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Henclo Investments Pty Ltd v. MSB Capital Holdings Pty Ltd [2020] VSC 775

In the recent case of Henclo Investments Pty Ltd v. MSB Capital Holdings Pty Ltd [2020] VSC 775, a wind up application was refused by the Supreme Court of Victoria on 25 November 2020 on the basis that an outstanding debt alone was found to be insufficient to show insolvency.

Henclo Investments Pty Ltd (Henclo) had applied for the Defendant company to be wound up after it failed to pay an outstanding judgment debt. The debt had been the subject of a letter of demand pursuant to sections 459A and 459P of the Corporations Act 2001 (Cth) (Act) (not a statutory demand pursuant to s 459C(2)(a)). As such, it could not rely on the ‘presumption of insolvency and had to prove the defendant’s ‘actual insolvency’.

The key issue in the proceeding was whether Henclo had established that the Defendant was ‘actually insolvent’ such that it should be wound up.

Section 9 of the Act defines the terms “solvent” and “insolvent” by reference to s 95A of the Act. Section 95A of the Act provides:

95A Solvency and insolvency

(1) A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.

(2) A person who is not solvent is insolvent

Whilst Henclo had obtained a judgment debt against the Defendant (even where the debt was significant and undisputed), the court nevertheless found that the presence of such a debt was not conclusive. Rather, the court found that it was merely a factor which may be taken into account when assessing the solvency of a company.

Given there was insufficient evidence to lead the court to infer that the Defendant was ‘actually insolvent’, the court dismissed Henclo’s application to wind up the Defendant.

Accordingly, care should be taken as to the option of issuing a statutory demand to secure the benefit of the presumption of insolvency (as opposed to simply winding up the company on the back of a court judgment debt or letter). If however a statutory demand is not issued (or is not possible to issue), you will need to show more than the mere existence of an undisputed unpaid debt (or the financial records of a debtor’s financial position) to prove insolvency – it will be a matter of showing the debtor is not merely refusing to meet its liabilities, but rather that it is unable to meet them.

If you have any questions on the above information or you require assistance, please do not hesitate to contact our Commercial Team at Burke & Associates Lawyers. We would welcome the opportunity to assist you.

Contacts

Meghan Warren

Principal

Meghan Warren

Principal
LL.B GAICD B.Bus (FinPlan)
Meghan is one of the few lawyers in Australia admitted in the State (Victoria) and Federal jurisdictions of Australia, and as an Attorney at Law to the New York State Bar in the United States.

Kristy Muhlhan

Principal

Kristy Muhlhan

Principal
LL.B (HONS) GRAD DIP. L.P., GAICD.
Since 2014, she has been an owner and Principal of the firm and has mastered a broad range of essential commercial and business skills which go hand in hand with the work she does for...

Rosy Roberts

Principal

Rosy Roberts

Principal
LL.B (Hons) B.A GAICD
Rosy has extensive experience in Litigation & Alternative Dispute Resolution having represented clients in all Victorian State Courts and the High Court of Australia. She is also a VCAT appointed Administrator.

Anthony Burke

Consultant

Anthony Burke

Consultant
B.A LL.B DIP.FIN. MGT
Tony is an LIV accredited business law specialist and a VCAT appointed Administrator. In 2008 he was President of the Law Institute of Victoria and served for two years as a director of the Law...

Stewart Davis

Associate

Stewart Davis

Associate
As well as property law, Stewart has had exposure to VCAT administration matters and commercial law, particularly servicing developer clients.

George Hanger

Associate

George Hanger

Associate
LL.B BA
George was admitted to legal practice in May 2015 after completing a Bachelor of Arts at the University of Melbourne and a Bachelor of Laws at Monash University.

Antonela Graso

Paralegal

Antonela Graso

Paralegal
Whilst completing her professional business and law tertiary qualifications, Antonela provides efficient and effective legal support services to our valued teams and clients.

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