What happens when a company does not attend its winding up hearing? In the majority of cases, the company obviously gets wound up without opposition. The real question is whether the winding up order can be set aside, and whether this is something to which a liquidator should turn his or her mind.

Setting the Order Aside

Rule 39.05(a) of the Federal Court Rules 2011 (Cth.) and rule 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) empower the Federal Court and Supreme Court to vary or set aside orders made in the absence of a party.

In George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 (Hodgson J), the Supreme Court held that the court should exercise that power to set aside a winding up order if:

• the order is made in the absence of the defendant company;
• the application to set aside the winding up is brought promptly;
• notice is given to the liquidator, to the person who sought to have the company wound up and to any creditor who appeared at the hearing;
• the evidence shows an explanation for the non-appearance
• there is consent or at least no opposition to the setting aside; and
• the liquidator shows there is nothing in his investigations to date showing a reason for the company to be stopped from trading.

This has been given wide approval: see e.g. DCT v JJ & Son Pty Ltd [2013] FCA 556 (JJ & Son); Twin Peaks Leisure Pty Ltd (in liq) v Workers Compensation Nominal Insurer [2012] FCA 1501 (Twin Peaks)

The majority of these criteria are self-explanatory, but what ‘explanations’ for non-appearance are acceptable?

Acceptable Explanations

Some of the accepted explanations for non-appearance include where:

1. The company was deprived of an opportunity to appear due to the conduct of a person who has been responsible for ‘substantial fraud’ upon the company: JJ & Son. The precise nature of the ‘substantial fraud’ was not discussed in that case.
2. The registered office of the company was its accountant’s office, who did not bring the winding up application to the attention of the relevant officers of the company: Twin Peaks.

Unacceptable Excuses

Some of the rejected explanations for non-appearance include where:

1. The directors claimed they did not appear because they were out of the country, but waited five months after returning to attempt to have the winding up set aside: Gyrro Pty Ltd v DCT [2009] FCA 1477. There was also evidence of insolvency in that case.
2. The winding up application came to the attention of the proper officer, but the person to whom he delegated responsibility failed to act upon it: Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365 at paragraphs 31 to 32.

Importantly, the mere fact that the company did not take part in the proceedings is not, of itself, sufficient to have the winding up order set aside: Workers Compensation Nominal Insurer v Detailed Flooring Pty Ltd [2010] NSWSC 1056 at paragraph 22.

A failure to update the registered office may not be an acceptable excuse either. In Workers Compensation Nominal Insurer v Detailed Flooring Pty Ltd [2010] NSWSC 1056 the Supreme Court held this excuse was ‘to rely on a statutory contravention and is unmeritorious’. The Federal Court reached the opposite conclusion in DCT v Fairchild Development Pty Ltd (in liq) [2006] FCA 714, waiving off the failure as a matter of ‘inadvertence’. The conflict between these authorities has not been resolved as of yet.

What about the Liquidator?

It is well established that the liquidator has a right to full indemnity for the costs, charges and expenses properly incurred: see e.g. SingTel Optus Pty Limited & Ors v Weston (Costs) [2012] NSWSC 1002; Adsett v Berlouis [1992] FCA 368; Re Beddoe [1893] 1 Ch 547. This right does not dissipate simply because the winding up ends. In the vast majority of cases, the directors of the company arrange for the liquidator (and petitioning creditor) to be paid in full to ensure there is ‘consent or at least no opposition to the setting aside’.

As always, if you are unsure of your rights in a situation like this, you should seek the advice of experienced, competent insolvency lawyers.