Hughes, in the matter of Substar Holdings Pty Ltd (in liquidation) (No. 2) (Substar No. 2) considers the Court’s discretionary power to terminate the winding up of a company pursuant to s 482(1) of the Corporations Act 2001. Substar No. 2 follows the decision of Hughes, in the matter of Substar Holdings Pty Ltd (in liquidation)  FCA 1863 (Substar No. 1), which considered the extent to which liquidators can realise trust assets when a corporate trustee enters into liquidation.
Relevantly, the question of solvency was a primary consideration for the Court in Substar No. 2 in circumstances where winding up orders had been made against Substar Holdings Pty Ltd (In Liquidation) (Substar) on insolvency grounds. This required the Court to turn to eight established legal principles set out by Master Lee QC in Re Warbler Pty Ltd.
The Liquidators sought orders for the termination of the liquidation of Substar on the basis that its sole director, Mr Scala, put forward a proposal which would allow Substar’s creditors to be repaid in full. As detailed in Substar No. 1, Substar carried on business and held all its assets in its capacity as trustee of the Taurus Investments Trust (the Trust).
In considering Mr Scala’s proposal to pay all creditors in full and termination of the liquidation of Substar, the Court considered Substar’s financial position, trust property and total liabilities. Substar was the registered proprietor of three properties and owned eleven motor vehicles. On the basis of proofs of debts received by creditors, the Liquidators estimated the total debt to be slightly less than $237,230.75.
The Liquidators considered that any proposal to meet Substar’s liabilities and terminate the winding up would need to satisfy the following conditions:
It followed that Substar entered into a loan agreement with OFCS Pty Ltd (trading as Oak Capital) in which Oak Capital advanced $753,018. Mr Scala’s affidavit explained that the loan funds would satisfy the Requisite Funds, with the residual balance applied towards Substar’s debts.
The Liquidators, through Mr Bredenkamp, deposed that the legal costs, disbursements and remuneration claimed by the Liquidators had been reasonably incurred. Together with Andrew Scala, they also deposed that upon payment of the sum of $530,000 to the Liquidators and its distribution as set out above, Substar would be solvent.
The Court’s power to terminate the winding up of a company is conferred by section 482(1) of the Corporation Act 2001 (Cth), which provides that the Court may 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.
The legal principles relevant to whether a winding up should be stayed or terminated were established by Master Lee QC of the Supreme Court in Re Warbler Pty Ltd, specifically:
The Court granted the orders sought by the Liquidators, whereby, inter alia, the winding up of Substar (and receivership of the Trust property) be terminated upon payment of the Requisite Funds within 60 days of the date of the orders.
In circumstances where liquidators seek to terminate the liquidation of a company, the question of solvency will be a primary consideration for the Court. It is necessary for the company to demonstrate that it is now solvent and that the circumstances that necessitated the initial winding up order are no longer present.
Furthermore, this means the creditors are paid out, the liquidators’ costs and expenses are covered, and the members agree that the company will not enter insolvency in the foreseeable future.
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Guy Edgecombe, Partner
Meg Lucas, Solicitor
  FCA 658.
 (1982) 6 ACLR 526.
 (1982) 6 ACLR 526 at 533.