Nov 032011
 

The courts have found a company can be wound up for insolvency even though its debt is in dispute.

In a recent case, a receiver and manager had been appointed by Westpoint over a company's assets, claiming a debt of over $6 million.

The Australian Security and Investments Commission applied to wind up the company alleging it was insolvent.

Company law states that the courts must presume a company is insolvent if, during or after three months after application, a receiver has been appointed under a legal agreement relating to securities.

The company had other debts of $1.7 million and assets of $5.7 million. It disputed the Westpoint debt, arguing that the debt owed was $5 million less than claimed, an argument the judge did not accept. He then wound up the company.

On appeal, the High Court found that the principle that the court would not order a winding-up on the basis of a disputed debt did not apply in the case brought by ASIC. It stated that "the principle was based upon the potential abuse, by creditors, of the winding up process to compel a solvent company to pay a genuinely disputed debt".

That could not apply to ASIC in this case, as it did not claim the status of creditor and did not seek winding up on the basis of a debt owed.

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