In two recent decisions of the Supreme Court of New South Wales, In the matter of Westside Sugar Cane Juicery Pty Ltd [2015] NSWSC 1991 (Westside) and In the matter of Deccan Holdings Pty Ltd (in liquidation) [2015] NSWSC 1989 (Deccan Holdings), His Honour Justice Black has provided some useful guidance on the nature and standard of evidence required in order to successfully terminate the winding up of a company.

The Court has power to set aside or terminate a winding up on two main bases:

1. Where the order was made in the absence of a party, under rule 36.16 of the Uniform Civil Procedure Rules 2005, or rule 39.05 of the Federal Court Rules 2011 (Cth) (see our previous news on this issue); and/or
2. Where the termination is appropriate, pursuant to section 482 of the Corporations Act 2001 (Cth).

In either case, the Court must be satisfied that the company is likely solvent and the applicant must lead the “fullest and best” evidence of the company’s financial position to establish this fact; Owners Strata Plan 70294 v LNL Global Enterprises Pty Ltd [2006] NSWSC 1386 at [5].

In Westside, Justice Black determined to set aside the winding up of the company having regard to the evidence led by the applicant.  That affidavit evidence established that wages and accrued holiday pay to staff had been paid in full, trade creditors and payables had been paid in full, the director had sufficient funds to pay superannuation entitlements, all amounts due to the petitioning creditor (the Australian Taxation Office) and to the liquidator had been paid, and the business was profitable and viable. The winding up order had also been made in the company’s absence, since it failed to receive notice of the application due to a recent change of its registered office.

The key in Westside was that the evidence led was not only that of the director or shareholder, but also that of the company’s tax agent who had an intimate knowledge of the company’s financial position and could provide a relatively independent view.  Whilst ordinarily such evidence might not be sufficient to establish solvency to the required standard (for example, the gold standard would be to lead evidence in the form of an expert report from an independent forensic accountant) given the small size of the business, His Honour was persuaded that the company was solvent and that the winding up order should be set aside.

In Deccan, the applicant was not so lucky.  In that case Justice Black dismissed the applicant’s Interlocutory Process after it became clear that the evidence relied on to establish the company’s solvency fell within the category of ‘bare assertions’ made by a director (or in this case a former director) to the effect that the company did not have debt, or that the company would not incur debts in the future.

In Deccan, unlike Westside, there was no independent, externally verified source of evidence regarding the company’s solvency. In that regard, His Honour remarked, at [22]:

“it is important for applicants in applications of this kind to understand that these are serious applications, and that the termination of a winding up has serious implications for a company, and for creditors who may deal with the company in the future. That underpins the requirement that the Court has frequently emphasised of the need to lead adequate evidence in respect of such an application.“

Both of the above decisions are relevant to any person with standing to make an application to terminate a winding up, such as a liquidator, creditor or a shareholder of a recently wound up company.  A failure to lead evidence of the relevant standard will doom any application before it is even heard.

To avoid such disasters, or for more information, please contact ERA Legal.