The recent New South Wales Supreme Court (Court) decision in Plaza West Pty Ltd (in liquidation) (subject to a deed of company arrangement) [2013] NSWSC 168 involved an application to terminate the winding up of a company subject to a deed of company arrangement (DOCA) and emphasised the importance of comprehensive reports from the company’s administrators and experts, in deciding that application.

Background

The liquidators of a company subject to a DOCA applied under s 482 of the Corporations Act for an order to indefinitely stay or terminate the winding up of the company.  

Section 482 sets out relevant factors for the court when deciding whether to terminate the winding up of a company, and they include the interests of:

  • the company’s current and future creditors;
  • the liquidator(s), particularly with regard to costs;
  • contributories; and
  • the public, including public interest in commercial morality and public interest that insolvent companies should be wound up.

The liquidators’ application was supported by their own affidavits as well as evidence of the DOCA administrator and comprehensive reports from an insolvency practitioner in relation to the company’s solvency.

Decision

Justice Black held that in addition to the factors in s 482, the objects of Pt 5.3A of the Corporations Act were relevant in deciding whether to terminate the winding up because the application to terminate the winding up was made after the company had entered into a DOCA.  Specifically, this related to consideration of whether the DOCA arrangements were likely to maximise the chances of the company, or as much of its business as possible, to continue in existence.

His Honour relied upon the “comprehensive information in [the administrator’s] report and supplementary report concerning the potential outcomes of liquidation on the one hand and the DOCA on the other”, before deciding that the interests of the company’s present creditors would be served by termination of the winding up so as to facilitate the implementation of the DOCA.

One of the most significant matters for consideration by the Court in determining whether to terminate the winding up was the solvency of the company.  His Honour was satisfied of the company’s solvency and that “the interests of future creditors are not at risk in a manner which would require the Court to decline to terminate the winding up.”  In reaching this decision, the Court relied upon the expert report of an insolvency practitioner which stated that upon termination of the winding up process, the company would have an excess in value of assets over liabilities of approximately $7 million, and within 12 months the company would have reasonable prospects of meeting its debts as and when they fell due.

Comment

This case is a reminder of the factors that will be considered by the court in determining whether to terminate the winding up of a company, and in particular a company under a DOCA.  One of the most critical factors will be the solvency of the company and the position of present and future creditors should the company be wound up, or if the company was to continue in business.  Where the company is subject to a DOCA, the DOCA administrator’s reports to creditors on the position of the company and creditors will be significant evidence for the court when deciding whether to terminate the winding up of the company.