Everything or Nothing! That is what the Queensland Court of Appeal has told us recently when it comes to assessing what a creditor is really owed for the purposes of standing to wind up a company
A dispute arose between two parties involved in the management of Treadtel International Pty Ltd (Treadtel) whereby a Mr Cocco asserted that one of the two issued shares in Treadtel was held on trust for his benefit by the sole director’s wife, Mrs Crosher, because of an alleged share sale agreement.
Cocco sought relief, including that Treadtel be wound up on the basis that his claim for unliquidated damages for breach of the sale agreement’ made him a contingent creditor, and therefore gave him standing to seek a winding up order.
Standing as a contingent or prospective creditor to seek winding up
The material question examined by the court was whether Mr Cocco’s disputed claim for unliquidated damages would allow him to assert his status as a contingent creditor with standing to seek a winding up order.
Upon consideration of competing case law, Barrett JA noted that determinations of what constitutes a contingent creditor will differ according to the purpose for which that classification is sought. Favouring the view expressed by Santow J in Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd, the court concluded that merely having an untested and disputed claim for unliquidated damages was not sufficient to find that Mr Cocco was a contingent creditor with standing to seek a winding up order.
Central to this conclusion was the difference noted between the nature of being a creditor and the nature of being a claimant for unliquidated damages; specifically, the lack of certainty in the legal rights owed to Mr Cocco as an untried claimant.
Prior to applying to wind up a company, this decision tells us that the question creditors need to be asking themselves isn’t “how much is it worth” but rather “what am I really owed”.