Do winding up proceedings need to be advertised where the debt has been paid in full?

We recently acted for a company that was a defendant to winding up proceedings. The proceedings were brought by a creditor of the company on the grounds that there had been a failure to comply with a statutory demand.

On the day the company was served with the winding up proceeding, the company paid the creditor the amount claimed in the statutory demand together with costs. Given that the debt had been paid within three days of the proceedings having been served, the creditor agreed not to publish notice of the application for a winding up order on the ASIC Insolvency Notices website, as required under s 465A(1)(c) of the Corporations Act 2001 (Cth) (Act) and rule 5.6 of the Supreme Court (Corporations) Rules 2013 (Vic) (Rules).

At the hearing of the winding up application, the company relied upon rule 5.6(2) of the Rules, which provides that notice of the application must be published:

  • at least 3 days after the originating process is served on the company; and
  • at least 7 days before the date fixed for the hearing of the application.

This rule creates a prohibition on advertising until at least three days after service of the winding up proceeding. The court heard submissions about the legislative purpose concerning the prohibition on advertising, having regard to the decision of Justice Slade in Re Signland Ltd [1982] All ER 609 – which has since been accepted by Australian courts in subsequent decisions.

In Re Signland, the reasons for the prohibition on advertising not less than seven days after service (the equivalent requirement in England at the time) were two-fold, namely:

  1. to give a company served with a winding up proceeding the opportunity to discharge the debt in question, if it is undisputed, before advertisement takes place, with all the necessarily potentially damaging consequences to the company; and
  2. to enable the company, if it wishes to dispute the debt, to apply to the court to restrain advertisement.

In our case, the company wanted to avoid any risk of potentially adverse consequences resulting from an advertisement of the winding up proceeding. Submissions were made to the court as to the significant prejudice that may be suffered by the company if the court did not agree to dispense with the need to advertise.

The company also submitted to the court that, having regard to the fact that the debt was paid within three days of the winding up proceeding having been served – and that the creditor had consented to orders for the dismissal of the proceeding – the court should exercise its discretion to dispense with the need to publish the notice under the Act and Rules.

The court accepted the company’s submissions and was prepared to infer that harm would be suffered by the advertisement. This was having regard to the size of the company and the shareholdings that may be adversely affected. The court also noted that if there were any other potential creditors, they had had the opportunity to be supporting creditors in the proceeding because the Form 519 had been duly lodged with ASIC and the matter was listed in the daily court list.

Having regard to the above, the requirement that the creditor publish notice of the application pursuant to section 465A(1)(c) of the Act and rule 5.6 of the Rules was dispensed with. The proceeding was dismissed with no order as to costs.

This case demonstrates that where a company pays a debt in question to the satisfaction of the creditor within the three-day prohibition period under rule 5.6(2) of the Rules, the court can be called on to exercise its discretion to dispense with the need for the winding up application to be published. If such an order is made, this may alleviate a company’s concern regarding the potentially damaging consequences that may flow to it if an advertisement were to be published.

Disclaimer

This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

Queries

For further information please contact the author or any member of our Restructuring, Turnaround and Insolvency Team

The Authors

Radhika Kanhai

PARTNER, MELBOURNE

Evelyn Ooi

SENIOR ASSOCIATE, MELBOURNE