In the matter of Dream House Fashion Pty Ltd (in liquidation)

[2015] NSWSC 2035

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Dream House Fashion Pty Ltd (in liquidation) [2015] NSWSC 2035
Hearing dates:	10 December 2015
Decision date:	10 December 2015
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order made for termination of winding up of company.
Catchwords:	CORPORATIONS — Winding up — Application under s 482 of the Corporations Act 2001 (Cth) to terminate a winding up — where evidence provided as to Company’s solvency – interests of creditors – whether to terminate winding up.
Legislation Cited:	- Corporations Act 2001 (Cth), s 482
Cases Cited:	- Re Glass Recycling Pty Ltd [2014] NSWSC 439 - Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797
Category:	Principal judgment
Parties:	Xu Zang (Plaintiff) Dream House Fashion Pty Ltd (in liq) (Defendant)
Representation:	Counsel: P Cutler (Plaintiff) R L Gall (Liquidator)   Solicitors: PH Legal (Plaintiff) Patane Lawyers (Liquidator)
File Number(s):	2015/355643

Judgment – ex tempore

1. By Originating Process filed, by leave, on 3 December 2015, Mr Xu Zang applies, under s 482 of the Corporations Act 2001 (Cth), for an order terminating the winding up of Dream House Fashion Pty Ltd (in liq) (“Company”). The logical and factual structure of this application is substantially similar to that of an application made by another entity, Fashion Illusion Pty Ltd (in liq) which was the subject of an earlier judgment which I delivered this morning. There are significant commonalities between the relevant applications, not least because both companies operate in the same industry, and both were wound up on the application of the liquidator of another entity, brought in the Supreme Court of Queensland, in respect of a judgment in respect of an alleged preference payment. Notwithstanding the common features of the relevant applications, it is, of course, appropriate that I separately review the relevant facts and relevant principles in delivering this judgment.

2. The application is supported by an affidavit of Mr Xu Zang dated 2 December 2015, which indicates that he is the director and one of the shareholders of the Company. The other shareholder of the Company is currently in China and has indicated his consent to the application. Mr Zang indicates that he and Mr Meng together appointed Ms Guo as general manager of the Company, and that she oversees the Company's business operations, including identification of retailers, sourcing stock and managing supply chain processes, and also manages the accounts of the Company. Ms Guo has in turn led detailed evidence in support of the application and Mr Zang indicates his reliance on that evidence in the application.

3. Ms Guo's evidence is that she was, up to the date of the Company's liquidation, its general manager. She indicates that the Company owned and operated a wholesale clothing operation in Surry Hills, and she notes that a creditor's statutory demand was issued to the Company by the liquidator of Foxx Foe Pty Ltd (in liq) (“Foxx Foe”) relying on a judgment obtained against the Company in the Magistrate's Court of Queensland for an alleged preference in the amount of $5,544.92. That amount, of course, exceeds the statutory minimum that would support a winding up application, although it is not the largest of debts.

4. Ms Guo's evidence is that at least she did not receive the documents relating to the proceedings in respect of the unfair preference or the winding up application, prior to a winding up order being made. She gives some explanation for that position, arising from difficulties in respect of the communal mailboxes at the premises at which the Company conducts its business. As Ms Guo rightly recognises, if such difficulties exist, then the Company needs to take alternative steps in respect of the arrangements for the delivery of mail to its registered office, since a position where significant notices directed to that registered office may go astray is plainly unsatisfactory.

5. Ms Guo leads evidence of the Company's financial returns for the period ending 30 September 2015 and of the Company's creditor list as at 3 December 2015, and she leads evidence that all creditors contained in that list have been paid in full. Her evidence is that the Company was not indebted to the Australian Taxation Office as at that date, and that is supported by the position recorded in the tax agent portal. She notes that the Company's 2015 tax return will be due for lodgement on 31 March 2016, but that only a modest amount of tax would then be payable, and indicates that she does not anticipate any difficulties paying that amount in full at that time.

6. The courts have, in the case law, recognised that caution should be exercised in relying on uncorroborated evidence of company directors, or in this case a general manager, in applications of this kind. However, Ms Guo's evidence does not fall within that classification, so far as the evidence she gives in that affidavit, and in a further affidavit to which I will now refer, is significantly corroborated both by objective evidence and by the inquiries made by the liquidator to which I will also refer below.

