In Otway (liquidator), in the matter of AMD Freight Pty Ltd (in liq) (No 2) [2025] FCA 1169 the Federal Court of Australia considered an application for termination of a winding up under the Corporations Act brought by the liquidators of AMD Freight Pty Limited (In Liquidation) (Company). The Court ordered the winding-up of the Company be stayed until termination of a Deed of Company Arrangement (DOCA) and ordered the termination of the winding-up subject to effectuation of the DOCA.
Key Takeaways
- To terminate a winding-up order, the court must be satisfied that the reasons for the company’s winding up no longer exist.
- In making this decision, potential breach of directors’ duties and history of insolvency is relevant.
- Administrators’ and liquidators’ opinion will be given significant weight but may not be enough to justify terminating an order for winding up.
Case Background
The Company appeared to have been trading whilst being insolvent since April 2022. The insolvency was likely due to the former director becoming ill. During her illness, an employee was left in charge, which eventually left the Company unable to pay ‘significant debts’. The former director passed away in January of this year, and a new director (Director) was appointed. In April, upon application by the ATO, the Federal Court ordered that the Company be wound up. Thomas Stuart Otway and Alan Geoffrey Scott were appointed as liquidators (Applicants). In August, the Applicants successfully applied to the court to have themselves appointed as administrators of the Company. The Applicants worked with the Director of the Company to formulate a proposal for a DOCA. Under the proposed DOCA, creditors of the Company would share in a deed fund of $250,000 resulting in creditors receiving approximately ten cents for every dollar they were owed. If the Company was wound up creditors would not receive a return. The creditors of the Company resolved that the Company execute the DOCA as proposed. On this basis, the administrators applied to the Court to have the winding-up order terminated upon execution of the DOCA.
The Federal Court’s Reasoning
The Corporations Act empowers the Court to make an order to stay or terminate an order for winding-up. This is a discretionary power; the Court will consider relevant factors including solvency, director behaviour, interests of creditors, and the opinions of liquidators and administrators.
In the present application, the Court weighed the benefits of terminating the winding up, against the risks that the Company may need to be returned to liquidation.
The Benefits:
- Termination was in the interests of creditors, because if the Company were wound up, creditors would not receive any return.
- Key creditors offered to support the Company’s continued operation, including the Director who was owed $148,000. Those creditors offered to defer repayments of the debts to assist in the profitable trading of the Company.
- The Applicants (being the deed administrators and liquidators of the Company) were in favour of the termination of the winding up, which the Court considered highly significant.
The Risks:
- The liquidators’ report indicated that after completion of the DOCA, the Company’s liabilities would continue to exceed its assets.
- The Company had been insolvent since April 2022.
- The Director was likely to have breached the directors’ duties by permitting the Company to continue trading whilst insolvent.
In considering whether to terminate the winding up of the Company, the Court had reference to:
- The alleged misconduct of the former and current directors of the Company;
- The present and future solvency of the Company;
- The expected future profitability of the Company; and
- The benefit to be obtained by creditors of the Company under the DOCA as opposed to in liquidation.
Outcome
The Court ultimately was not satisfied that the winding-up of the Company ought to be terminated upon execution of the DOCA. Rather, the Court ordered the winding up to be stayed pending effectuation of the DOCA, with the liquidation to be terminated upon successful effectuation of the DOCA.
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