A recent decision handed down in the Supreme Court of New South Wales has shed light on the amount of evidence required to successfully terminate a winding-up application brought against a company in financial distress.
Section 482 of the Corporations Act 2001 (Cth) provides that at any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
In the matter of Rainbow Carlingford One Pty Limited (in liquidation) ACN 604 122 054  NSWSC 971, an application to terminate the winding-up of Rainbow Carlingford One Pty Limited (in liquidation) (Company) was brought by Rainbowforce Pty Limited, which owned all of the shares of the Company (Related Party). The Related Party stated that it had the intention of making payment of its debts to the Company and two external financiers of the Company issued further correspondence stating that they would consider extending the terms of their facilities and would not oppose the termination of the winding-up of the Company. The Related party also put forward some evidence showing that in the event the external financiers refused to extend the terms of their facilities, the Company was still in a position to obtain significant funding from its related entities to pay off the Company’s debts and show that it is solvent.
In the end, the application was refused by the Court on the basis that the proposed funding would not be sufficient to pay off its debts in a timely manner and the evidence put forward so far appeared inadequate, specifically with respect to the external financiers extending their loans and the fall back position of related funding. The Court particularly highlighted the importance for such a company to approach with caution, and not on a hopeful basis, when it has failed to repay its only trading creditor. The Court required further evidence to show that the Company is presently and is likely to remain solvent and provided the parties with a chance to put forward further and better evidence to support this application for terminating the winding-up of the Company.
This case therefore shows that it may be possible to terminate the winding-up of a company, however the Court will require the parties supporting such an application to provide substantial financial evidence to indicate the Company’s present and future solvency.