Re The King & I Pty Ltd

Case [2007] FCA 2085

FEDERAL COURT OF AUSTRALIA

The King & I Pty Ltd, in the matter of The King & I Pty Ltd [2007] FCA 2085

CORPORATIONS - termination of winding up of company – quality of evidence on solvency and profitability – source of support for termination – capitalisation of debt – assessment of cause of winding up

Held:  the winding up of the King & I Pty Ltd be terminated.

Corporations Act 2001 (Cth) ss 435A, 436B(1), 439A, 445F, 482(1), 482(1A)

Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 157 FLR 107
Re Nardell Coal Corp Pty Ltd (2004) 182 FLR 290
Re Data Homes Pty Ltd [1972] 2 NSWLR 22
Metledge v Bambakit Pty Ltd [2005] NSWSC 160

MERVYN MALCOLM POSNER AS OFFICIAL LIQUIDATOR OF THE KING & I PTY LTD (IN LIQUIDATION)
(SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
(ACN 060 968 809)

WAD 244 OF 2007

MCKERRACHER J
21 DECEMBER 2007 (REASONS PUBLISHED)
PERTH


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 244 OF 2007

IN THE MATTER OF SECTION 482(1) CORPORATIONS ACT 2001 (CTH)

IN THE MATTER OF THE KING & I PTY LTD (IN LIQUIDATION)
(SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 060 968 809)

MERVYN MALCOLM POSNER AS OFFICIAL LIQUIDATOR OF THE KING & I PTY LTD
(IN LIQUIDATION)
(SUBJECT TO A DEED OF COMPANY AGREEMENT)
(ACN 060 968 809)
Plaintiff

JUDGE:

MCKERRACHER J

DATE OF ORDER:

18 DECEMBER 2007

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.The winding up of The King & I Pty Ltd (in liquidation) (Subject to a Deed of Company Arrangement) (ACN 060 968 809) be terminated pursuant to s 482(1) of the Corporations Act 2001 (Cth) effective as of today’s date

2.The costs of the liquidator are to be costs in the company’s Deed of Company Arrangement.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 244 OF 2007

IN THE MATTER OF SECTION 482(1) CORPORATIONS ACT 2001 (CTH)

IN THE MATTER OF THE KING & I PTY LTD (IN LIQUIDATION)
(SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 060 968 809)

MERVYN MALCOLM POSNER AS OFFICIAL LIQUIDATOR OF THE KING & I PTY LTD
(IN LIQUIDATION)
(SUBJECT TO A DEED OF COMPANY AGREEMENT)
(ACN 060 968 809)
Plaintiff

JUDGE:

MCKERRACHER J

DATE:

21 DECEMBER 2007

PLACE:

PERTH

REASONS FOR JUDGMENT

  1. On 5 September 2006 The King & I Pty Ltd (the company) was wound up on the grounds of insolvency.  The plaintiff, Mervyn Malcolm Posner was appointed liquidator.  Mr Posner now applies for the winding up to be terminated as the company is solvent and all creditors support the termination of the winding up.  The company is now trading very profitably in providing conventional real estate agency services in rural Western Australia.  

    THE LEGAL FRAMEWORK

  2. By s 482(1) of the Corporations Act 2001 (Cth) (CA), at any time during the winding up of…

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AGLC
Re The King & I Pty Ltd [2007] FCA 2085
Case
[2007] FCA 2085
Decision Date

CaseChat Overview and Summary

In the case of Re The King & I Pty Ltd, the applicant sought the termination of the winding up of the company, which had been ordered on insolvency grounds. The applicant argued that the company was solvent and profitable, and that terminating the winding up would be in the best interests of the company's creditors, employees, and members. The court was required to decide whether the applicant had met the necessary burden of proof to demonstrate solvency and profitability and whether terminating the winding up was in the public interest.

The court found that the applicant had discharged its burden of proof by providing evidence of the company's solvency and profitability. The court also found that the termination of the winding up was in the public interest, as it would support the objects of Pt 5.3A of the Corporations Act 2001 (Cth) and had unanimous support from all interested parties. The court held that the winding up of The King & I Pty Ltd be terminated pursuant to s 482(1) of the Corporations Act 2001 (Cth). The court also ordered that the costs of the liquidator be costs in the company’s Deed of Company Arrangement.

