High Court confirms strength of statutory presumption of insolvency

A recent decision of the High Court of Australia confirms that where a company is subject to a statutory presumption of insolvency for the purposes of a winding up application, the company is required to prove to the contrary of the presumption - the fact that the debtor company disputes the amount of a debt will be unlikely to be sufficient to support a stay or dismissal of the winding up proceedings.

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) [2011] HCA 18 dealt with an appeal by ASIC against a decision of the Full Court of the Federal Court staying winding-up proceedings until potential proceedings to determine the amount of a debt owed by a debtor company had been determined.

The High Court allowed the appeal and held that the current statutory scheme provides no basis for an assumption in favour of a dismissal or stay of winding-up proceedings where a debtor company disputes the existence or amount of a debt.

The presumption in this case arose under section 459C(2)(c) of the Corporations Act, which provides that the court must presume that a company is insolvent if, within the three months before the application, a receiver and manager was appointed to property of the company under a power contained in an instrument relating to a floating charge on the property. In similar circumstances, if the appointment of receivers is founded upon a disputed debt, it would seem prudent for the debtor company to challenge the appointment before winding-up proceedings are commenced.