By Aritree Barua, Solicitor at Matthews Folbigg Lawyers
Once a company has been wound up, it can be very difficult (but by no means impossible) to undo or even temporarily halt the winding up process. Only those with proper standing may even attempt such a feat.
In Sebie v ENA Development Pty Ltd (in liquidation) (Receiver Appointed), in the matter of ENA Development Pty Ltd [2023] FCA 2, the Federal Court of Australia (“the FC”) rejected an application made by Mr Robert Sebie (“Mr Sebie”) for a stay of the winding up of ENA Development Pty Ltd (“ENA”).
Background
On 27 January 2022, ENA was placed into liquidation by an order of Justice Black in ENA Development Pty Ltd [2022] NSWSC 54.
On 21 October 2022, Justice Black delivered several judgments arising from the liquidation of ENA and made orders including that the liquidator have possession of a property in Homebush, New South Wales (“the Homebush property”).
On 26 October 2022, Mr Sebie, an occupant of the Homebush property, sought an order pursuant to section 482 of the Corporations Act 2001 (Cth) (“the Corporations Act”) that the winding up of ENA be terminated or stayed indefinitely. These proceedings were dismissed by Registrar Segal and Mr Sebie sought a review of this decision. The hearing for the review was set down for 13 February 2023.
On Friday 6 January 2023, in a hearing which lasted all day, Mr Sebie’s application to set aside the liquidator’s writ of possession of the Homebush property (due to be executed on the following Monday 9 January 2023) was dismissed by Justice Ierace in the Supreme Court of New South Wales. Undeterred, Mr Sebie then brought an urgent application in the FC before Justice Goodman “during the afternoon and evening” of that same day, where Mr Sebie sought another order under section 482 of the Corporations Act that the winding up of ENA be temporarily stayed until the hearing on 13 February 2023 (for the review of the dismissal of his earlier stay application).
Standing
The critical issue for Mr Sebie was that he did not have standing under the section 482 of the Corporations Act to bring the application.
The FC considered section 482 of the Corporations Act, which provides the following:
482 Power to stay or terminate winding up
(1) 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.
(1A) An application may be made by:
(a) in any case–the liquidator, or a creditor or contributory, of the company; …
Justice Goodman held that Mr Sebie lacked standing to bring the application for the following reasons:
- Mr Sebie was not a creditor of ENA, and had previously contended that ENA had only one creditor, Mr Pham. Also, Mr Sebie was not identified as a creditor in the statutory report to the creditors prepared by the liquidator. Justice Goodman rejected Mr Sebie’s belated suggestions that he had standing because other persons associated with him were claimed to be creditors, where he had no authority to represent them;
- Although Mr Sebie claimed to be a ‘contributor’ to ENA, there was no evidence that Mr Sebie was a contributory of ENA. A Current and Historical Organisation Extract from the Australian Securities and Investment Commission and the statutory report of the liquidator confirmed that Mr Sebie was not a member of the ENA.
As Mr Sebie was neither a creditor nor a contributory of ENA, the FC held that he lacked standing to bring the application.
The FC further held that Mr Sebie did not have reasonable prospects of success in his application, and it was clear to the FC that the application was in substance a second attempt to obtain a stay of the writ of possession of the Homebush property, albeit by different means.
For these reasons, the FC dismissed the application.
Staying
In his earlier judgment in In the matter of ENA Developments Pty Ltd (in liq) [2022] NSWSC 1478, Justice Black pointed out the relevant factors that need to be addressed in order to obtain a stay or termination of a winding up (citing his Honour’s own decision in Re Sails Corp Pty Ltd [2021] NSWSC 1241 at [19]):
“including the interests of the company’s creditors, including future creditors; the interest of the liquidator, particularly with regard to costs; the interests of contributories and the interests of the public, including the public interest in matters of commercial morality; and the public interest that insolvent companies should be wound up. The relevant principles were in turn summarised by Brereton J in Re Glass Recycling Pty Ltd [2014] NSWSC 439, to which I have also had regard, including the importance of solvency in determining such an application which Bergin CJ in Eq emphasised in Re SNL Group Pty Ltd (in liq) [2010] NSWSC 797.”
Obtaining a stay or termination of a winding up application is a substantial exercise. This can be difficult to understand or accept where a winding up has been obtained inadvertently or without being properly defended by the company. It is important that directors of companies facing winding up proceedings take these proceedings seriously, even if the basis for the winding up application is wholly disputed. Trying to unscramble the egg can be very time consuming, labour intensive and expensive.
Read Sebie v ENA Development Pty Ltd (in liquidation) (Receiver Appointed), in the matter of ENA Development Pty Ltd [2023] FCA 2 here.
Read In the matter of ENA Developments Pty Ltd (in liq) [2022] NSWSC 1478 here.
If you would like advice in relation to winding up applications, or making an application for a stay or termination of a winding up of a company, please contact Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au, or Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
