Liquidation Isn't Always Final

Written by Christopher Tran, Law Clerk

Reacon Australia Pty Ltd (in liquidation) [2025] FCA 758

When a company becomes insolvent (i.e. unable to pay its debts), the company may go through a liquidation process whereby all of the company’s assets are sold and those funds are used to repay as much of the company’s debts as possible. After this process is completed, the company is ordinarily deregistered by the liquidator and therefore ceases to exist.

Accordingly, liquidation is typically viewed as the end of a company’s life.

A recent decision by the Federal Court of Australia (Court) in Reacon Australia Pty Ltd (in liquidation) [2025] FCA 758 offers a useful reminder that liquidation is not necessarily the end of the road for a distressed company. A company may submit an application under section 482 of the Corporations Act 2001 (Cth) (Act) to terminate the liquidation process provided that it satisfies the necessary requirements discussed by the Court.

Key Takeaways

• Liquidation can be reversed: A company that has returned to solvency and presents a credible path forward may be permitted by the Court to resume trading.
• Evidence is key: A comprehensive, independently verified cashflow analysis, underpinned by committed funding and a realistic operational plan, is critical to convincing the Court of a company’s viability.
• Court’s commercial lens: The Court will consider the broader implications of terminating a winding up, including whether it leads to better outcomes for creditors and safeguards employee positions.

Background

Reacon Australia Pty Ltd (Reacon) was ordered into liquidation on 9 May 2025, with Andrew Blundell and Simon Cathro appointed as liquidators. Shortly thereafter, the liquidators applied for and obtained orders to appoint themselves as administrators and stay the winding up. The purpose was to give creditors the opportunity to consider a new Deed of Company Arrangement (DOCA) aimed at returning the company to solvency.

At a creditors' meeting on 30 May 2025, the DOCA received strong support (83% by number and 78% by value) and was executed on 2 June 2025.

The liquidators then applied to the Court under section 482 of the Act, seeking an order terminating the winding up so that Reacon could resume trading as a solvent company.

The issue

The central question for the Court was whether it was appropriate to terminate the winding up in light of Reacon’s changed financial circumstances and the broader commercial consequences for creditors and employees.

Decision

Justice Owens granted the application and ordered that the winding up be terminated.

The key consideration under section 482 is the company’s solvency. The Court must be satisfied that the company can meet its obligations as and when they fall due and that there is no real risk of it sliding back into insolvency.

In this case, the Court was persuaded by a detailed cashflow analysis prepared by the liquidators, forecasting solvency through to 31 May 2026. This forecast was grounded in actual trading data observed during the administration and backed by a $500,000 equity injection from Reacon’s sole director.

Additional factors that supported the Court’s decision included:

• the overwhelming creditor support for the DOCA and the application;
• the absence of any creditor opposition, even from those who had initially voted against the DOCA;
• the improved return to creditors under the DOCA compared to no return in liquidation; and
• the preservation of employee jobs - a key concern in insolvency proceedings.

Conclusion

This decision is a timely reminder that liquidation does not need to spell the end of a company. Where a viable restructure is achieved and creditors are likely to be better off, courts are prepared to give companies a second chance. However, success hinges on presenting a clear, well-supported case including robust financial modelling, stakeholder engagement, and a demonstrated commitment to long-term solvency.

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The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.