Chapter 19
Winding Up Part 2
Chapter Summary
Act contains provisions that relate to
1 VOLUNTARY WINDING UP
1.1 Restrictions
A company may be wound up voluntarily if it so resolves by special resolution: s 491(1). However, under section 490, the court’s leave is required if:
· an application for the company to be wound up in insolvency has been filed; or
· the court has ordered that the company be wound up in insolvency, whether or not the order was made on such an application.
A special resolution is passed where a notice is issued under s 249L(c) and has been passed by at least 75%
of the votes cast by members entitled to vote on that occasion (s 9). Within 7 days after passing of a resolution for voluntary winding up, the company must notify ASIC, and within 21 days, publish this in the Gazette: s 491(2).
1.2 Effect of voluntary winding up upon company
After passing of the resolution, the company must cease to carry on its business except so far as is required for the beneficial disposal or winding up of that business: s 493(1). However, the company remains a company with its corporate powers (notwithstanding anything to the contrary in its constitution) until it is deregistered: s 493(1).
Any transfer of shares without the liquidator’s consent, and any alteration in the status of the members, made after the passing of the resolution are void: s 493(2).
1.3 Declaration of solvency
Section 494 allows a majority of the directors to declare in writing to the effect that following inquiry into the company’s affairs, they are of the opinion that the company will be able to pay its debts in full within the 12 mths after the commencement of the winding up: s 494(1). This must attach a statement of affairs of the company, in Form 520, showing the company’s property (and the total amount expected to be realized), liabilities, and the estimated expenses of winding up. It must be made up to the latest practicable date before the making of the declaration: s 494(2).
A declaration has no effect unless the declaration is made at the meeting of directors referred to in s 494(1). It must be lodged before the notices of the meeting or such later date as ASIC allows. The resolution for voluntary winding up must be passed within 5 weeks after the declaration (or such further period as ASIC allows: s 494(3)).
A director who makes a declaration without having reasonable grounds for his or her opinion that the company will be able to pay its debts in full within the period stated in the declaration is guilty of an offence: s 494(4). If the company is wound up pursuant to a resolution for voluntary winding up passed within the period of five weeks after the making of the declaration or such further period as ASIC allows, but its debts are not paid or provided for in full within the period stated in the declaration, it is to be presumed, unless the contrary is shown, that a director who made the declaration did not have reasonable grounds for his or her opinion: s 494(5).
1.4 Appointment of liquidators
The company in general meeting must appoint a liquidator or liquidators for the purpose of winding up the affairs and distributing the property of the company. At that meeting the company may fix the remuneration to be paid to the liquidator: s 495(1). On the appointment of a liquidator, all the powers of the directors cease, except so far as the liquidator, or the company in general meeting with the consent of the liquidator, approves the continuance of any of those powers: s 495(2).
1.5 Duty of liquidator where company turns out to be insolvent
If a declaration of solvency has been made and the liquidator is at any time of the opinion that the company will not be able to pay its debts in full within the period stated in the declaration, the liquidator is required to take action as soon as practicable: s 496(1). The liquidator can decide what is appropriate in the circumstances of the case. The liquidator may apply (under s 459P) for the company to be wound up in insolvency or appoint an administrator of the company under s 436B or convene a meeting of the company’s creditors.
If the liquidator convenes a meeting of the company’s creditors, the procedure is set out in subsections 496(2)-(8). The liquidator must send each creditor a notice convening the meeting and a list of the names and addresses of creditors and the estimated amounts of their claims, as shown in the company’s records: s 496(2). Unless the court otherwise orders, the liquidator is not required to send this to a creditor whose debt is not more than $200.
The notice must specify where copies of the list of creditors can be obtained on request. Where a creditor requests a copy of the list, the liquidator must as soon as practicable comply with that request: s 496(3).
At the meeting, the liquidator must lay a statement of the assets and liabilities of the company. The notice must draw the attention of the creditors to the right conferred upon them to appoint some other person to be the liquidator: ss 496(4) and (5). If the creditors appoint some other person to be the liquidator, then the winding up must thereafter proceed as if the winding up were a creditors’ voluntary winding up: s 496(6). The (old or new) liquidator must, within seven days after the meeting, lodge a notice with ASIC in the Form 522: s. 496(7).
If the creditors do not appoint a new liquidator, the winding up must then proceed as if it was a creditors’ voluntary winding up: s 495(3). The liquidator is not required to convene an annual meeting of creditors at the end of the first year if the meeting held under s 495(1) was held less than three months before the end of the year: s 496(8).
2 PROCESS OF CREDITORS’ VOLUNTARY WINDING UP
2.1 Meeting of creditors
The meeting to authorise a creditors’ voluntary winding up must be convened when the resolution for a voluntary winding up is considered. In actual practice it is common for both meetings to be scheduled at the same time in case a voluntary winding up is not approved. The notices of the meeting must be posted to the creditors at the same time that notices are sent to the members of the company: s 497(1).
The meeting must be convened at a date, time and place that are convenient to the majority in value of the creditors, and at least 7 days notice should be provided: s 497(2). Each creditor will be given a summary of the affairs of the company in the prescribed form (Form 509), together with a list of all creditors and the estimated amounts of their claims. A list need not be sent to a creditor whose claim does not exceed $200, but such a creditor may inspect the list: ss 497(2) and (3).
