In the matter of Kimberley Diamond Company Pty Ltd (in liq) (ACN 061 899 634)

The liquidator of Kimberley Diamond Company Pty Ltd (in liq) sought an order to convert a deemed creditors’ voluntary winding up into a court ordered winding up in insolvency. The Court was asked to determine whether it was appropriate to exercise its discretion under section 459A of the Corporations Act to order the winding up in insolvency. The claim under section 588FA of the Act, which could only be made by liquidators appointed pursuant to a court ordered winding up, raised the question of whether there was a rational possibility that such a claim might result in potential benefits for the general body of creditors.

The Court considered the appropriate standard of satisfaction required for the potential benefits to creditors, whether a higher standard of satisfaction should be applied as if on a summary dismissal application, and whether it should decide legal arguments where there were contestable issues of fact and construction of legislation and a security deed. The Court held that while the test for determining the appropriateness of ordering a winding up in insolvency was ultimately a question of discretion, there was no reason why the Court should not decide the legal arguments where there were contestable issues of fact and construction of legislation and a security deed.

The Court determined that the appropriate standard of satisfaction for potential benefits to creditors was a rational possibility of a benefit to creditors, and not the higher standard of satisfaction as if on a summary dismissal application. The Court found that there was a rational possibility of potential benefits to creditors if the winding up was ordered in insolvency, and therefore exercised its discretion to order the winding up in insolvency.

The Court ordered that the deemed creditors’ voluntary winding up of Kimberley Diamond Company Pty Ltd (in liq) be converted to a court ordered winding up in insolvency.