In the matter of Dungowan Manly Pty Limited (in liquidation) [2017] NSWSC 1771

In the matter of Dungowan Manly Pty Limited (in liquidation) [2017] NSWSC 1771

The Court held the liquidators should not take steps to cause the company to cancel its shares on issue, as this would contravene s 114 of the Corporations Act by leaving the company with no members, and such a transaction could not be validated as it would prejudice creditors. Instead, and subject to resolving commercial issues regarding funding enforcement, the Court indicated that the liquidators could be granted leave to appoint themselves as joint and several administrators, who would then be justified in issuing a further levy to shareholders to discharge outstanding creditor debts, including those owed to Mr and Mrs McLaughlin.

Parties
First Applicants: Simon John Cathro and Christopher Damien Darin as joint and several liquidators of Dungowan Manly Pty Limited (in liquidation); Second Applicant: Dungowan Manly Pty Limited (in liquidation); Interested Parties: P D and J McLaughlin (Interested Parties)
Jurisdiction
Australia
Judgment Date
15 December 2017
Procedural Posture
Corporations – Winding Up – Application for Directions / Interlocutory (application for Directions in Liquidation)
Outcome
Application adjourned for further consideration; no direction to cancel shares; indication that subject to funding, liquidators could be granted leave to appoint themselves as administrators and issue further levy.
Legal Topics
Liquidators' Powers and Obligations, Winding Up of Companies, Share Cancellation, Levy on Shareholders, Court Directions to Liquidators
Corporations Law Equity Liquidators' Powers and Obligations Winding Up of Companies Share Cancellation Levy on Shareholders Court Directions to Liquidators

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Parties

Simon John Cathro and Christopher Damien Darin as joint and several liquidators of Dungowan Manly Pty Limited (in liquidation)

First Applicants

Dungowan Manly Pty Limited (in liquidation)

Second Applicant

P D and J McLaughlin (Interested Parties)

Interested Parties

Procedural Posture

Corporations – Winding Up – Application for Directions / Interlocutory (application for Directions in Liquidation)

Legal Issues

  1. 1 Whether liquidators should cause the company to cancel its shares on issue
  2. 2 Whether liquidators are justified in causing the company to issue a further levy to its shareholders
  3. 3 Whether liquidators should be permitted to appoint themselves as administrators to enable levy issue

Ratio Decidendi

The Court held the liquidators should not take steps to cause the company to cancel its shares on issue, as this would contravene s 114 of the Corporations Act by leaving the company with no members, and such a transaction could not be validated as it would prejudice creditors. Instead, and subject to resolving commercial issues regarding funding enforcement, the Court indicated that the liquidators could be granted leave to appoint themselves as joint and several administrators, who would then be justified in issuing a further levy to shareholders to discharge outstanding creditor debts, including those owed to Mr and Mrs McLaughlin.

Court Disposition

Application adjourned for further consideration; no direction to cancel shares; indication that subject to funding, liquidators could be granted leave to appoint themselves as administrators and issue further levy.

Orders

  • No direction is made that the liquidators take steps to cancel the shares on issue.
  • A direction could be made (subject to commercial consideration) that liquidators, as appointed administrators, may issue a further levy to shareholders.