Setting Aside of an Order to Wind-up under UCPR 36.16(2)(b)

Case Review: Day & Night Online Transport Pty Ltd (in liq) [2018] NSWSC 796

On 1 May 2018, an order was made for the winding-up of Day & Night Online Transport Pty Ltd (the Company) and Mr Jason Porter of SV Partners was appointed as liquidator.  The order was made based on the presumption of insolvency as a result of the Company failing to comply with the statutory demand.  Gartree Thomson Lawyers acted for the liquidator (prior to its merge with Kerrs). 

On 28 May 2018, Justice Gleeson set aside the order pursuant to the Uniform Civil Procedure Rules 2005 (UCPR) 36.16(2)(b) and provided a useful summary of the factors that determined the decision.

Background Facts

The director of the Company claimed to be unaware of the creditor’s statutory demand or winding-up application.  He claimed that when the Company changed accountants in 2015, he believed that ASIC was notified of the Company’s new registered office address.  Unfortunately, that was not the case. 

On 2 May 2018, an officer of the Company contacted the previous accountant to enquire whether an application for winding-up had been received.  The accountant denied being in receipt of any documents.  The court was satisfied with the director’s reason for not responding to the statutory demand or attending the hearing on 1 May 2018.

On 4 May 2018, the Company sought interlocutory relief pursuant to sections 482(1) and 482(3) of the Corporations Act 2001 (Cth) (Corporations Act) and rule 36.16(2)(b) of the (UCPR). Relief under the Corporations Act could either stay or terminate the winding-up order whereas relief under the UCPR’s could set aside the order entirely. Obviously, the latter would be more desirable to the Company. 

On 16 May 2018, consent orders were filed which attempted to terminate the order pursuant to s 482(1) and (3) of the Corporations Act. This course of action was unsuccessful, as the Court needs to be satisfied of the Company’s solvency. However, as the Company had no notice of the winding-up application and acted promptly to have it set aside, the Company later sought relief under UCPR 36.16 which the court agreed was the most appropriate remedy given the circumstances. 

Summary of the test

Gleeson JA referred to George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 at 465 (George Ward Steel) in which Hodgson J stated that a court will normally set aside an order to wind-up a company in the following circumstances:

  1. When the order was made in the absence of the defendant company;
  2. When an application to set aside is brought promptly by the defendant company;
  3. When the liquidator, plaintiff and relevant creditors are given notice of the application to set aside;
  4. When evidence can explain the defendant’s non-appearance;
  5. When the solvency of the defendant company is indicated. This is not to be confused with “proof” of solvency (Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd [2010] FCA 755 at [12]);
  6. When there is consent, or at least non-opposition, to the setting aside of the order. (Justice Gleeson warns this factor should not necessarily determine the success of the application (DC of Tax v Annesley)). The objective should be that justice be done to the parties, therefore, opposition to the order being set aside should be immaterial. Too much weight given to this factor could also increase the risk of interfering with a liquidator’s duty to act impartially; and
  7. When the liquidator’s investigations provide no reason why the company should be stopped from trading.

Reasoning behind the decision

On the date of the application, the debt had been paid in full as were the liquidator’s fees and expenses including legal costs up to 17 May 2018.  Gartree Thomson Lawyers confirmed that no further outstanding debts owing by the Company were identified by the liquidator.  The Company provided a letter from their accountant claiming the Company was solvent.  The Company had satisfactorily explained the non-appearance to the court and brought their application without delay. 

In consideration of the principles in George Ward Steel and the actions taken by the Company, the court’s decision was to exercise discretion to set aside the judgment. 

Application brought by the director

Another notable mention was that the interlocutory application brought on 4 May 2018 was brought in the name of the Company. 

In accordance with section 198G(1) of the Corporations Act, once a company is put into external administration, an officer of that company must not perform or exercise a function or power of that office.  Therefore, when Mr Jason Porter was appointed as liquidator, the director of the Company was prohibited from acting on behalf of the company (Corporations Act Schedule 2 section 5-15).

There is an exception to the prohibition pursuant to s 198G(3)(b) where the officer of the company obtains the written approval of the external administrator.  Counsel for the Company made an oral application during the hearing for leave to be granted to the Director.  Leave was granted pursuant to section 198G(3) for the application to be brought in the name of the Company.

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