Orders

Orders of the court

1. The winding up of The King & I Pty Ltd (in liquidation) (Subject to a Deed of Company Arrangement) (ACN 060 968 809) be terminated pursuant to s 482(1) of the Corporations Act 2001 (Cth) effective as of today’s date

2. The costs of the liquidator are to be costs in the company’s Deed of Company Arrangement.

Background

Background to the litigation

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Evidence

Evidence Before The Court

Where the winding up has been ordered on insolvency grounds, the basis for belief as to the current solvency of the company must be objectively sustainable. Mere optimism as to trading having improved will not suffice. That requirement is illustrated by a case where the threshold on this point was not reached. Again in Metledge [2005] NSWSC 160 at [31]-[34] Barrett J observed:31.In any application under s.482 for an order terminating winding up, the onus is on the applicant to make out a positive case for termination: Re Calgary & Edmonton Land Co Ltd [1975] 1 WLR 355 at pp.358-9. Where the ground for winding up was insolvency, an indispensable part of the applicant's task is to prove solvency. As a matter of public policy or commercial morality, the court will not countenance the return of an insolvent company to the mainstream of commercial life: see, for example, Re Mascot Home Furnishers Pty Ltd [1970] VR 593; Re Denistone Real Estate Pty Ltd [1970] 3 NSWR 327; Re Data Homes Pty Ltd [1971] 1 NSWLR 338. Upon an application of the present kind, as in the case of defence to a winding up summons where the presumption of insolvency operates, the party bearing the onus of proof must lead the "fullest and best" evidence of the financial position: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 477. And as was pointed out in Expile Pty Ltd v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711 by Santow JA (with whom Meagher and Handley JJA agreed), "proper verification of assets and liabilities is critical to rebut the presumption of insolvency".…33Mere assertions by a company's controller as to its solvency and the state of its assets and liabilities are of no real value to the court: see Expile Pty Ltd v Jabb's Excavations Pty Ltd (above). Upon applications such as the present, the court will not act on unsubstantiated evidence of such a person: Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Ltd (1999) 17 ACLC 972. The relevant observation of Austin J in the latter case was quoted by White J in Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd (above):"[23] Finally, there is a question as to whether I should be satisfied as to the description of the financial position of the company based upon the evidence of Mr Johnston and the support it has to some extent in the affidavit of the liquidator. In Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Ltd (1999) 17 ACLC 972 Austin J said 973: `It seems to me that an application which relies only on evidence deposed to by a single director-shareholder without any external confirmation is unlikely to be adequate to persuade a Court to exercise the discretion conferred by 482(1)...'[24] That quotation has particular point in this case where, on his own evidence, the applicant apparently forgot a debt of over $30,000 owed to the Australian Tax Office for over six months and later a debt owed to it of over $40,000. That does not engender confidence in his assessment of the assets and liabilities of the company. To some extent his evidence is corroborated by the liquidator. However, the liquidator says that he has only undertaken very limited investigations into the affairs of the defendant. Before I could act on the liquidator's evidence I would need to know what investigations the liquidator has made so as to understand the basis upon which he has satisfied himself of the accuracy of the Report as to Affairs. [25] There is another possibility which may provide additional support to the liquidator's evidence, namely, for there to be evidence from the external accountant, Mr Holliday, as to the company's financial position."34White J here refers to the two approaches generally taken to proof of solvency. Sometimes, the liquidator can verify financial facts sufficiently to express an opinion that the company is solvent or, at least, to put before the court critically assessed information which assists it in coming to such a conclusion. Sometimes an external accountant can do these things. The court is receptive to that kind of evidence, provided that it sufficiently demonstrates the basis for the opinion that the company is solvent and reflects investigations and verification beyond the mere say-so of the company's controller. No such evidence has been led here. THE EVIDENCE

Decision

Reasons for decision

MCKERRACHER J
In summary, I am satisfied that:(a)there was service or advice of the notice of the application on all creditors and contributories; (b)The company’s debts have been adequately discharged. The director of the company and the independent officers have sworn to the fact that the company is able to pay all of its debts as and when they fall due;(c)the attitude of creditors, contributories and the liquidator is supportive of the termination; (d)the current trading position and general solvency of the company has been demonstrated;(e)there has been no relevant non-compliance by the director with statutory duties;(f)the circumstances as to the winding up in the first place have been explained; and(g)public interest elements favour the termination of the winding up rather than it continuing. CONCLUSION In all the circumstances, I am satisfied that the company’s creditors, employees, contributories and members will benefit from a termination of the winding up and that there is no other good reason, particularly the public interest factor, why the company’s winding up should not be terminated. As against that, the termination continuing is likely to be disadvantageous to all those parties. Creditors will be paid 100 cents in the dollar and the company on the evidence put before me is solvent and profitable. Terminating the winding up would appear to support the objects of Pt 5.3A CA to which I referred above and has unanimous support by all interested parties. I therefore made the orders sought on the return of the application, indicating that I would publish brief reasons shortly. These are those reasons for making the orders sought.

Ratio Decidendi

Legal Principle Established

Established by: MCKERRACHER J

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