Solvent companies find themselves being placed into a liquidation

There are occasions when perfectly solvent companies find themselves being placed into a liquidation. Usually this happens because a director, or someone associated with a company, has failed to notice a statutory demand or a wind up application which has come to the registered address of the company.

Such companies can be resurrected under Section 482 of the Corporations Act but it is an expensive exercise. Usually, that means not only paying the legal costs of the application to the Courts and the liquidator’s fees but all current liabilities of the company. The Courts will only reinstate a company if it is solvent.

Sometimes the creditor who has put the company into liquidation has a claim against the company which would otherwise be disputed. Nevertheless, in order to get the company back, the company must pay out the disputed debt and then, if the company wishes to, the company has to chase the recovery of that debt once the company is back out of liquidation.

However, in SNL Group Pty Limited (in Liquidation) (SNL), a case ran earlier this month by Peter Harkin of Colin Biggers and Paisley, the Court was asked to both to reinstate SNL and not to force it to pay the asserted debt allegedly owed to the petitioning creditor (CMA).

On the petitioning creditor’s claim, CMA asserted that it was owed a not inconsiderable sum in respect of a consignment of iron ore shipped to Singapore in 2008.

SNL, on the other hand, asserted that the grade of iron ore within the shipment was well below that which was required in the contract (there are in fact proceedings on foot in Singapore to deal with that issue).

SNL made an application in those circumstances that, pending the outcome of the Singapore proceedings, the funds claimed by CMA be paid into Court in Australia.

CMA is a publicly listed entity and as a consequence there are a number of reports at ASX going to CMA’s financial position. This information was put before the Court and suffice it to say that the judge was convinced that there were both serious issues to be tried in relation to the dispute between SNL and CMA and that on the current information as to CMA’s financial position it was better for the monies to be paid into Court.

The outcome means that SNL succeeded in getting their company out of liquidation and in retaining a very good chance of avoiding having to pay CMA any money at all if they are successful in the Singapore proceedings.

A link to the decision is set out below.

http://www.lawlink.nsw.gov.au/scjudgments/2010nswsc.nsf/6ccf7431c546464bca2570e6001a45d2/637e6d878b377526ca257765000c07cc?OpenDocument