter's evidence is that, based on his investigations to date, he is satisfied the Company does not have any assets or other liabilities. That evidence goes some way to establish that a termination of the winding up would not leave liabilities unmet, although it raised one other issue which has now been addressed by Mr Reindel in the application. Mr Porter confirms that Mr Reindel has undertaken to pay his costs and expenses of the winding up, addressing a matter which ought ordinarily to be addressed in respect of an application to terminate a winding up. 8. Mr Porter expresses the view that the Company is not insolvent, although it seems that that view is to some extent based, as was the evidence led before me on the previous occasion, on the proposition that the Company does not intend to trade and will not incur any further debts. It does not seem to me that, in itself, it is sufficient to establish a case to terminate a winding up to say that a company, once a winding up is terminated, will not trade or will not incur further debts, without leading further evidence as to how the Company would then meet liabilities, including corporate regulatory fees, which would in the ordinary course arise from its existence. In particular, the proposition that a company will not trade is not, in itself, sufficient to create any positive reason for the Court to terminate a winding up. In saying that, I do not disregard the other evidence led in this case as to the commercial disadvantage to Mr Reindel which would arise from a continuation of the winding up. 9. Mr Porter indicates that his position is that he neither supports nor opposes an order terminating the winding up order and setting aside the order appointing the liquidators, implicitly on the basis that his costs will be met as is contemplated by the order sought. 10. Mr Reindel also relies on a further affidavit of Mr Miller, a certified practising accountant, who has been retained to prepare an expert investigating accountant's report, and acknowledges that he is bound by the Expert Witness Code of Conduct for the purposes of that report. Mr Miller has extensive auditing experience and I am satisfied that he is qualified to express the views which he expresses. Mr Miller's report is helpful, so far as it addresses one of the issues that I have noted in the earlier application, namely the absence of evidence of the reliability of the financial reports of the Company which had been prepared for the purposes of the application. Mr Miller proceeds, consistent with the evidence led in the earlier application, on the basis that the Company's sole purpose was to hold shares in another company, as bare trustee on behalf of other companies, and indicates that he has found no evidence to the contrary in his inquiries. Mr Miller confirms that, in that capacity, the Company had no income or outgoings, and had no taxable income, and no obligation to register with the Australian Taxation Office, although it had an obligation to attend to steps which needed to be taken in order to register the trust for tax purposes. Mr Miller also indicates that, in his view, the accounts prepared on behalf of the Company, as special purpose accounts, are consistent with the manner in which accounts would ordinarily be prepared in respect of a company which operates as a bare trustee. 11. I am satisfied that Mr Miller's report addresses the uncertainty which had arisen, when the matter was last before me, by reason of the extent of the disclaimer made by the accountant who prepared the special purpose accounts, and indicates that those accounts can fairly be relied upon as reflecting the Company's position. That, in itself, might not have been sufficient, however, to bring about a termination of the winding up. 12. I referred in my earlier judgment to the applicable authorities, and I need not further refer to those authorities, other than to emphasise one matter which was noted by Brereton J in Re Glass Recycling Pty Ltd above. His Honour there noted that, where the Court's discretion to terminate a winding up is invoked, it will seek some comfort that the state of affairs that brought about the winding up is not likely to recur in the foreseeable future, and pointed to the concern as to the position of future creditors that is evident in the cases. His Honour also observed that, in an application of this kind, the Court would ordinarily require evidence that demonstrates that a company is, but is also likely to remain, solvent. Importantly, his Honour noted (at [23]) that: "... where a company is intended to resume trading (and, therefore, presumably to incur debts) and it is only 'barely' solvent in the sense that it has a 'zero' balance sheet, with no liabilities but virtually no assets, the court could have no confidence that it would not once again become insolvent as soon as it incurred its first debt." His Honour noted that that was the state of affairs when the application in that case was commenced, but that matter was addressed in that case by an undertaking of the applicant to contribute further equity to the company, which moved the state of affairs from one of "bare solvency" to one in which the company had demonstrated solvency in substance. 1. The present case seems to me to be substantially of the same character as Re Glass Recycling Pty Ltd above, both in the form in which it was commenced and in the form in which it now stands. There is, of course, one significant distinction, namely that the company at issue in Re Glass Recycling Pty Ltd above was a trading entity in its own right, whereas I accept here that the Company functions as bare trustee. Nonetheless, as I noted in my earlier judgment, a trustee incurs liabilities on behalf of a trust, albeit it has a right of indemnity as to those liabilities; the Company in this case had in fact incurred liabilities, which led to it being wound up; and, as Mr Brown fairly conceded on the previous occasion, the Company will continue to incur further liabilities, at least so long as it remains in existence, and at least in respect of corporate filing fees that reflect its continued corporate existence. 2. These matters have fairly been recognised by Mr Reindel, in now offering a further undertaking to the Court that he will contribute or cause to contribute the additional sum of $10,000 equity to the Company, beyond the amount which had already been foreshadowed in respect of funding for the liquidator's fees and the amount payable to the petitioning creditor, which will be made the subject of capitalisation of shares and would not give rise to a debt in the Company. The amount to be contributed is less than was offered in Re Glass Recycling Pty Ltd above, but there is nothing unreasonable in that difference where, as I have noted, the Company is a trustee and not a trading entity, and the amount involved is at least sufficient to ensure that the Court can be satisfied that the Company is adequately capitalised to meet ongoing expenses, within the range of its existing activities, and indeed if it were to expand the range of those activities to some extent. There is, of course, never any guarantee that a company will not fail, but the position in that respect is no different from a company as to which the winding up is terminated, from a company which has not been the subject of such an order. The undertakings which are now offered by Mr Reindel in this application are such that the Court can be satisfied, having regard to the additional capitalisation, that the Company is, so far as prediction is possible, not likely to fall into insolvency in the immediate future, in the manner that has occurred in the past. For these reasons, I am satisfied that I should make orders and note undertakings in substantially the form that is proposed.