Don’t Wait Until The 11th Hour In Wind-Up ProceedingsMay 5th, 2016
If your company is unable to make debt repayments or owes the Australian Tax Office (ATO) tax debt, the ATO and your creditors can issue a statutory demand. This demand requires you pay the debt within 21 days, or enter into a payment arrangement. If you fail to do this within the set time frame, your creditor has the right to assume your company is insolvent and consequently apply to the Federal Court to wind up your company.
While a statutory demand is a serious matter, the wind-up application is even more so. Here, we look at why you should never wait until the last minute to act when faced a wind-up proceeding.
When you receive a wind-up notice
Usually, you will receive a wind-up notice when you have failed to respond to a statutory demand within the appointed 21 days, and your creditor has started proceeds in court to have your company wound up (under Section 459P of the Corporations Act). The hearing date is usually within a month of the notice.
Some directors err in believing this time period between the notice being served and the hearing date gives them plenty of time to explore their options and decide on a course of action. A month is not much time at all! You need to quickly decide if you will defend the application on the hearing date, allow you business to be wound-up, or find some other possible alternative.
The risks of waiting until the 11th hour
Waiting until the 11th hour to act when you have received a wind-up notice is a very risky business. If you have other creditors, they might also decide to act during this period, which can compound the risk of your company being wound up. Alternatively, you could decide to appoint an administrator and apply to have the wind-up adjourned, but the court might decide not to allow administration to proceed.
In waiting to act rather than exploring your options as soon as possible, you could limit your ability to decide the future of your company; whether that’s to repay debts, continue trading, enter a deed of company arrangement, or some other option.
1. Other creditors
Once a winding-up notice has been filed and served to your company, it is published on ASIC’s website, and your other creditors have access to this. At this stage, any other creditors of your company have the right to file a Notice of Appearance, and apply to the court to substitute their claim for debt against your company. This means that even if you settle the issue with the original creditor that filed the wind-up notice, you will still end up facing the wind-up application and hearing, which you need to defend successfully to avoid being wound up.
2. 11th hour appointments of administrators and wind-up proceedings
You may decide, after receiving your notice, to enter into voluntary administration, or explore any other avenue which could result in the wind-up application being adjourned or successfully challenged. After receiving the wind-up notice, you might decide that appointing an administrator is the best course of action for your company.
However, to proceed with administration, you need to first apply to adjourn the wind-up application. The courts may look upon last minute applications for administrators unfavourably and refuse the adjournment. There has been a case when the court has refused – on the grounds of lack of good reason – to adjourn the wind-up hearing, so as to allow the administration to proceed.
In the case mentioned above, the administrator was appointed to the company the day prior to the hearing, and the court noted the debtor company had produced “ absolutely nothing” to show there was a real possibility the administration would be in the interests of the company and its creditors. The court noted that when there’s a wind-up application in process, the company should not take it for granted the application will simply be derailed by the appointment of an administrator. The outcome of the case saw the court ordering the company to be liquidated.
Your options when facing wind-up proceedings
Ideally, your company should seek advice well before you are served a wind-up notice or even a statutory demand. However, if you do receive either of these notices, know that you do have options; but you need to act quickly to reduce the risk of your company being wound up.
For example, if you are able to repay the debt you could choose to repay the debt in full and enter into an agreement with your creditors to do so, thereby avoiding a wind-up order against your company. A second option is to challenge the wind-up application in court, whether it’s by showing your company is in fact solvent, that it’s in the creditors’ and company’s best interest to keep trading, or show other creditors’ want you to keep trading.
The importance of acting quickly
If your company is unable to repay its debt and has already received a wind-up notice, act immediately by getting advice from an insolvency specialist. The earlier you act, the more time you have to prepare for the course of action you decide to take; whether that’s challenging a wind-up application in court, getting the application adjourned so you can pursue administration, or some other option.
An insolvency expert will guide you through your options, and give you advice on what you can do to protect your interests and meet your legal obligations. In some cases, they might even be able to help with business turnaround. If you have any doubts about your company’s solvency, always seek advice so you are well informed to act as soon as you can.
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