A word to the [style]wise: winding up in the absence of the company

A recent decision Edelman J in Turner v Stylewise Security & Glass (in liq)¹ has reaffirmed some principles a Court will consider in an application to set aside an application to wind up a company in insolvency where the defendant company is not present.

Background

Stylewise Security & Glass Pty Ltd (Stylewise) was a family company run by Mr and Mrs Turner.

On 13 January 2015, the Deputy Commissioner of Taxation applied to wind up Stylewise.  The application was brought due to the inadequate response by Stylewise to a Statutory Demand by the Australian Taxation Office (ATO) on 24 October 2014 for $262,938.

Mr Turner did not attend the winding up orapplication on behalf of Stylewise nor did he instruct solicitors to represent Stylewise. Mr and Mrs Turner sought orders setting aside the winding up order.

Mr Turner argued that his failure to attend the hearing of the application to wind up Stylewise was due to a genuine misunderstanding.  Mr Turner had engaged Eagle Business Solutions to assist Stylewise to develop a plan to communicate with the ATO and to repay the debt.  Some confusion arose due to payments that were due in relation to outstanding business activity statements.

On 23 April 2015, in the afternoon, the solicitors for the ATO emailed Eagle Business Solutions saying that if the Turners did not wish the application to wind up Stylewise to continue, the Turners needed to provide a payment plan to the ATO.  A further, and presumably unacceptable, repayment plan was proposed to the ATO.

On 28 April 2015, Mr Turner received a notice from Stylewise’s accountant that the company had been placed into liquidation.

The decision

Edelman J found that there had been a genuine misunderstanding and ordered that the order winding up Stylewise be set aside.  In doing so, he listed the principles that will be considered by the Court in an application to set aside an order winding up a company (as enunciated by Hodgson J in George Ward Steel v Kizkot²):

• the order is made in the absence of the defendant company;
• the evidence shows an explanation for the non-appearance;
• an application is brought promptly by the company;
• notice is given to the liquidator, to the person who sought to have the company wound up, and to any creditor who appeared at the hearing;
• there is consent or at least no opposition to the setting aside; and
• the liquidator shows there is nothing in their investigations to date showing a reason for the company to be stopped from trading.

Edelman J further held at [13] that the six considerations enunciated by Hodgson J were not exhaustive but simply some of the major factors to be weighed in the exercise of the discretion whether to set aside orders winding up the company.

The Court was satisfied on the evidence before the Court that the principles set out in George Ward² were applicable in this case and set aside the order winding up Stylewise.  In addition, Mr Turner, on behalf of Stylewise, adduced the following evidence in support, which the Court found continued to the exercise of discretion to set aside the winding up order:

• evidence as to the solvency of Stylewise;
• he had obtained funding from his parents to meet the debts of the company;
• he was undertaking financial management training; and
• the liquidator of Stylewise did not oppose the application to set aside the winding up order on the basis that his fees and costs were paid.

Lavan Legal comment

The decision in Stylewise¹ is an important reminder that where orders winding up a company are made unopposed, a Court can still set aside those orders in appropriate circumstances.

In our view, even if there was a “genuine misunderstanding” which led to the company not attending the hearing of the application to wind up the company (as was the case in Stylewise), we consider it unlikely that a Court will set aside that order if:

• evidence is adduced that the company is insolvent (in Stylewise, Mr Turner adduced substantial evidence which established Stylewise’s solvency);
• the application to set aside the order is opposed by the liquidator or another creditor; or
• no provision is made for the payment of the liquidator’s fees and costs if the order winding up the company is set aside.