Liquidator loses game of Gulf: why the Supreme Court of Queensland refused to terminate the winding up of Gulf Aboriginal Development Company

In a recent case involving key stakeholders in the ‘Century Mine’ (Mine) – located in the lower Gulf of Carpentaria region in Northwest Queensland – the Supreme Court of Queensland considered an application brought by a liquidator and creditor for the termination of a winding up of pursuant to section 482(1) of the Corporations Act 2001 (Cth) (Application).

Background

The Mine was operated by Century Mining Ltd (formerly Century Zinc Ltd) (Century). It was one of the largest zinc mines in the world.

The company that was the subject of the Application – Gulf Aboriginal Development Company Ltd (Gulf) – received payments from Century, which it then distributed to various parties pursuant to the terms of an agreement known as the Gulf Communities Agreement of 13 February 1997 (Agreement). Those parties included Century, the Queensland government, and four native title groups that Gulf was supposed to represent: the Waanyi People, the Mingginda People, the Gkuthaarn People and the Kukatj People.

Gulf also had cultural, heritage, environmental and lobbying roles, and was registered as a charity. However, in 2016 its status as a registered charity was revoked (after the Australian Charities and Not-for-profits Commission issued a scathing Information Memorandum in December 2015 criticising Gulf for having “a history where people have been able to misuse the organisation’s money“).

By 2019, Gulf had $40,133 worth of assets and debts of approximately $645,000. Moreover, none of the native title groups wanted it to represent them under the Agreement or to receive progress payments on their behalf.

Gulf was then ultimately wound up on 28 November 2019 after failing to comply with a creditor’s statutory demand (CSD) for the amount of $18,373.

The Application

Notwithstanding the company’s obvious struggles, Gulf’s liquidator, Todd Kelly (Kelly), and a creditor, GADC No 2 Pty Ltd, applied to have the liquidation terminated pursuant to section 482(1) of the Corporations Act 2001, which provides that:

“At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.”

As noted by Freeburn J, the effect of this would have been to resuscitate Gulf as a corporate entity.

Consideration – the eight factors

There are eight well-established factors relevant to the exercise of a court’s discretion when deciding whether to terminate a winding up under this section, namely:

1. Discretion and Onus: termination of a winding up is a discretionary matter, and there is a clear onus on the applicant to make out a positive case.
2. Service on Creditors and Contributories: notice of the application should be served on all creditors and contributories, albeit this is not an absolute requirement.
3. Nature and Extent of Creditors: the nature and extent of the creditors must be shown, and whether or not all debts have been discharged.
4. Attitude of Creditors, Contributories and Liquidator: the attitude of creditors, contributories and the liquidator is a relevant consideration.
5. Solvency: the current trading position and general solvency of the company should be demonstrated.
6. Breach of Statutory Duties: if directors have not complied with their statutory duties to give information or furnish a statement of affairs, a full explanation of the reasons and circumstances should be given.
7. Background to the Winding Up: the general background and circumstances which led to the winding-up order should be explained.
8. The Nature of the Business: the nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to ‘commercial morality’ or the ‘public interest’.

In considering factors (particularly factors 3 to 8), Justice Freeburn observed that:

• it was proper to consider the views of all of Gulf’s ordinary creditors, including those whose debts had been discharged by payments made under a Deed of Company Arrangement (noting also that the DOCA “was imposed on them against their wishes and the effect of the DOCA was that they received only a fraction of the sums due to them, whilst the debts of the subordinated creditors were preserved“);
• while the liquidator, administrators and four subordinated creditors supported the application, “a significant body” of Gulf’s 26 creditors (including Century and the native title groups) were against the revival of the company;
• Gulf consistently traded at a loss immediately before its demise, and there was no independent report on solvency or business plan demonstrating that Gulf could trade profitably into the future;
• there had been “an almost complete lack of co-operation from the directors” and allegations of mismanagement had been raised against the company which had not been fully investigated;
• there was no clear explanation of the circumstances that led to the winding up, and it was not sufficient for the applicant to simply provide evidence that the company would be under new management upon its revival; and
• failure to pay commercial debts and tax causes disruption to commerce, and there is a public interest in the court having some confidence that a company would trade profitably if it were revived. The court is also concerned to ensure that, if a company is permitted to resume trading, its new creditors would be paid and those new creditors would not be prejudiced.

Conclusion

Having regard to those factors, Justice Freeburn determined that the applicants had not established that this was an appropriate case for the Court to exercise its discretion to terminate the winding up, and made orders dismissing the appeal. Hence, the Court did not permit the resuscitation of Gulf as a corporate entity.

While the ‘eight factors’ are not intended to be an exhaustive or a rigid set of principles, this decision confirms that courts are unlikely to terminate a winding up unless all relevant factors are fully explored by reference to evidence. In particular, parties seeking to terminate a winding up will be expected to adduce probative evidence of the company’s solvency position and of the circumstances that led to the winding up; it is not a complete response to simply “hang out the ‘under new management’ sign.”

Authored by:

Guy Edgecombe, Partner
Mitchell Byram, Senior Associate