7. In a second affidavit dated 9 December 2015, Ms Guo refers to the Company's supply arrangement, which involves the purchase of goods from a single supplier in China. The arrangements for the purchase of goods, which are confirmed by correspondence from that supplier, are that the Company is required to pay in advance of receipt of the relevant goods, and that supplier has confirmed that arrangement, and the fact that it has had no payment difficulties with the Company and that the Company does not presently owe any debt to it, by correspondence that is in evidence. There is evidence that the Company has paid rent for the premises which it occupies to 2 August 2016, well in advance. Ms Guo also leads evidence of a settlement which has now been reached with the liquidator of Foxx Foe which had applied for the winding up of the Company, in respect of the preference claim in the Supreme Court of Queensland, and of arrangements for the payment of the amount that is the subject of the settlement to the liquidator, prior to the hearing today.

8. Importantly, the liquidator appointed to the Company has provided a detailed report to the Court, which indicates his assessment of the Company's financial position, based on the work he has undertaken in the liquidation. The liquidator fairly recognises the information provided to him is unaudited, and that his views are necessarily based on that information. Nonetheless, the liquidator notes that, as at each of 30 June 2015, 30 September 2015 and 30 November 2015, the Company's assets were greater than its liabilities and its current assets were greater than its current liabilities and, for each of the period to 30 June 2015, the three months to 30 September 2015 and the five months to 30 November 2015, the Company has traded at a profit. The liquidator notes that an independent valuer has valued the Company's stock and plant and equipment as having relatively significant value, on a continued use basis, although lesser value on a forced liquidation, not surprisingly. He also refers to the confirmation by the Company's supplier that there is no debt owed by the Company to it. He notes that, following his correspondence to government offices, the major banks and major energy and telephone companies, he has not been advised of any debts of the Company to them. He also notes, importantly, that he has not been contacted by any creditors, potential creditors or contingent creditors following the placement of an advertisement in the 'Daily Telegraph' of the Company's winding up, and that matter provides an indication of the fact that there are unlikely to be other unpaid creditors of the Company.

9. These matters indicate, of course, that there are grounds for forming the view that the company is solvent, as the liquidator recognises in his report, and the liquidator in turn does not oppose the application for the termination of the winding up.

10. Turning now to the relevant legal principles, a person who seeks an order to terminate a winding up under s 482 of the Corporations Act must establish that the order is appropriate even if it is not, as here, opposed by the liquidator. Relevant factors include the attitude and interests of creditors, including future creditors whose interests might be prejudiced if the Company were released from the winding up. Other relevant factors include whether the Company's debts have been discharged, its trading position and general solvency and the circumstances leading to the winding up. The most significant feature, in such an application, will often be the company's solvency: Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797 at [24]. Mr Cutler also refers to the helpful summary of the relevant principles by Brereton J in Re Glass Recycling Pty Ltd [2014] NSWSC 439, where his Honour noted the importance, in an application of this kind, of demonstrating that any matter which had required the winding up had been addressed, in order to terminate a winding up.

11. So far as the case law has identified relevant factors in such an application, it seems to me that the evidence in this case indicates that there are no creditors who oppose the termination of the winding up. In particular, the Company's major supplier has indicated that it has no outstanding debt owed by the Company, and rent payable by the Company has been paid in advance for a considerable period and its tax obligations to the Australian Taxation Office appear to be up-to-date. There is no reason to think that, particularly given the arrangements with the Company's major supplier, future creditors will be prejudiced if the Company were released from winding up. The interests of the liquidator, particularly with regard to remuneration, have been addressed by the Plaintiff. The contributories support the application for termination of the winding up. No matters of commercial morality arise from the circumstances of the winding up application, such as to indicate that any public interest would not be served by terminating the winding up. I have addressed the issues as to the Company's trading position and general solvency above, and both its historical profitability and the excess of current assets over current liabilities support a conclusion as to its solvency. The liquidator's support for termination of the winding up is an important factor, because it will be expected that the liquidator will have become familiar with the Company's business during the period of his appointment, and the Court may give considerable weight to his view in an application of this kind.

12. For all these reasons, I am satisfied that an order may properly be made terminating the winding up of the Company. Accordingly, I make orders in accordance with paragraphs 1 and 2 of the short minutes of order initialled by me and placed in the file. I also note, by agreement of the parties, that the Plaintiff has paid the remuneration and disbursements of the liquidator in the amount of $42,702.34 inclusive of GST.

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Decision last updated: 29 February 2016