In the matter of Fashion Illusion Pty Ltd (in liquidation)

[2015] NSWSC 2034

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Fashion Illusion Pty Ltd (in liquidation) [2015] NSWSC 2034
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), ss 58AA, 482
Cases Cited:	- Re 311 Hume Highway Liverpool Fund Pty Limited [2013] NSWSC 465; (2013) 93 ACSR 683 - Re Glass Recycling Pty Ltd [2014] NSWSC 439 - Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797 - Re Warbler Pty Ltd (1982) 6 ACLR 526
Category:	Principal judgment
Parties:	Lisan Chen (Plaintiff) Fashion Illusion Pty Ltd (in liquidation) (Defendant)
Representation:	Counsel: P Cutler (Plaintiff) R L Gall (Liquidator)   Solicitors: PH Legal (Plaintiff) Patane Lawyers (Liquidator)
File Number(s):	2015/355631

Judgment – EX TEMPORE

1. By Originating Process filed by leave on 3 December 2015 the plaintiff, Mr Lisan Chen, applies for termination of the winding up of Fashion Illusion Pty Ltd (in liq) ("Company") under s 482 of the Corporations Act 2001 (Cth). The application has been supported by comprehensive evidence and by submissions, and is also supported by the liquidator of the Company. The detail of the submissions, and the constructive role which the liquidator has played in the application, assist in its determination.

2. The application is supported, first, by an affidavit of Mr Chen dated 3 December 2015 which indicates that he is a director and shareholder of the Company, and indicates that the application is brought with the consent of the other shareholders and directors, which is in evidence. The Company operates a wholesale clothing operation in Surry Hills. A creditor's statutory demand was issued, based on a judgment debt in respect of a preferential payment received by the Company by the liquidator of Foxx Foe Pty Ltd (in liq) (“Foxx Foe”). It appears, on Mr Chen's evidence, that he did not receive the documents issued in respect of the initial proceedings or the winding up application prior to a winding up order being made. Mr Chen gives evidence as to the physical layout of mailboxes for the commercial units from which the Company trades, but indicates that there have been difficulties in respect of the collection of mail from mailboxes which are held in a communal mailbox area in the Company's business premises. Ultimately, that evidence is background to the application, because the real issue which emerges in the application, to which I will refer below, is the present position as to the Company's solvency.

3. Mr Chen's first affidavit annexes the Company's financial returns for the period ending 30 September 2015 and a creditor list for the Company as at 3 December 2015, and Mr Chen gives evidence that all creditors listed in that creditor list have been paid in full. The case law recognises that the courts, appropriately, treat with caution evidence led by company directors in applications of this kind, and looks for a degree of corroboration of such evidence. In this case, appropriately, Mr Chen has led other evidence that provides appropriate corroboration of that evidence to which I will refer below.

4. Mr Chen fairly disclosed the existence of an amount due to the Australian Taxation Office in his first affidavit, and also noted that an amount would be due for tax, in respect of the Company's 2015 tax return, after it was lodged in late March 2016. That liability is, of course, one that will arise sometime in the future. Mr Chen gives evidence of his confidence in the Company's ability to pay that amount in full, which seems to me to be supported by the other evidence to which I will refer below.

5. By a further affidavit of Mr Chen dated 9 December 2015, he gives further evidence as to the arrangements for the supply of goods to the Company, which purchases goods from one Chinese supplier, and on-sells those goods in Australia. Mr Chen's evidence is that all invoices issued by that supplier are paid in advance of receipt of the goods, and his affidavit annexes purchase orders with that supplier. There is in turn evidence of correspondence from that supplier confirming the practice of payment in advance prior to shipping the goods; that the supplier has had no payment difficulties with the Company; and that the Company does not presently owe any debt to the supplier. There is also evidence that the Company is up-to-date in respect of its rental obligations, having made advance payments up to 31 December 2015, and that the amount of its liability to the Australian Taxation Office, has also been paid.

6. Since the proceedings were commenced, a settlement has also been reached with the liquidator of Foxx Foe in respect of his claim against the Company, together with a claim by that liquidator against two other companies, which are dealt with in the same deed of settlement. The liquidator of Foxx Foe does not appear to oppose this application, and I infer from the deed of settlement and its absence that it does not in fact oppose the application.

7. Helpfully, the liquidator appointed to the Company by the Supreme Court of Queensland has in turn provided a report and been represented by Counsel in this application. That report sets out the work which has been done by the liquidator in respect of the liquidation since his appointment, and undertakes a careful examination of the Company's financial position, although fairly noting that the information provided to the liquidator is unaudited and that the views which he formed depend on the financial information provided to him. He notes that that information indicates, and the other evidence appears to support the view that, the Company's assets have at all relevant dates exceeded its liabilities its current assets are greater than its current liabilities; the Company traded at a profit in the year ended 30 June 2015; it traded at a loss in the period to 30 September 2015 and 30 November 2015, although the liquidator fairly notes that that loss may represent, as the Company's director has indicated by his solicitor, the fact that the Company makes higher purchases of stock in anticipation of the Christmas period, the costs of which would be recouped by sales over that period in the ordinary course. The liquidator also notes that his correspondence with government offices, banks and major energy and telephone companies does not indicate any debts owed by the Company and he also refers to the confirmation by the Company's supplier that there is no debt owing by it and to the payment of amounts due to the Australian Taxation Office. He also notes that he has placed an advertisement in the Daily Telegraph and has not been contacted by any creditors, potential creditors, or contingent creditors indicating claims against the Company. In that respect, the absence of such claims made by other creditors, after an advertisement has been published, provide relatively strong evidence of the absence of other unpaid debts of the Company.

