If your company owes money to another business or person, that person is called a creditor. In some circumstances, a creditor can make an application to wind up your company in insolvency. Insolvency means that your company is unable to pay its debts. Most commonly, a creditor will make a winding up application if you have failed to comply with a statutory demand. After this failure, your company is presumed to be insolvent and a creditor may make a winding up order. You will need to act quickly if you have received a winding up notice. This article sets out the process that a creditor may go through to obtain a winding up notice and what you can do to respond.

What Is a Statutory Demand?

A statutory demand is usually the first step a creditor will take before seeking a winding up order. A statutory demand is a formal, written request that a company pay an outstanding debt within 21 days. It is a serious first step in debt recovery proceedings.

Once served with a statutory demand, you have 21 days to respond by either: 

  • complying with the demand; or 
  • applying to the court for the demand to be set aside. 

Complying with the demand will generally involve paying the debt in full or coming to a suitable arrangement with the creditor. Applying to the court have the statutory demand set aside is a complex process. To do so, you must show that the demand is defective in some way or that you have a reasonable defence for not paying the debt.

If you fail to respond appropriately within 21 days, your company is presumed to be insolvent. This presumption lasts for three months from the end of the 21 days. Within these three months, the creditor can start court proceedings to have your company wound up.

This means that a winding up notice will not be the first sign that a creditor is pursuing the debt you owe them. The statutory demand gives the creditor a chance to settle the issue before seeking a winding-up order. 

How Does a Winding Up Order Work?

Once 21 days have passed, the creditor may take steps to wind up your company. 

To do so, the creditor will:

  1. file an originating process with the court, which begins proceedings, along with a copy of the statutory demand;
  2. file evidence in support of the debt, including details about how and when they served the demand, your failure to comply with the demand and how much of the debt remains;
  3. serve you with the originating process within 14 days of filing the application;
  4. notify ASIC of the application for winding up orders;
  5. get an official liquidator to act as your liquidator if the winding up order is made; and
  6. publish notice of its application on the insolvency notices page of the ASIC website to notify other businesses of your insolvency.

What Should I Do if I Have Received a Winding Up Notice?

There are three options available to you if you have received a winding-up notice. These are set out below.

1. Non-Action

The winding up notice will specify a court date. If you fail to respond to the notice before that date, the court will order that your company be wound up. At this point, the court will appoint a liquidator and your company’s assets will be sold off. Your company’s directors may be personally responsible for the company’s debts. 

2. Pay the Debt

If your company can pay the debt, you should do so. If you pay the debt in full, the creditor may withdraw from proceedings and put a stop to the winding up process. Another option is to enter into a payment arrangement with the creditor. However, the creditor is under no obligation to accept a payment arrangement at this stage. This means that they may proceed with the winding up order, even after you have offered a payment plan.

3. Enter Into Administration

Administration can be initiated by either the creditors or the directors of a company. A company in administration is either insolvent or about to become insolvent. If you enter into administration, an administrator will be appointed to manage your company’s affairs. If the company is salvageable, you will eventually return to trading. Otherwise, the administrator will provide their recommended next steps.

Can I Continue to Trade After Receiving a Winding Up Notice?

You may not need to stop trading as soon as you receive a winding up notice. Sometimes, trading can help you to repay your debts. On the other hand, directors have legal obligations to prevent a company from insolvent trading. If your company is insolvent and you continue to trade, you may be personally responsible for any new debts that you incur.

Key Takeaways

If your company has received a winding up notice, it is essential that you act quickly. Generally, this notice will come as a result of a failure to comply with a statutory demand. If so, your company will be presumed to be insolvent, meaning that a creditor may make a winding-up application. If you need help with responding to a winding-up notice or advice about the solvency of your company, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.

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