- within Real Estate and Construction, Corporate/Commercial Law and Employment and HR topic(s)
- with Senior Company Executives, HR and Finance and Tax Executives
- with readers working within the Accounting & Consultancy, Banking & Credit and Basic Industries industries
Directors are often unaware that a winding up order does not need to be the end of the road for their company.
We recently acted successfully for a director seeking that the winding up of his company beterminatedundersection 482 of the Corporations Act 2001 (Cth), returning control of the company to the director and allowing the company's business to continue trading.
While each case turns on its facts, the decision is a useful guide for directors who need urgent, strategic advice after receiving a winding up order, particularly where the company is fundamentally viable.
Key takeaways for directors
- A winding up can be terminated if the court is satisfied it is appropriate to do so.
- Solvency evidence is central. The court closely examined competing cashflow forecasts and preferred the director's analysis where it was well-supported and credible.
- Historical compliance irregularities do not necessarily bar relief. However, directors must be candid, accept responsibility and prove the compliance breaches have been remedied.
- Creditor and liquidator attitudes matter. Evidence of proper notice and a willingness to cooperate greatly assist an application.
- Practical undertakings can be decisive. The court made termination of the winding up order conditional on a structured payment and compliance program.
What is a winding up order?
A winding up order (or wind up order) is a court order placing a company into liquidation, meaning the director's powers are removed, and a liquidator is appointed to take control of the company's affairs, realise its assets and distribute any remaining funds to creditors in accordance with the Corporations Act 2001 (Cth).
Director shocked to discover his company has been wound up
The company was wound up after a statutory demand and winding up proceedings were served at a former accountant's office.
The first sign that something was wrong came on a Sunday morning, when the director tried to use the company's bank card and it was unexpectedly declined.
When he opened the banking app, the account had disappeared entirely. Fearing the account had been hacked, he called the bank and was given the number of a contact at the liquidators' office, though no one could be reached on a Sunday.
Panicked, he phoned the company's accountant, who conducted some online searches and delivered the shocking news: the company had been wound up, though he did not know how or why.
Liquidators appointed when statutory demand unanswered
On Monday morning, the director finally spoke to the liquidators and learned that a toll company had applied to wind up the company after a statutory demand went unanswered.
All of the documents had been served at an old registered office linked to a former accountant the company no longer used.
It was the first the director knew of the winding up, and the first time he had ever dealt with court proceedings. By the time he contacted us, understandably stressed, the situation was urgent and required immediate action.
Court application to reverse winding up order
We applied to the court on the director's behalf to reverse the winding up, primarily on the basis that the company was solvent and that the cause of the winding up could be remedied.
With the liquidators' approval, the business was fortunately able to continue trading while the application was before the court.
Discretionary nature of section 482 power
Justice Jackman emphasised that the section 482 power is discretionary and not confined to a rigid checklist. However, the court adopted the established factors commonly considered, including proof of solvency and future trading.
Candour from the director about past non-compliance was also relevant, as was evidence of rectification of breaches.
The court also examined whether the company's conduct was contrary to commercial morality or the public interest.
It was significant that the director candidly addressed the common compliance failings often faced by companies, including failure to update the company's registered office details with ASIC, delayed lodgments of Business Activity Statements (BAS) with the Australian Taxation Office, outstanding ATO debt and lack ofWorkCoverinsurance.
The court accepted that these problems had been rectified and were unlikely to reoccur.
Importance of lack of opposition from creditors and liquidators
The court placed significant weight on the fact that the liquidators did not oppose the application, the petitioning creditor consented to the application and notice was given to creditors, none of whom objected.
We achieved this by ensuring that the application to reverse the winding up order provided for the liquidators' fees and the petitioning creditor's costs to be paid.
We also included undertakings from the director regarding prompt payment to key creditors and steps to address the remaining ATO liabilities and WorkCover obligations.
These factors strongly supported the discretionary exercise of the court's power to terminate the winding up.
Conditions imposed by court in terminating winding up of company
The court ordered that the winding up be terminated, subject to payment of the liquidators' costs and the director providing undertakings to ensure payment of the company's creditors and rectification of historical compliance irregularities.
Read the full judgment here.
Can a winding up order be reversed?
This judgmentdemonstratesthat a winding up order can be reversed where:
- The company is solvent
- Compliance breaches have been remedied
- Creditors are protected
- The director provides full and frank disclosure
For company directors facing an unexpected winding up order, seeking immediate legal advice is essential.
If your company has been wound up but the business remains viable, our team can advise urgently on whether termination of the liquidation is achievable.
For more information, please see Beware of using a statutory demand as a debt collection exercise.
Monique Kell
Insolvency
Stacks Davis
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
