A step in the right direction: Notice to shareholders of The Duke Group's (in liq) surplus

A rare case was recently heard by the Supreme Court of South Australia in which Judge Burley determined the rights of unsecured creditors in circumstances where a company in liquidation became solvent after its winding up and had a surplus from the proceeds of the winding up after satisfying admitted claims.


The Duke Group Ltd (Group) was placed into liquidation on 1 July 1989, at which time it had no tangible assets and debts amounting to approximately $35 million.  By 17 January 2000, following the successful recovery of the Group’s intangible assets by the liquidator, all creditors’ claims admitted as at the date of liquidation were paid in full and, remarkably, the Group was left with a surplus of approximately $12 million.  As a result of realising a surplus, the administration of the liquidation went from being an administration in insolvency to one where the Group was solvent.

The liquidator recently applied to the Supreme Court for directions1 as to the manner in which he could call for proofs of debt from creditors who were unable to prove in the insolvency administration and the form of notice required to be given to those potential claimants.  The Group’s surplus was $10.3 million at the date of the application.


Two creditors of the Group, Genoa Resources and Investment Limited (in liquidation) and LFD Limited (collectively, the Interveners) were granted leave to intervene in the liquidator’s application.  The Interveners’ combined claims for post liquidation interest exceeded $110 million.  As previously determined by the Supreme Court of South Australia, payments for claims made and admitted after the liquidator calls for further proofs of debt will be made in priority of the Interveners’ claims for post-liquidation interest2.

Section 438 of the Companies (South Australia) Code

The Court applied section 438 of the Companies (South Australia) Code3 in determining the rights of unsecured creditors whose claims were not admitted in the liquidation.  Subsection 428(2) provides in effect that a person who has a claim for unliquidated damages may not prove in the liquidation, except if the claim arises by reason of a contract, promise or breach of trust.  Subsection 438(1) makes it clear that such a restriction does not apply where the company is solvent.

The Court held that claims that might be available to persons who may have suffered loss and damage as a result of their dealings with the Group but which were not admissible in the winding up may be admissible in the Group’s current circumstances.  Accordingly, the Court directed that the liquidator, amongst other things, give written notice to the Group’s shareholders of the surplus and of their right to lodge a proof of debt.

Form of notice to shareholders

The Interveners disputed the form of the liquidator’s proposed notice to the Group’s shareholders, complaining that the notice went beyond informing the shareholders of the current position and came close to telling proposed claimants how they should pursue a claim.  The Court agreed with the Interveners’ submission in directing that the proposed notice be amended to remove reference to matters that may give rise to claims.  The Court held that it is sufficient for the liquidator to set out the history of the matter and it is then open for recipients of the notice to obtain their own independent legal advice.

Conversely, the Court held that it was not inappropriate for the liquidator’s notice to refer to the High Court of Australia’s decision in Sons of Gwalia Ltd v Margaretic & Ors4; because it ‘leads to a better understanding of a relatively complicated situation’.

Lavan Comment

This case provides insight into the novel challenges of dealing with surplus proceeds of a company’s winding up.  Seeking directions from the Court will protect practitioners in the rare event that they find themselves dealing with a surplus and ensure that they do not impinge the rights of unsecured creditors.

If you have any further queries or questions please contact:
Alison Robertson on (08) 9288 6872 / alison.robertson@lavanlegal.com.au or
Amy Rumble on (08) 9288 6809 / amy.rumble@lavanlegal.com.au.

1Pursuant to section 379(3) of the Companies (South Australia) Code, equivalent to section 479(3) of the Corporations Act 2001 (Cth).

2Gerah Imports Pty Ltd v Duke Group Ltd (in liq) (2004) 88 SASR 419.

3Equivalent to section 553E of the Corporations Act 2001 (Cth).

4(2007) 231 CLR 160.

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.