In a recent decision of Black J, his Honour made observations that will prove useful for directors (and to an extent, restructuring practitioners) in seeking adjournments of winding up applications of companies during a small business restructuring.

In In the matter of Redback Engineering & Sales Pty Ltd [2024] NSWSC 1108, Black J had to consider an adjournment the defendant company sought pursuant to section 453Q of the Corporations Act 2001 (Cth).

That section requires the Court to adjourn a winding up application if a restructuring practitioner is appointed if it is in the interests of creditors, in order to allow the restructuring plan to be proposed to creditors.

At least two matters are worth mentioning. Firstly, his Honour commented (at [5]) that the application was brought late. His Honour had referred to the fact that a court should treat with caution an application brought late to adjourn a winding up application of a company under an administration. However, Redback was different. Although the application was brought late, at the time of bringing that application the restructuring was “plainly very well advanced”. As such, it may still be worth considering the late appointment of a restructuring practitioner (and a corresponding late adjournment) if the restructuring can at least get to an advanced stage by the time.

The second, and arguably more interesting, observation his Honour made was in relation to the potential benefit to creditors of granting the adjournment. In opposition to the adjournment, the Plaintiff had made submissions that there may be claims for insolvent trading and possible voidable transactions, for which the restructuring practitioner had undertaken only limited investigations. In response, his Honour observed that where the totality of creditors adds to a mere $480,000, a liquidator is unlikely to find much appetite from creditors to fund risky and complex claims such as insolvent trading and voidable transactions.

This is key. This argument is likely to be available for many applications made pursuant to section 453Q, given that the company’s cumulative unsecured debts must not exceed $1 million in order to qualify for a restructuring in the first place.

His Honour granted the adjournment, also commenting that doing so was “consistent with creditors’ autonomy that they be given the opportunity to vote on this well-advanced proposal, whether to approve it or to reject it, rather than that the opportunity to do so be taken out of their hands by proceeding to a winding up shortly before they would exercise their voting power as to the proposal.”

Directors (and restructuring practitioners) would be well advised to consider these points going forward with winding up adjournment applications made during small business restructures.