8. The Australian Securities and Investments Commission has been notified of the application and it indicates that it does not seek to intervene. Mr Chen has taken steps to ensure that amounts are available to the liquidator, to discharge the liquidator's professional costs incurred in respect of the liquidation. The liquidator has in turn read his affidavit dated 9 December 2015 which sets out the basis of the costs which he has incurred in respect of the liquidation.

9. I have been provided with helpful submissions of Mr Cutler, who appears for Mr Chen in the application, which summarises the relevant principles. As Mr Cutler notes, Mr Chen is a contributory and has standing to bring the relevant application under s 482 of the Corporations Act. The case law makes clear that a court, as defined in s 58AA of the Corporations Act may terminate a winding up, and such an order may be made by a court other than the court which ordered the winding up. In the present case, there is obvious reason for this application to be made in the Supreme Court of New South Wales, where the Company and another company which brings a similar application are each trading from New South Wales.

10. Mr Cutler refers to the relevant principles, which are not controversial in this application. In order to terminate a winding up under s 482 of the Corporations Act, the applicant must establish that the order is appropriate even if it is not, as it has not been here, opposed by the liquidator. Relevant factors including the attitude and interests of creditors, including future creditors whose interests might be prejudiced if the Company were released from the winding up, whether the Company's debts have been discharged, its trading position and general solvency and the circumstances leading to the winding up. In Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797 [24], Bergin CJ in Eq emphasised the importance of solvency in such an application, noting that solvency was usually "the most significant matter" for consideration and that:

“[O]ther considerations, such as the extent of the creditors, the status of the debts and the nature of the company's business will be taken into account in determining whether the company has returned ... or will be returned to solvency."

11. This is not a case where the Company relies only on the evidence of Mr Chen, as a director or shareholder, without external confirmation, to support its solvency. Here, external confirmation which supports the Company's solvency includes not only the view expressed by the liquidator, albeit reflecting the documentary material that has been provided to him, but also the confirmation from the Company's sole supplier that no debts are due to it, the evidence that the debt due to the Australian Taxation Office has been discharged, and the absence of claims by other creditors after an advertisement of the winding up. The Company's position is, of course, strengthened by the fact that the liquidator, who had an opportunity to become familiar with the business while it was in liquidation, supports the application to terminate the winding up. The liquidator's position in respect of an application of this kind ought ordinarily to be given significant weight.

12. Mr Cutler also refers to the decision of Brereton J in Re Glass Recycling Pty Ltd [2014] NSWSC 439 at [15]ff, where his Honour helpfully summarised the considerations that inform the exercise of the Court's discretion to terminate a winding up, by reference to earlier cases, including Re Warbler Pty Ltd (1982) 6 ACLR 526, and also emphasised the importance of the Court's state of satisfaction that the state of affairs that the company be wound up no longer exist, including, where a winding up was made on the ground of insolvency, a demonstration that the company is not, or is no longer, insolvent. I adopted a similar approach in Re 311 Hume Highway Liverpool Fund Pty Limited (in liquidation) [2013] NSWSC 465; (2013) 93 93 ACSR 683 at [3]ff to which Mr Cutler refers.

13. I am satisfied that, so far as the interests of creditors are concerned, including future creditors, the evidence establishes that the Company is presently likely to be solvent, and that the interests of its future creditors would not be prejudiced by termination of the winding up. In particular, its major supplier has indicated it has no payment difficulties with the Company, and its position in respect of its lessor and the Australian Taxation Office is up-to-date. The interests of the liquidator, particularly with regard to a remuneration, have been appropriately protected. The interests of contributories are protected in the application, so far as each of them supports the relevant application. There is no issue arising from the circumstances of the winding up which suggests any issue of commercial morality such as to provide any reason not to terminate the winding up. Indeed, the evidence tends to suggest that the winding up occurred by reason of matters including the absence of notice to the Company of the application, although I do not say that in any way critically of the party which brought the winding up application. The Company's trading position and general solvency have been sufficiently established, in the evidence before me, to provide comfort that the winding up can properly be terminated, and the circumstances leading to the winding up have also appropriately been addressed by the evidence.

14. In these circumstances, I am satisfied that an order to terminate the winding up of Fashion Illusion Pty Ltd may properly be made. 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 note that, by agreement of the parties, the Plaintiff has paid the remuneration and disbursements of the liquidator in the amount of $42,772.83 inclusive of GST.

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Decision last updated: 29 February 2016