SETTING ASIDE A WINDING UP ORDER IN THE ABSENCE OF A PARTY

When a company does not attend its winding up hearing, in the majority of cases, the company evidently gets wound up without any opposing parties. The question is whether the winding up order can be set aside.

Setting aside an order

Under Rule 39.05(a) of the Federal Court Rules 2011 (Cth.) and rule 36.16 (2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) the Federal Court and Supreme Court have the power to vary or set aside orders made in the absence of a party.

In George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464, the Supreme Court held that the court should exercise that power to set aside a winding up order if:

  • The Order is made in the absence of the defendant company;
  • That the application to set aside the Order is brought promptly;
  • A good explanation was provided for the non-appearance;
  • 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 as a minimum no opposition, to the setting aside; and
  • The liquidator has not found anything in his or her investigations showing reason for the company to be stopped from trading.

The above principles have been used in various cases such as DCT v JJ & Son Pty Ltd [2013] FCA 556; Twin Peaks Leisure Pty Ltd (in liq) v Workers Compensation Nominal Insurer [2012] FCA 1501 and Sadiqi, in the matter of Cook Islands Christian Church of Australia Limited (in liq) v Cook Islands Christian Church of Australia Limited (in liq) [2016] FCA 786 in guiding the Court’s exercise of power to set aside a winding up order, made in the absence of the company

In relation to the above principles, what explanations for non-appearance would be deemed acceptable?

Acceptable explanations

Examples of accepted explanations for non-appearance include:

  1. The company being deprived of an opportunity to appear due to the conduct of a person who has been responsible for ‘substantial fraud’ upon the company, which was used in the matter of DCT v JJ & Son Pty Ltd [2013] FCA 556.
  2. The registered office of the company was its accountant’s office, who did not bring the winding up application to the attention of the relevant officers of the company, which was used in the matter of Twin Peaks Leisure Pty Ltd (in liq) v Workers Compensation Nominal Insurer [2012] FCA 1501.

Unacceptable excuses

Examples of rejected explanations for non-appearance include:

  1. Directors claiming that they did not appear because they were out of the country, but waited five months after returning to attempt to have the winding up set aside, which was used in the matter of Gyrro Pty Ltd v DCT [2009] FCA 1477.
  2. The winding up application came to the attention of the proper officer, but the person to whom he delegated responsibility failed to act upon it, which was used in the matter of Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365.

What about the Liquidator?

The Liquidator has a right to full indemnity for the costs, charges and expenses properly incurred. This right does not dissolve simply because the winding up order is set aside. In most cases, the Directors of the company will arrange for the Liquidator (and petitioning creditor) to be paid in full to ensure there is a consent or at least no party to oppose the setting aside.