In the case of Universal Consultants Group Pty Ltd [2016] NSWSC 1508, an order was sought that Universal Consultants Group Pty Limited (the Company) be wound up in insolvency under sections 459A and 459Q of the Corporations Act 2001 (Cth) based on an unsatisfied Creditors Statutory Demand for Payment of Debt (the Statutory Demand), founded on a judgment entered against the Company in the amount of $22,227.91.

After the winding up application was filed, the Company brought an application in the Local Court to pay the judgement debt by instalments which was granted, despite the expiry of time to comply with the Statutory Demand and the presumption of insolvency having already arisen.

In determining the whether to make the winding up orders sought, the Court was asked to consider two questions:

1. Whether the Company was, in fact, solvent; and
2. If it was not, whether the Court should exercise its discretion not to make a winding up order against the Company where an instalment order was in place.

The Company relied on assertions from the sole director of the Company that all other creditors had been paid in a timely fashion since the incorporation of the Company and an affidavit sworn by the Company’s accountant which annexed a report he prepared in respect of the Company’s financial viability.  Upon analysis of the evidence at hand, the Court noted the following:

• The financial information was out of date by three months;
• The director’s declaration was unsigned;
• There was no explanation given to the makeup of the liabilities in the balance sheet;
• There was no verification, validation or assurance expressed in respect of the policies and methods used to determine the solvency of the Company

Ultimately, His Honour Justice Black came to the conclusion that the presumption insolvency arising out of the Company’s failure to comply with the Statutory Demand had not been rebutted. In respect of the evidence that was relied on as to the Company’s solvency, His Honour referred to the case of Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 as authority for the proposition that assertions made by an accountant from a general review of the Company’s accounts will not be sufficient to establish solvency, even if the relevant accountant has knowledge of how those accounts were prepared.

His Honour found the circumstances of this case to be relatively straightforward in that:

1. The Company failed to pay the Demand;
2. The Company failed to make the installment payments for the judgement debt; and
3. There was no evidence before the Court which would in fact establish a Company’s ability to meet its instalments which it is required to pay.

In a last ditch effort to save the Company, the case of DCT v T.D. Preece Pty Ltd [2013] FCA 1365 was brought to the attention of His Honour which states that in exceptional cases the Court may decline to exercise its discretion to wind up a company where it considered it is properly in the interests of creditors or the community in general.

Black J was not satisfied that this was an exceptional case and made orders to wind up the Company. Absent any evidence as to the Company’s solvency, there was deemed to be too great a risk that the exercise of the Court’s direction in favour of the Company would expose not only the Plaintiff but third parties dealing with the Company to the risk that debts incurred by the Company on an ongoing bases would not be met.

This case illustrates the need to tender the ‘fullest and best’ financial evidence in seeking order that the Court exercise its discretion not to make a winding up order.  Mere assertions from a company’s director or even its accountant as to the company’s ability to their debts is unlikely to persuade the Court to exercise its discretion.

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