The Importance of Evidence: An Application to Terminate a Winding-up

In the matter of Rainbow Carlingford One Pty Ltd (in liquidation) (ACN 604 122 054) [2019] NSWSC 971, a related company, Rainbowforce Pty Ltd (Rainbow Force), applied to court to terminate the winding-up of Rainbow Carlingford One Pty Ltd (Rainbow Carlingford), not on the basis that the company was solvent, but on the basis that if the winding-up was terminated, related companies would provide sufficient funds to ensure that the company is solvent.


Rainbow Carlingford, and its related entities, obtained development approval to construct apartments in Carlingford, New South Wales.  A valuation of the Carlingford land owned by the companies noted a downward trend in prices of land, sales volume of apartments and capital growth.  Rainbow Carlingford had two external financiers and those facilities were set to expire in August 2019.  The liquidator estimated that over $100 million would need to be repaid once those facilities expire.

In addition to those facilities, Rainbow Carlingford also had loans with related parties and owed the Office of State Revenue (OSR) approximately $900,000.  After failing to agree on and comply with a payment plan to the OSR, the OSR issued a statutory demand, which was not complied with.

On 27 February 2019, the OSR’s application to wind-up Rainbow Carlingford came before the Court and the company did not appear.  Orders were made appointing a liquidator to the company.

In April 2019, two related party debtors of Rainbow Carlingford sent a letter stating that they had the intention to pay particular debts within 12 months.

In April 2019, the two external financiers wrote letters stating that they would consider extending the terms of the facilities due to expire in late August 2019.  In June 2019 one of those financiers agreed to grant a 24-month extension of the maturity date of the facility.

On 23 July 2019, minutes of related party meetings were signed agreeing not to call on repayment of debts owed by Rainbow Carlingford to its related parties.

Rainbow Force applied to Court to terminate the winding-up of Rainbow Carlingford.  In support of its application the related and external financiers had indicated that they did not oppose the termination of the winding-up.

Rainbow Carlingford, the company in liquidation, was the defendant in the proceedings, however the liquidators supported the application.


In support of the termination of the winding-up, Rainbow Force submitted that if the external financiers were unwilling to extend the terms of their loans, then four related parties would be willing to fund Rainbow Carlingford, up to a total of $90 million.

Counsel for the liquidator submitted that the liquidation should be terminated because:

  • the liquidator had done his analysis on a conservative basis;
  • the company “learnt its lesson”; and
  • given that the secured creditors did not oppose the termination, nor call for repayment, it may not be necessary to call upon the related party funders. 

The application was refused and Rees J held:

  • it is not sensible to approach the exercise of terminating a winding-up on the basis that external financiers will extend their loans and thus the fall back position of related funding, which appears inadequate, may never need to be called upon;1
  • the financial position of each of the proposed related party funders need to be considered to determine whether the funding is realistic;2
  • the proposed funding agreement was insufficient because the company had to pay $105 million within one month to repay finance over land presently worth approximately $63 million;3
  • the evidence did not suggest that the company is presently, and is likely to remain, solvent;4 and
  • when a company is in liquidation because it has failed to repay its only trading creditor, then the Court should approach an application to terminate the winding-up with caution, not on an optimistic basis; the ‘blue sky should be eschewed'.5

Although the application was refused, Rees J provided the parties with a further opportunity to ‘put forward further and better information to support the application’.6

Lavan comment

This case illustrates the level of evidence required to successfully terminate a winding-up and that courts will scrutinise the financial records of parties proposing to provide funding to a company.

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.