Common Applications in a Winding Up

Aug 6, 2020 Ben

When a company is placed into liquidation (aka a winding up order was made) then there may be a range of applications that take place as the affairs of the company are being brought to a close to realise assets and if possible pay a dividend to creditors. Some of these applications are made to enlist the help of the court’s supervisory powers whilst others are made to bump up the amount of property available for creditors.

Here are some topics:

What legislation is commonly relied upon for applications in a winding up?

The relevant legislation includes:

  • Corporations Act 2001 (Cth), Part 5.4 to Part 5.9
  • Insolvency Practice Schedule (Corporations) i.e. Schedule 2 to the Corporations Act
  • Corporations Regulations 2001 i.e. Chapter 5
  • Insolvency Practice Rules (Corporations) 2016

Who, commonly, makes applications in a winding-up?

Basically:

  • liquidators, and
  • creditors

What types of applications are made?

The key applications include:

  • applications for leave to commence proceedings
  • applications to terminate or stay a winding up
  • various applications by liquidators e.g. to compromise a debt, recover unfair preferences, uncommercial transactions and insolvent trading claims
  • various applications under the Insolvency Practice Schedule e.g. to remove a liquidator

Application for leave to commence proceedings against company being wound up

After winding up order, proceedings against insolvent Co. are stayed.

Leave is needed to commence proceedings e.g. an application that the company specifically perform and carry into effect a transaction.

Application for approval by court of certain agreements

A liquidator may need court approval to:

  • compromise a large debt, or
  • enter into a long-term agreement e.g. a litigation funding agreement.

Application to terminating a winding up (or set it aside)

Sometimes, it is necessary to terminate, stay or set aside a winding up order.

What are some of the other applications?

Some of the common types of applications include applications to:

  • remove a liquidator
  • approve a liquidator’s remuneration
  • review a liquidator’s remuneration
  • obtain directions, with respect to a winding up

What are voidable transactions?

Broadly, transactions that favour one creditor over another and that can be clawed back by the liquidator.

The transactions typically are:

  • unfair preferences, 
  • uncommercial Transactions, 

Less often

  • unfair loans
  • unreasonable director related transactions
  • transactions to defeat creditors
  • etc

What are some of the potential defences to voidable transactions?

Some of the defences include:

  • if you weren’t a party to the transaction
  • you entered into the transaction in “good faith” i.e. your knowledge wasn’t tainted by a suspicion the company was insolvent
  • you have a set-off that can be relied upon. 

What claims are typically brought against directors?

Generally, at common law, the company is liable for its acts and omissions e.g. debts incurred.

However, there are statutory causes of action that can make directors liable for loss or damage suffered by creditors, if the company trades whilst insolvent (aka the duty to prevent insolvent trading).

Other causes of action can arise under other legislation e.g. misleading conduct claims.

What are some of the defences to insolvent trading claims?

Directors may be able to rely on:

  • the safe harbour defences i.e. doing something that is likely to lead to a better outcome than if an administrator was appointed.
  • the defence that by reason of Covid-19, directors may be able to say the debt was incurred ordinarily and during Covid-19 (e.g. 25 March 2020 to 24 September 2020).
  • a defence that the director reasonably though the company was solvent.
  • his or her absence from management, due to illness etc.

How do we help with court applications?

Litigant helps creditors, and liquidators bring claims or court applications within the winding-up context including claims regarding voidable transactions. We also assist directors who are in a position to fund litigation with mounting a defence in proceedings brought by liquidators where directors and officers insurance is not engaged.

Talk to a Dispute Lawyer today!

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