Court Liquidation

The application to the Court may be filed by:

• the company;
• a creditor. This includes a secured creditor, a contingent creditor or a prospective creditor;
• a shareholder;
• a director;
• a Liquidator or Provisional Liquidator of the company;
• the Australian Securities and Investments Commission; or,
• the Australian Prudential Regulatory Authority.

The application must be filed in a superior court such as the Supreme Court of a State or Territory or the Federal Court of Australia.

There are a number of grounds on which a Court can order a company to be wound up, including:

• the company is insolvent;
• the directors have acted in the affairs of the company in their own interests, rather than in the interests of the shareholders as a whole;
• the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial or unfairly discriminatory, against a member, or in a manner that is contrary to the interests of the members as a whole; or,
• the court is of the opinion that it is just and equitable that the company be wound up.

Most Court liquidations occur because the company is insolvent. Typically this is established as follows:

• the creditor has served a statutory demand for the payment on the company.  The company then has 21 days to make an application to the Court to set aside the statutory demand or pay the debt.  If the company does neither, the company is deemed to be insolvent under the Corporations Act.
• following the failure to comply with a statutory demand, the creditor files a winding up application with the Court.  The Court allocates a date on which the winding up application will be heard;
• on the day of the hearing, the Court will determine whether or not the company will be wound up.  However, it is not unusual for a winding up application to be defended and for the proceedings to be adjourned on more than one occasion.

Only a Registered Liquidator can be appointed by the Court.

The role of the Liquidator is as follows:

• to identify, preserve, protect and realise the company’s assets;
• to investigate the affairs of the company and the conduct of its directors;
• to distribute the company’s assets in accordance with the Corporations Act; and,
• following the finalisation of the winding up, to arrange for the company’s deregistration.

The Liquidator may pursue claims against directors for insolvent trading.  Further, the Liquidator may commence legal proceedings to recover antecedent transactions including unfair preferences, uncommercial transactions, unfair loans and unreasonable director related transactions. As a consequence of recent amendments to the Corporations Act, such claims can now be assigned by Liquidators.

The Liquidator is an officer of the Court and has broader powers than a Liquidator appointed in either a members’ voluntary liquidation or a creditors’ voluntary liquidation.

Some advantages of an Court liquidation include:

• it is a remedy that unsecured creditors may utilise to effect an insolvency appointment to a debtor company;
• it ensures that an independent person is appointed to administer the affairs of the company; and,
• the period of time to recover or claw back antecedent transactions is longer in a Court liquidation than a creditors’ voluntary liquidation.