In the face of an increased number of Applications to Wind Up issued by the Australian Taxation Office (ATO) against companies with unsettled tax liabilities, a strategy known as the “11th hour VA appointment” is emerging to circumvent immediate company winding up.
The objective behind such appointments is to empower directors to propose a Deed of Company Arrangement (DOCA) for creditors’ consideration at a subsequent meeting, often resulting in the dismissal of the winding-up application.
Typically, the 11th-hour appointment requires Administrators to seek a court adjournment for the pending winding-up application. Historically, Administrators have successfully obtained such adjournments. However, a recent development involves the ATO resisting these applications and actively advocating for the immediate winding up of the company in court.
The ATO’s primary argument against adjournments revolves around asserting that the proposed DOCA is not in the best interests of the company’s creditors. This stance has been evidenced in several recent decisions:
Rio Dorado Limited: The Administrator sought an adjournment of the ATO’s winding-up application to prepare a Report to Creditors and present a DOCA Proposal involving a proposed share sale agreement. However, the presiding Judge expressed concerns about the Administrator’s ability to recommend a DOCA without providing creditors an estimate of potential recoveries in a liquidation scenario. The court ordered Rio’s winding up and the appointment of an alternative liquidator.
Sunflower Assets Pty Ltd: Despite formulating a DOCA that would create a Deed fund of approximately $500k, the ATO raised concerns about the lack of upfront contributions by the directors and related parties to the Fund. Moreover, the absence of evidence regarding the directors’ capacity to make contributions raised doubts. With the ATO’s intent to vote against the proposal, the court ordered Sunflower’s winding up and the appointment of an alternative liquidator.
Grant Metal Fabrication Pty Ltd: Despite seeking an adjournment to allow the director to formulate a DOCA proposal, the Administrator failed to convince the ATO or the court. Inadequate evidence supporting the likelihood of a proposed DOCA resulted in the court ordering GMF’s winding up and the appointment of an alternative liquidator.
Our View
These recent outcomes emphasise the critical need for immediate action when companies face outstanding ATO debts that might lead to winding-up proceedings and the appointment of liquidators.
We always stress the importance of taking action at the onset of financial troubles. However, when confronted with a Creditor’s Statutory Demand or an impending winding-up application, swift action, such as promptly appointing an Administrator, offers the best opportunity for the company to survive.
If your clients have received a Creditors Statutory Demand, please contact us promptly for a confidential consultation.
We’re here to assist you and your clients in navigating this situation effectively. You can directly contact Liam via email at liam@rriadvisory.com.au.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.