In the matter of Blueclay Pty Limited
[2014] NSWSC 1903
•10 November 2014
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Blueclay Pty Limited [2014] NSWSC 1903 Hearing dates: Monday, 10 November 2014 Date of orders: 10 November 2014 Decision date: 10 November 2014 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Winding up terminated
Catchwords: CORPORATIONS – winding up – termination Legislation Cited: (Cth) Corporations Act 2001, s 482(1) Cases Cited: In the matter of Glass Recycling Pty Ltd [2014] NSWSC 439 Category: Principal judgment Parties: Workers Compensation Nominal Insurer ABN 83 564 379 108 (plaintiff)
Blueclay Pty Ltd (in liquidation) ACN 110 290 125 (defendant/respondent)
Kristoffer Derkacz (applicant)Representation: Counsel:
Solicitors:
N E Furlan (plaintiff)
C Wilkinson (applicant)
Craddock Murray Neumann (plaintiff)
Kemp Strang (applicant)
File Number(s): 2014/182539
Judgment (ex tempore)
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HIS HONOUR: On 31 July 2014 the Registrar made orders that the defendant Blueclay Pty Ltd be wound up and that Nicholas Malanos be appointed liquidator, together with an order fixing the plaintiff's costs of the proceedings at an amount of $6,060. By interlocutory process, leave to file which in court is sought today, Kristoffer Derkacz, the sole director, secretary and shareholder of the company, applies in his capacity as a shareholder for an order terminating the winding-up with effect from today.
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As I explained in In the matter of Glass Recycling Pty Ltd [2014] NSWSC 439, generally on an application of this kind, the Court must be satisfied, first, that the state of affairs that required that the company be wound up no longer exists (so that where the winding-up was, as here, on grounds of insolvency, it will be necessary for the applicant to demonstrate that the company is not or is no longer insolvent), and secondly, that it would be reasonable to entrust the affairs of the company once again to the directors under whose management it previously failed.
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In respect of solvency, as explained in Glass Recycling (in particular at [22]), the Court requires that there be evidence that demonstrates not only that the company is, but also that it is likely to remain, solvent. That said, because no question of rebutting a presumption of insolvency is involved, the strictures of the cases that require that a company seeking to establish solvency must lead the fullest and best evidence of the company's financial position do not apply in their full rigour.
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The evidence establishes that the petitioning creditor's debt and costs have been paid in full, and that the liquidator's remuneration and expenses have also been paid. The evidence also establishes that the company, which effectively is an incorporation of Mr Derkacz as sole trader, he being its sole employee, has ample forward work and is likely to continue to trade, much as it has in the past. The financial material demonstrates that the company has made marginal profits over the last four years: while there have been substantial gross profits, the net profits after payment of Mr Derkacz' wage, fuel and other expenses have, as I have said, been marginal. Nonetheless, until the circumstances that gave rise to the winding-up application, there appears to have been no history of default or difficulty in the conduct of the affairs of the company.
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The updated balance sheet prepared by the company's accountant as at 8 November 2014 is negative, in that it demonstrates total assets of $98,000, total liabilities of $133,000 and a net deficiency of funds of $35,000. That is effectively a ratio of approximately 133% of liabilities to 100% of assets, which is not a promising indicator of solvency. However, of the liabilities, $130,000 approximately are shown now as "non-current liabilities" and comprise advances made by Mr Derkacz to fund the acquisition of property, plant and equipment, together with advances made by him to pay out the petitioning creditor and the liquidator, and also a smaller advance of about $5,000 made by his mother. Mr Derkacz and his mother have both provided letters addressed to the company, promising not to claim repayment of their loans before 2019, that is to say a period of five years. Mr Derkacz has also sworn to that intention in his affidavit.
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The company's main expenses are Mr Derkacz's wages and fuel and other more minor expenses, including the insurance premiums that were ultimately to prove the cause of grief in the winding up proceedings.
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Given the company's narrow net profit margins over the last several years, there is no real basis for considering that the deficiency in funds will be significantly reduced over the five-year period in question. Thus, when, on any view, the loans become repayable in five years' time, it would seem that there will still be a deficiency of funds. The critical question is whether in those circumstances the Court ought sanction the return of the company to the ordinary course of trade and allow it to incur debts and thus permit it to deal with creditors while there is that potential ultimate jeopardy.
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Had Mr Derkacz offered to convert his loan account into equity that would, I think, have put the matter beyond doubt and I would have had no hesitation in those circumstances in making the order sought. But that offer is not, at least at this stage, forthcoming. I have also been troubled by the circumstance that the promises not to demand repayment of the long-term loans until 2019 appear to be entirely unsupported by valuable consideration and are thus of dubious enforceability. If per chance the company were to go into liquidation in the shorter term, then there is no undertaking not to prove in competition with current creditors, who would then only receive a dividend. These considerations have caused me to have serious reservations about being satisfied that the company is likely to remain solvent in the future and that it is appropriate to allow it to resume trade.
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However, the considerations pointing in the opposite direction are that since 2004 Mr Derkacz has traded the company apparently without adverse incident. He has plainly been prepared to support it until now, and continues to do so by funding the payment out of the petitioning creditor and the liquidator. There is no reason to doubt that he will continue to support it in the future. Its income appears adequate to meet its current debts as it incurs them, so the occasion for a creditor to apply for its winding-up in the short to mid term appears remote. If it does, given what has happened on this application, the more likely position is that Mr Derkacz would continue to support the company through longer deferral of his loan account or through further advances to the company.
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On that basis, not without reservation, I am sufficiently satisfied that the company is likely to remain solvent for the foreseeable future. Of course, particularly as the five-year period approaches, and if Mr Derkacz forms an intention to recall his loan at that time, he will need to be very conscious of his obligation not to allow the company to trade while insolvent.
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Aside from the question of solvency, there needs to be some consideration of the circumstances that led to the company's liquidation. Essentially, it arose out of the failure to pay premium for Workers Compensation insurance, in circumstances where, according to Mr Derkacz, he received no relevant communications or demands. Nor, he says, did the originating process seeking a winding-up order come to his notice.
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While some doubt is cast on this by the circumstance that the originating process was supported by an affidavit of service of 29 July 2014 of Ashleigh Estwick-Jackson, who swore to having posted the originating process and supporting affidavits to the company at Mr Derkacz' address at 8 Greenhalgh Street, Ballina, it does seem that much of the correspondence at least was not directed to his address, essentially because Blueclay's former accountants had not updated the register. In any event, once he learnt of the winding-up order, Mr Derkacz acted expeditiously to procure payment of the petitioning creditor and of the liquidator and the making of this application. It seems he became aware of the winding-up only on 22 October 2014.
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The petitioning creditor has indicated in correspondence that it does not oppose the application. The liquidator, likewise, has indicated that he does not oppose the application. The only other creditors are Mr Derkacz himself and his mother, who also has indicated that she consents to the application.
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In those circumstances, having regard to the apparent lack of knowledge on the part of Mr Derkacz of the petitioning creditor's claim and the winding-up proceedings, the attitude of the creditors and the liquidator and the likelihood that despite the reservations I have expressed, the company will remain solvent for the foreseeable future, I am prepared to make the orders sought.
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The Court therefore orders that:
Pursuant to (Cth) Corporations Act 2001, s 482(1), the winding-up of the defendant Blueclay Pty Ltd (in liquidation) ACN 110 290 125 be terminated with effect from 10 November 2014.
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This order is to be entered forthwith.
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Decision last updated: 19 February 2015
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