TGIF 28 April 2023 – Ascertaining the relation-back day when there are multiple applications for winding up

In this week’s TGIF, we consider the recent case of Re 52 The Esplanade Pty Ltd (in liquidation) [2023] QSC 57 which provides guidance as to how the relation-back day for a company is to be determined in circumstances where there are multiple winding up applications.

Key takeaways

• The relation-back day is an important date for the administration of a winding up and must be ascertained with certainty.
  
  
• Where there are multiple winding up applications before a court, in determining the relation-back day, specific consideration needs to be given to the precise application in respect of which orders were made for the winding up of the company.
  
  
• Arguments about the relation-back day can have significant implications for liquidators and creditors. The precise date will determine whether transactions are inside or outside the prescribed period for liquidators to challenge transactions as voidable.  

On 28 June 2022, 52 The Esplanade Pty Ltd (the Company) was wound up by an order of the Supreme Court of Queensland and liquidators were appointed (the Liquidators). A dispute arose between the Liquidators and one of the Company’s creditors, the Commissioner of Taxation (ATO), as to the proper relation-back day for the winding up. Accordingly, the Liquidators applied to the Supreme Court for declaratory relief and Kelly J had to evaluate competing contentions as to which filing constituted the application for the winding up order.

Procedural history

On 17 September 2021, a 50% shareholder of the Company filed an originating application to wind up the Company (the Originating Application) pursuant to section 461 of the Corporations Act 2001 (Cth) (the Act). The provisions relied upon in the Originating Application related to the winding up of the Company on the ‘just and equitable’ ground outlined in section 461. These grounds were subsequently expanded via pleadings to include other grounds, but none relating to solvency.

On 3 December 2021, the Court made orders appointing a provisional liquidator (the Provisional Liquidator) to the Company.

On 3 June 2022, the Provisional Liquidator filed an interlocutory application in the proceedings commenced by the Originating Application (Provisional Liquidator’s Application). The Provisional Liquidator sought orders, inter alia, that the Company be wound up in insolvency.

On 28 June 2022, Boddice J made orders on the Provisional Liquidator’s Application that the Company be wound up on the grounds of insolvency. As part of these orders, the Liquidators were also appointed.

The dispute

The Liquidators and the ATO agreed that the relation-back day was the ‘day on which the application for the order [for the winding up] was filed’, within the meaning of section 91 (Item 14) of the Act. The relation-back day is important because it informs the relevant time period for transactions that can be challenged by a liquidator as voidable.

The Liquidators argued that the relation-back day was 17 September 2021, being the date that the Originating Application was filed. Conversely, the ATO contended that the relation-back day was 3 June 2022, being the date that the Provisional Liquidator’s Application was filed.

The Liquidators submitted that “there were, in essence two applications filed which led to the final order being made to wind up the company”. Having regard to section 91 of the Act, the Liquidators argued that the phrase ‘the day on which the application was filed’ could be construed as ‘the days on which the application was filed’, by operation of the Acts Interpretation Act 1901 (Cth). The Liquidators emphasised that the Provisional Liquidator’s Application was an interlocutory application brought within the proceeding commenced by the Originating Application. Accordingly, the Originating Application was a necessary pre-requisite to the winding up order and the Provisional Liquidator’s Application only expanded the grounds under which the Company could be wound up.

The ATO argued that it was only the Provisional Liquidator’s Application that was considered by the Court on 28 June 2022. In the ATO’s view, the two applications were separate and distinct because only the Provisional Liquidator’s Application was brought, inter alia, on the ground of insolvency. In this sense, the latter application was neither a continuation nor an expansion of the earlier application.

Result and reasoning

Kelly J rejected the Liquidators’ arguments and determined that the Provisional Liquidator’s Application was the only winding up application for the purposes of determining the relation-back day.

His Honour began by emphasising that the Originating Application and Provisional Liquidator’s Application sought winding up on separate grounds. In particular, the Provisional Liquidator’s Application requested that the Company be wound up in insolvency. The winding up order of 28 June 2022 was made on the basis that the Company was insolvent, not on any of the grounds argued under the Originating Application. Accordingly, the winding up order was made pursuant to the Provisional Liquidator’s Application.

In the course of his reasoning, Kelly J emphasised that “the relation-back date is an important date for the administration of a winding up and needs to be able to be ascertained with certainty”. The Liquidators’ construction was deemed ‘uncommercial’ to the extent that it provided for more than one relation-back day for winding up.

Comment

This case is a useful reminder of the traps that can emerge in determining the relation-back day where there are multiple applications for the winding up a company.

Contests as to the relation-back day can have significant ramifications for liquidators and creditors. Depending upon the correct date, some transactions could fall inside or outside the window where liquidators can seek to unwind transactions entered by the company as voidable.

As Kelly J has made clear, in determining the relation-back day, consideration needs to be given to the precise application in respect of which orders were made for the winding up of the company.

Where there are a multiple winding-up applications, the relation-back day will not necessarily be determined based on the first filing. This is particularly so where, as occurred in this case, the first application seeks winding up on grounds which differ to those underlying the Court’s ultimate winding up order.