This week's TGIF considers the case of In the
matter of CNL Transport Pty Ltd (in liq)  NSWSC 291,
where the New South Wales Supreme Court terminated a liquidation
where the company was solvent and its debts had been
A company was wound up by the Court on 27 February 2017
following its failure to comply with a creditor's statutory
demand. The statutory demand had been issued by an insurer in
respect of unpaid workers' compensation insurance premiums.
The sole director and shareholder applied to have the
liquidation terminated under s 482 of the Corporations Act,
pursuant to which the Court has a discretion to stay or terminate a
winding up. Neither the liquidator nor the insurer opposed the
application. There was no suggestion the winding up order had been
The director gave evidence that:
He was aware there was an outstanding debt to the insurer;
He had paid around $8,000 to reduce the debt and believed the
insurer therefore knew the company could and would pay;
He was not aware of the statutory demand, which was properly
served by post on the registered office of the company;
He did not open an email attachment from the insurer's
solicitors informing him of the winding up proceedings; and
He only became aware of the winding up proceedings the day
after the liquidator was appointed.
The Court allowed the application and terminated the
liquidation. Crucial to the Court's exercise of discretion
A credible explanation of why the winding up order was made, in
that the director had separated from his partner and neglected
paperwork during the important period;
Strong evidence of the company's solvency and previous
profitable trading; and
The director putting in more than $200,000 of his personal
funds to cover the company's outstanding debts.
Capitalising the director's contribution
The Court was concerned that the director's contributions
would create a further debt of the company in favour of the
director, which would effectively dilute other creditors'
To address this, the Court ordered that the director capitalise
his contribution by subscribing for capital in the company
equivalent to the amount of his contribution. To ensure this
occurred, the Court only made the order terminating the liquidation
once the director provided evidence this had been done.
Liquidation need not necessarily be the end of the line. The
Court may terminate a liquidation where it becomes apparent it is
Liquidators who participate in such applications should assist
the Court by ensuring both that there is strong evidence the
company is solvent and that orders are sufficient to protect
creditors. As with the capitalisation requirement in this case,
this may require some lateral thinking from liquidators and their
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The reforms, known as 'safe-harbour' provisions propose changes to directors' personal liability for insolvent trading.
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