The directors have to lay before the meeting of creditors a report (in Form 507), verified by all the directors, as to the affairs of the company, made up to the latest practicable date before the notices of the meeting were sent.
The directors must appoint a director to attend the meeting: s 497(5). The director and a secretary (if any) must attend the meeting and disclose to the meeting the affairs of the company and the circumstances leading up to the proposed winding up. If the company has two or more directors, the director so appointed must not also attend as the secretary: s 497(6).
The creditors may appoint one of their number or the director appointed under s 497(5) to preside at the meeting:
s 497(8). The chair must then determine whether the meeting has been held at a date, time and place convenient to the majority in value of the creditors. His or her decision on this issue is final: s 497(9).
At the meeting, the creditors may determine whether a committee of inspection shall be appointed, and also the other matters to in s 548(1)(a)(b). Any such determinations are taken to have been duly made: s 497(10).
2.2 Power to adjourn meeting
A meeting may be adjourned for not more than 21 days (s 498(1)) and unless the resolution specifies otherwise, the adjourned meeting is held at the same place: s 498(2).
2.3 Appointment of liquidator
The company must, and the creditors may, at their respective meetings, nominate a person to be liquidator. If they nominate different persons, the person nominated by the creditors will serve as liquidator. If no person is nominated by the creditors, the person nominated by the company will be the liquidator: s 499(1).
Any director or member may apply to the court for an order that the person nominated as liquidator by the company is to be liquidator instead of or jointly with the person nominated by the creditors: s 499(2).
The committee of inspection may fix the remuneration to be paid to the liquidator: s 499(3).
On the appointment of a liquidator, the powers of the directors cease except so far as the committee of inspection, or, if there is no such committee, the creditors, approve the continuance of any of those powers: s 499(4). If a liquidator (other than a liquidator appointed by the court) vacates his or her office, the creditors may fill the vacancy at a meeting of creditors: s 499(5).
2.4 Execution and civil proceedings
After the resolution for voluntary winding up:
· any execution against the company’s property is void: s 500(1); and
· no legal proceeding against the company can be commenced or continued without the court’s leave: s 500(2).
3 VOLUNTARY WINDING UP — GENERALLY
3.1 Distribution of property of company in a voluntary winding up
Apart from preferential payments, the property must be equally applied in satisfaction of liabilities. After liabilities have been paid, the property is then distributed among the members according to their rights and interests in the company (unless the constitution provides otherwise): s 501.
3.2 Appointment and removal of liquidator in a voluntary winding up
If there is no liquidator acting in a voluntary winding up, then the court may appoint a liquidator: s 502. The court may, on cause shown, remove the liquidator and appoint another: s 503.
3.3 Review remuneration of liquidator in a voluntary winding up
Any member or creditor, or the liquidator, may apply to the court before the company is deregistered, to review the amount of the liquidator’s remuneration. The decision of the court is final and conclusive: s 504.
3.4 Acts of liquidator in a voluntary winding up are valid.
Notwithstanding any defects in a liquidator’s appointment or qualification, all acts are valid: 505(1). For example, transfers, mortgages or disposition of the company’s property are valid in favour of any person taking such property in good faith and for value and without actual knowledge of the defect or irregularity: s 505(2).
4 Powers and duties of liquidator
4.1 Generally
The liquidator can settle a list of contributors and that list is prima facie evidence of the liability of the persons named in the list. The liquidator can exercise the court’s powers under s 483(3) (except s 483(3)(b)) in relation to calls on contributories. The liquidator can set a time within which debts and claims must be proved and can convene a general meeting of the company for the purpose of obtaining the sanction of the company by special resolution in respect of any matter.
The liquidator can exercise the powers conferred under ss 477(2A) and (2B) as if he or she were a liquidator in a winding up in insolvency or by the court. In the case of a members’ voluntary winding up, a reference in those subsections to an approval is construed to be the approval of a special resolution of the company: s 506(1A). The company must lodge a copy of such a special resolution with ASIC within 14 days: s 506(1B).
The liquidator must pay the company’s debts and adjust the contributories’ rights among themselves: s 506(3).
4.2 Meetings
If the winding up continues for more than one year, the liquidator must, in the case of a members’ voluntary winding up, convene a general meeting of the company. In the case of a creditors voluntary winding up, the liquidator must convene a general meeting of the company and a meeting of the creditors within three months after the end of the first year from the commencement of the winding up and the end of each succeeding year.
The liquidator must place before the meeting an account of the conduct of the winding up during that first year or that succeeding year, as the case may be. The notices of the meeting of creditors must be sent to the creditors simultaneously with the sending of the notices of the meeting of the company: s 508.
4.3 Final meeting
When the affairs of the company are fully wound up, the liquidator must make up an account showing how the winding up has been conducted and the property of the company has been disposed of. This must be laid before a general meeting, or, in the case of a creditors’ voluntary winding up, a meeting of the creditors and members of the company: s 509(1). There must be an advertisement published at least one month before the meeting: s 509(2). The liquidator must lodge a return of the holding of the meeting with a copy of the account: s 509(3)-(4).
4.4 When arrangement is binding on creditors
An arrangement entered into between a company and its creditors is (subject to s 510(4)) binding on the company if sanctioned by a special resolution, and binding on the creditors if sanctioned by a resolution of the creditors: s 510(1). The company must lodge a copy of the special resolution with ASIC within 14 days: s 510(1A).