The Winding Up of Storm Financial

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By way of relevant background, on 8 January 2009, Ivor and Raj were appointed as administrators of Storm Financial Ltd (“Storm”). On 4 February 2009, Ivor and Raj filed an originating application in the Federal Court seeking, under ss.439A(6) and 447A(1), that the convening and holding of the second meeting of creditors of Storm be at any time during a 90 day extension to the convening period. The ASIC intervened in that proceeding seeking a shorter extension. On 5 February 2009, Justice Logan ordered that the convening period be extended to midnight on 16 March 2009. On 16 March 2009, Ivor and Raj issued their s.439A report to creditors convening the meeting for 23 March 2009.

On 19 March 2009, the ASIC filed by leave in Court a winding up application against Storm in separate Federal Court proceedings also conducted before Justice Logan.

The ASIC’s winding up application was premised on the basis of insolvency or that it was just and equitable that Storm be wound up. Ivor and Raj’s recommendation in their s.439A report to creditors was that creditors resolve that Storm be wound up and that Mr and Mrs Cassimatis’ proposal for a Deed of Company Arrangement not be accepted. After having been provided, for its consideration, with a copy of the Cassimatis’ DOCA proposal as contained in Ivor and Raj’s report, the ASIC was not initially disposed to seek the winding up of Storm given Ivor and Raj’s recommendation that Storm be wound up.

The ASIC’s position changed as a result of Mr and Mrs Cassimatis publishing an Information Memorandum on a website maintained by them in relation to the Storm external administration. That Information Memorandum came to the attention of the ASIC on 16 March 2009, resulting in the ASIC filing its winding up application in Court by leave on 19 March 2009.

Section 440A(2) provides, inter alia, that the Court is to adjourn the hearing of a winding up application if the company is under administration and the Court is satisfied that it is in the interest of the company’s creditors for the company to continue under administration rather than being wound up – see also the Qld Court of Appeal decision in Creevey v. DCT (1996). The usual experience is that a winding up application is filed first and at some time prior to the hearing of the winding up application (all too many times, in the days leading up to the hearing or indeed the eve of the hearing), the company appoints administrators.

The notable difference with the Storm set of circumstances is that the ASIC filed its winding up application after the appointment of Raj and Ivor as administrators – indeed, the application was filed much later than their appointment, having being filed after Ivor and Raj had issued their report convening the second creditors meeting and only 4 days prior to the second creditors meeting actually being held. It would not be unreasonable for one to conclude that it would not be permissible to file and have heard a winding up application after the commencement of the voluntary administration regime, even absent any leave issue as prescribed by s.440D, and specifically for the ASIC, s.459P(2)(d).

Not only did Justice Logan hear the ASIC’s winding up application, but his Honour ordered that Storm be wound up, finding, and in our view quite properly, that if a winding up application is filed after the appointment of voluntary administrators, and if the Court is satisfied that the voluntary administration was not in the interest of the company’s creditors, then it is clearly within the operation of s.440A(2) that the Court could proceed with winding the company up.

Whilst the recommendation of Ivor and Raj in their report to creditors that creditors resolve to wind Storm up was consistent with what the ASIC was seeking, that is the winding up of Storm, Ivor and Raj were of the view that the voluntary administration process run its course to the second meeting to let creditors decide for themselves what is in their interest as is the object of Part 5.3A (see s.435A) which reflects Parliament’s intention.

His Honour, noting Ivor and Raj’s considered judgment in their report that it is in the interest of creditors that Storm be wound up, found that the operation of s.440A(2) and part 5.3A generally does not mandate that the second meeting of creditors must occur after the appointment of administrators even where there is a winding up application commenced after such appointment. Justice Logan found that as set out in s.435C(2), the winding up of a company that is subject to voluntary administration is but one of the normal outcomes set out by that sub-section. His Honour was not persuaded that it was in the interests of creditors for the winding up application to be adjourned because of the voluntary administration of Storm, and accordingly ordered that Storm be wound up and Ivor and Raj appointed liquidators.

It will be interesting to see if, subject to the success of the leave application, this decision opens the floodgates of winding up applications being filed after the appointment of voluntary administrators. Watch this space.

by Richard Cowen (Partner) and Daniel Ryan (Associate)
Tucker & Cowen Solicitors

Last Updated: 01.07.2009

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