How Soon After a Wind-Up Notice Do You Have to Cease Trading?February 16th, 2016
Companies that have trouble meeting their tax obligations, or other debts, may receive a notice to wind-up from creditors or the ATO. Business owners and company directors are often confused about the impact of receiving a wind-up notice, and uncertain about what their options may be. A wind-up notice is a serious matter, and it’s important that you act quickly, even if you need time to obtain professional advice and explore your options.
Do I have to stop trading immediately?
Receiving a wind-up notice does not mean you must stop trading immediately. Whether you decide to stop trading immediately or not depends on what you want to do and whether you can meet your debt obligations. You may need to continue trading if you wish to pay the debt off in the required time, but note that laws against insolvent trading means that directors can be held personally liable for any new debts incurred if they allow a company to continue trading while insolvent. Serious penalties, including criminal sanctions, can apply in these circumstances, and so it’s always advised to seek legal advice if you have any doubts.
With your wind-up notice you’ll receive a court date. If you don’t respond to the notice, your business will be wound up and you will cease to trade by this date. Wind-up notices are issued by courts, and they can be issued because the ATO or another creditor has submitted an involuntary wind-up notice against you. The wind-up notice basically means that either the ATO or another creditor is seeking to ascertain whether or not your business is solvent, by raising the possibility of a determination in court if you do nothing in response.
Wind-up notices are typically served after a statutory demand has been served on the company and the company hasn’t paid the requested amount within 21 days, entered into a payment plan, or in some cases had the statutory demand set aside. As such, wind-up notices usually aren’t the first sign of problems from the creditors for businesses, and businesses should work quickly to determine their next steps.
What’s the impact of a wind-up notice?
A wind-up notice effectively tells you that if you do nothing within the given time frame, your business will be wind-up by the court. The assumption at this stage is that your business is insolvent, but technically your business is not prohibited from continuing with operations.
Depending on what you want to do, it might be necessary to keep trading – if you’re able to pay the debt or enter into a payment plan, for example. Again, keep in mind it’s important to seek legal advice as insolvent trading laws mean directors can be held personally liable for additional debts incurred.
Note that when the court date arrives and the court orders that the business be wound up, a liquidator chosen by the creditor will be appointed to sell off assets and distribute the proceeds to creditors. Hence, a wind-up notice is a strong message to act very quickly and seek professional advice about your options.
What are my options after receiving a wind-up notice?
There are a few options open to businesses that have received a wind-up notice, either from the ATO or another creditor. Firstly, you can do nothing and the business will be wound up on the date specified no the notice. Alternatively you can pay the debt amount in full, or enter into a payment arrangement and have the wind-up proceedings dismissed.
The third option is to go into voluntary administration and have the administrators work with creditors through a deed of company arrangement, which sets out how the company’s operations will continue. This option, like the second, allows the company to continue operating as long as it can stay solvent. Creditors may consider this option because it gives them a better chance of recovering their money than immediately winding up the company.
What happens if the company is placed into liquidation?
When the company is placed into liquidation, the directors no longer have control over the business, and it could be shut down and sold along with its assets. In short, liquidation closes your business down completely and distributes what’s left to creditors.
Who should I contact for advice about a wind-up notice?
Companies that have received a wind-up notice should obtain legal advice as soon as possible if they haven’t already done. Your solicitor will guide you through the options you have available. It may also be a good idea to contact your accountant and other financial advisors so that you have a clear idea of your company’s finances.
If you’ve decided to go into voluntary administration or liquidation, there are company debt specialists who could also be of assistance. Other consultants to consider include business restructuring and turnaround specialists, who may be able to assist with returning your business to profitability.
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