This week's TGIF considers the recent decision of the Federal Court of Australia in Blundell, in the matter of Reacon Australia Pty Ltd (in liquidation) [2025] FCA 758.
Key takeaways
- Liquidation is not the end of the road. If a company can
demonstrate that it is solvent again, and has a solid plan for
staying that way, a court may allow it to resume trading.
- A detailed and independently verified cashflow analysis,
supported by committed funding and operational planning, is
essential to persuade a court that the company can meet its
obligations as they fall due.
- When deciding whether to terminate a winding up order, a court will weigh up the broader commercial consequences, including whether the company's creditors stand to receive a better return and whether its employees' jobs are protected.
Background
On 9 May 2025, Reacon Australia Pty Ltd (Reacon) was ordered to be wound up in insolvency, with Andrew Blundell and Simon Cathro appointed as joint and several liquidators (the liquidators).
Shortly after, the liquidators sought and were granted leave to appoint themselves as administrators and to stay the winding up. This was done to allow Reacon's creditors to consider a new Deed of Company Arrangement (the DOCA), which proposed a pathway to return the company to solvency.
A meeting of creditors was later held on 30 May 2025, where a significant majority (83% by number and 78% by value) voted in favour of the DOCA, which was formally executed on 2 June 2025.
The liquidators thereafter applied to the Court, seeking an order under section 482 of the Corporations Act 2001 (Cth) that the winding up of Reacon be terminated.
The Issues
The Court had to consider whether it was appropriate to terminate the winding up of Reacon, so as to allow the company to return to normal operations.
Decision
Owens J ordered the winding up of Reacon be terminated. When deciding whether to end a liquidation under section 482, the main factor for a court to consider is the company's solvency. A court must be satisfied that the company can continue without an appreciable risk of returning to liquidation. Related to this decision will be other important factors, including the interests of the company's current and future creditors, and the interests of its employees.
In this case, the Court placed significant weight on a cashflow analysis prepared by the liquidators. The analysis projected Reacon's solvency through to 31 May 2026, supported by a $500,000 investment from the company's sole director, and based on actual trading data obtained by the liquidators throughout the company's administration.
Owens J also considered several other factors in coming to his decision, including:
- a significant number of Reacon's creditors supported the
termination of the winding up;
- no creditor actively opposed the application, including those
who voted against the DOCA;
- Reacon's creditors stood to receive a return under the
DOCA, whereas liquidation offered no dividend; and
- Reacon's employees would retain their jobs under the DOCA.
Comment
This case serves as a valuable reminder that liquidation does not necessarily mark the end of a company's life. If the company has returned to solvency, and the interests of the company's creditors will not be prejudiced (and may in fact be improved), a court may order that the winding up be terminated.
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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