Insolvent, but not insolvent?

In Re Evcorp Grains Pty Ltd (No 2)¹, the New South Wales Supreme Court considered an application by a creditor that the company, Evcorp Grains Pty Ltd (the Company) be wound up in insolvency.

Before the first hearing date, a voluntary administrator was appointed to the Company pursuant to section 436 of the Corporations Act 2001 (Cth) (the Act).

As a result of the appointment of the voluntary administrator, the hearing of the winding up application was adjourned.  Due to an oversight, the voluntary administrator did not attend the second meeting of creditors at which the Company was placed into creditors’ voluntary liquidation, as no deed of company arrangement was proposed.

As the administrator was not in attendance at the second meeting of creditors, he sought an order validating the second meeting of creditors.  The plaintiff opposed that order and pressed its application that the Company be wound up in insolvency.

In some circumstances, a liquidator appointed by the court has additional powers to a liquidator appointed by the creditors, and accordingly, courts have previously made orders that a company be wound up in insolvency, notwithstanding that a company was already subject to a creditors’ winding up.

In Re Evcorp Grains Pty Ltd (No 2), Brereton J found that the plaintiff had established all of the necessary grounds to obtain an order that the Company be wound up in insolvency, however he declined to make such an order as he considered:

  • No reasons were provided as to why the voluntary liquidator should be replaced by a new court appointed liquidator. 

  • A change in appointees would only serve to result in additional costs in the administration.

  • Typically, the possibility that a court appointed liquidator will be able to realise additional benefits for the creditors, not available to a voluntary liquidator, will provide justification to replace a voluntary liquidator with a court appointed liquidator.

  • In this case, the possibility of realising additional benefits was not enough, as there was no apparent benefit to the administration of the Company by replacing the voluntary liquidator with a court appointed liquidator.

Instead, His Honour dismissed the plaintiff’s application and made orders that each party pay their own costs.

Lavan Legal comment

While there may be practical benefits for creditors to replace a liquidator appointed by the creditors with a court appointed liquidator (for example, some insurance policies only respond to claims made by court appointed liquidators), creditors should be aware that the courts will not make these orders as a matter of course and it will be necessary for creditors to demonstrate some reason why such an order should be made.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.