In the matter of R & S Trading Company Pty Limited (in liquidation)

[2015] NSWSC 1712

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of R & S Trading Company Pty Limited (in liquidation) [2015] NSWSC 1712
Hearing dates:	13 July 2015
Decision date:	13 July 2015
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Orders in accordance with short minutes of order terminating the winding up, including for service of documents on the Australian Securities and Investments Commission and reserve to it liberty to apply.
Catchwords:	CORPORATIONS – Winding up – Application under s 482 of the Corporations Act 2001 (Cth) to terminate a winding up – Where expert report assesses the Company’s solvency – Where director gives undertaking supporting the Company’s ability to meet debts as and when they fall due – Where liquidator neither consented to nor opposed the application – Whether to terminate winding up.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 286, 482 - Supreme Court (Corporations) Rules 1999 (NSW)
Cases Cited:	- Re Glass Recycling Pty Ltd [2014] NSWSC 439
Category:	Procedural and other rulings
Parties:	Maria Ong (Applicant) Workers Compensation Nominal Insurer (First Respondent/Plaintiff) Andrew Scott (in his capacity as Liquidator of R & S Trading Company Pty Limited (in liquidation) (Second Respondent) R & S Trading Company Pty Limited (in liquidation) (Third Respondent/Defendant)
Representation:	Counsel: B Skinner (Applicant) F Reynolds (Second and Third Respondents)   Solicitors: Anthony Clive Parisi (Applicant) TurksLegal (Second and Third Respondents)
File Number(s):	2015/113099

Judgment – ex tempore

1. By Interlocutory Process filed 4 June 2015 the Applicant, Ms Maria Ong, applies under s 482 of the Corporations Act 2001 (Cth) to terminate the winding up of R & S Trading Co Ltd (“Company”). That application is neither consented to nor opposed by the Company’s liquidator who has nonetheless confirmed that agreement has been reached between Ms Ong and the liquidator in respect of payment of the liquidator’s remuneration on termination of the winding up.

2. A substantial body of evidence has been filed in support of the application. Ms Ong relies on her affidavit dated 4 June 2015 which sets out the history of the Company’s business, which involves the operation of a taxi hire business and, since August 2014, a licensed vehicle repair business. That business appears to be operated in conjunction with another business operated by Ms Ong’s parents' company. Ms Ong notes that her father had previously been involved with the relevant business, had suffered a stroke in June 2013 and Ms Ong has been in charge of the business since that time.

3. Ms Ong’s evidence is that the Company was wound up by order of this Court on 20 May 2015, on the application of the Workers Compensation Nominal Insurer. Ms Ong’s evidence is the documents relating to the winding up application did not come to her attention, since she was then occupied in taking her father to medical appointments for treatment and matters of that kind although she was in overall control of the business. She gives evidence that there was an error with the treatment of mail at the relevant business premises, although that is not a matter that provides an excuse in respect of a failure to respond to an application of the seriousness of the winding up application nor, I recognise, does Ms Ong seek to advance it as such, as distinct to an explanation for what has occurred. She also refers to the arrangements which have been made to discharge debts of the Company, and to the engagement by the Company of a bookkeeper to assist in the proper keeping of its books and records. She has also taken advice from accounting advisers, DVT Consulting Group, and an expert report of Ms McCallum of DVT Consulting is in evidence, to which I will refer below.

4. By a further affidavit of Ms Ong dated 18 June 2015, she refers to arrangements which have been made being made to pay out debts, particularly the liquidator’s costs and solicitor’s costs in respect of the winding up and expressed the view, albeit without detailed reasoning, that she believes the company is solvent and remains viable. Ms Ong leads evidence that she had arranged for the Company’s accountant, Mr Lahoud, to make available records for the purposes of preparation of Ms McCallum’s expert report. Ms Ong also offers an undertaking to the Court to contribute the sum of $67,000 to the Company from funds of a partnership of her parents, who have consented to the giving of such an undertaking. The proposition the funds would be contributed by the partnership of her parents is not particularly surprising, in the relevant circumstances, given the apparent connection between the business conducted by the Company and the business conducted by that partnership on the same site. An acknowledgment signed by Ms Ong’s parents is also in evidence, where they have confirmed that they are prepared to make available that sum in the event that the Court accepts that undertaking and terminates the Company’s winding up.

5. By an affidavit dated 6 July 2015 Mr Lahoud, a chartered accountant, who has been the Company’s accountant for several years, as well as the accountant for the business associated with Ms Ong’s father, refers to the provision of information to Ms McCallum of DVT Consulting.

6. Ms McCallum in turn prepared a solvency report in respect of the Company, dated 18 June 2015, and had regard to information provided by Ms Ong and Mr Lahoud in preparing that report. Her evidence was that the Company had been able to pay its debts as and when they fell due from at least June 2013, notwithstanding it has failed to pay a debt owed in respect of the workers’ compensation premium, to which I referred above. She also expressed the view that the Company remained solvent at the time of her report due to its ability to finance its operations from ongoing cash flow, and source additional funds that might be required to meet all of the costs of the liquidation and the application to stay the winding up order. Ms McCallum summarised her conclusions as to solvency, including that the Company had maintained adequate books and records in accordance with s 286 of the Corporations Act; had traded profitably until the 2015 financial year when it apparently incurred losses in respect of the smash repair business and was expected to trade profitably in 2015 and later years; and was able to source funds to meets its immediate costs in respect of the Company’s liquidation and this application and to generate or source funds sufficient to meet the ongoing costs of its operations. Ms McCallum also pointed to the Company’s history of paying trade creditors in a timely manner and ensuring that all taxation obligations are met, although that history plainly had a deficiency in so far as dealing with workers’ compensation premiums was concerned.

