Like Night and Day: Winding-up order set aside on application by sole director - Insolvency/Bankruptcy

This week's TGIF considers In the matter of Day & Night Online Transport Pty Ltd (liq) [2018] NSWSC 796, in which a director exercised his powers to commence proceedings in the name of the company to set aside a winding up order.

WHAT HAPPENED?

On 1 May 2018, a winding up order was made in respect of Day & Night Online Transport Pty Ltd (Day & Night). The order was based on a presumption of insolvency arising from a failure to comply with a statutory demand. Orders were also made appointing a liquidator.

Three days following that appointment, an interlocutory application was filed, by the sole director on behalf of the company, seeking orders that:

the winding up of Day & Night be terminated or stayed indefinitely;
management and control of the company return to the officers of Day & Night; and
the orders to wind up the company and appoint a liquidator be set aside.

BASIS FOR THE RELIEF SOUGHT

The director provided affidavit evidence to support the application which demonstrated that, as the controlling mind of the company (being the sole director, sole shareholder and secretary), he did not have notice of the hearing of the application nor did he have notice of the statutory demand that had been served.

His lack of notice was due to a failure to lodge a notice with ASIC to notify the regulator of a change to Day & Night's registered office when the company changed accountants. The director's evidence was that he had contacted the former accountants and they denied any material had been received by them.

Further, it became apparent that the debt the subject of the demand had subsequently been paid in full as well as the liquidator's fees and expenses incurred to date.

THE DECISION

The Court made the orders sought by Day & Night and control of the company was returned to the director.

Factors determinative of the relief granted included that:

the application had been brought promptly after the winding-up order was made; and
the evidence showed both an explanation for non-appearance at the hearing and an indication of solvency.

The reasoning of the Court confirmed that an 'indication of solvency', on an application to set aside a winding-up order under r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (UCPR), does not require "proof" equating to a positive conclusion of solvency. In this instance, a letter from the company's accountant, coupled with the initial view of the liquidator that no outstanding debts were owing, was sufficient enough to meet the threshold required.

STANDING

Separately, in reaching its conclusion, the Court also considered whether the director could, following the making of the winding-up order, bring proceedings in the name of the company.

Whilst a director remains in office following the appointment of a liquidator, section 198G of the Corporations Act 2001 (Cth) prohibits the exercise of any function of an officer when a company is under external administration.

The Court observed that such a restriction does not apply if written approval is obtained from the external administrator or leave is granted by the Court. In this case, written approval was not provided, however, an oral application by counsel for the company at the hearing was considered appropriate for a grant of leave.

COMMENT

There are several useful reminders from this decision for practitioners such as to:

bring applications to set aside a winding-up order without delay to improve prospects of success; and
be mindful that, whilst a director's power may cease when a liquidator or administrator begins managing the company, these powers are not extinguished and can be enlivened in certain circumstances.

Finally, if such a circumstance arises, and leave is sought from the Court, the success of the application will not depend on whether the liquidator has consented to or opposed such action. What will be determinative will be ensuring that justice is done between the parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.