7. Ms McCallum subsequently prepared a further report as to solvency which emphasised that her view that the Company was solvent did not depend on the ongoing financial support of the Company’s related entities, and that, apart from abnormal costs relating to the liquidation and the smash repair business, the Company was able to fund its ongoing operations and financial obligations from its own revenue or by raising finance against its assets, in particular taxi licences. Accordingly, Ms McCallum’s primary position is that the Company does not need external third party support in order to continue its business although she did refer in her earlier report to the availability of that support.

8. Ms McCallum also indicates that she has been requested to provide further information as to the quantum of any undertaking which may be given by a third party, including to confirm that the Company was capable of meeting future financial obligations and as to the financial capacity of third parties to meet any such financial undertakings. She undertakes a further analysis of the cash flow of the Company’s business and its commitments including vehicle maintenance and other commitments, wages paid to staff and tax obligations, as well as leasing obligations in respect of taxi plates, and expresses the view that a reasonable undertaking would represent approximately one month of operating expenses, where the Company received most of its income on a daily basis, being receipts in respect of the taxi business. She calculates the quantum of an undertaking referable to one month of such costs, less one week’s worth of cash takings from the taxi business, which rounds up to a figure of $67,000. In the present case, as I have noted, an undertaking of that kind is offered by Ms Ong, albeit she will draw on assets of her parents’ partnership to meet that undertaking.

9. The application is also supported by an affidavit of Mr Scott, the liquidator, dated 29 June 2015, who sets out the work undertaken since his appointment. He also indicates that he has received information that satisfies him that the creditors which he had identified, at the date of his appointment, had been paid. He observed the tax obligations of the Company were paid, with the exception of superannuation, and it appears that arrangements are in place to meet superannuation obligations of the Company once this amount has been quantified. Mr Scott indicates that, based on his review of the books and records of the Company that were available to him, he has no reason to doubt Ms McCallum’s conclusion, but was unable to actively support, as distinct from not opposing, the application to terminate the Company’s winding up to the extent that he had not had access to all of the Company’s books and records, and that the Company’s solvency was treated, in Ms McCallum’s first report as depending on financial support from related entities and that he had been unable to verify the financial position of those relevant entities. As I noted above, Ms McCallum further addressed that issue in her second report.

10. The case law has considered, on many occasions, the matters that are relevant to the exercise of the Court’s discretion to terminate a winding up and the relevant factors are summarised by Brereton J in Re Glass Recycling Pty Limited [2014] NSWSC 439 at [15]. Those factors include the attitudes and interests of creditors, including future creditors; the liquidator’s interests, which have been addressed in this application; contributories’ interests, which in this case favour the application since they bring it; the public interest, including matters of commercial morality; the Company’s trading position and general solvency and any explanation of any non-compliance with statutory duties and the circumstances leading up to the winding up.

11. This is not an entirely straightforward application. It is a matter of some concern that the liquidator has not been able to reach a position that he may positively support it, as distinct from not opposing it; the circumstances in which the Company did not meet its workers’ compensation obligations are potentially a matter of concern; and the suggestion that the Company has outstanding superannuation obligations is also a matter of concern. On the other hand, several factors support the termination of the winding up, including the undertaking which Ms Ong has given to support the Company, by a significant additional capital contribution, and Ms McCallum’s evidence as to the Company’s solvency on an ongoing basis.

12. It appears, from the liquidator’s evidence, that creditors of the Company, with the exception of the superannuation obligation to which I have referred, had been paid and the superannuation obligation will be met when it is quantified. It seems to me that there is no greater reason to think that future creditors’ interests will be prejudiced if the Company were released from winding up and would ordinarily be the case in respect of a trading entity, particularly where the fund made available by Ms Ong as additional capital will provide a buffer in respect of its ongoing expenses. The liquidator has not opposed the application and has indicated that he has no reason to doubt Ms McCallum’s evidence, at least on the basis of the material available to him. The contributories support the termination of the winding up, as I have noted, and the Company appears to have taken further steps to improve its administration, including employing a bookkeeper, and that suggests that it rightly recognises that, if further difficulties were to occur, it might face greater difficulty in terminating a second winding up. There is presently no indication of non-compliance with statutory duties or any matter giving rise to any issues of commercial morality in respect of the application, where there seems to have been, on the balance of the evidence, a simple failure of administration in respect of the meeting of the workers’ compensation obligations.

13. On balance, although not without hesitation, I am satisfied that the evidence before me supports an order that the winding up of the Company be terminated. In this case, notwithstanding the common practice of the requirements of the Supreme Court (Corporations) Rules 1999 (NSW), notice of the application was not given to the Australian Securities and Investments Commission. That matter can be addressed, however, by directing that notice of the application and supporting affidavits be served on the Commission and that it have the opportunity to apply to set aside the orders I will make within fourteen days. I should again emphasise, as I have in previous judgments, the need to give such notice, and it should not be assumed that in the ordinary course the Court will be prepared to make such orders, even on a basis which reserves liberty to apply, if such notice is not given when it is a clear requirement of the Corporations Rules.

14. Accordingly I make orders in accordance with the short minutes of order initialled by me and placed in the file, amended as noted in discussion with Counsel, to provide for the service of the relevant affidavits on the Australian Securities and Investments Commission and to reserve liberty to it to apply to set aside this order.

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Decision last updated: 23 December 2015