I’ve Received a Wind-Up Notice. What Does this Mean and What Do I Do?January 31st, 2019
A wind-up notice is about as bad as it can get for a business, but what does it mean and what should – or can – you do? It’s common for businesses to be confused about their options after a wind-up notice has been issued, but one thing is clear: you need to act quickly and get expert advice as soon as possible.
We explore what a wind-up notice is and what you need to do right away.
What is a wind-up notice?
A wind-up notice starts with a wind-up application to a court. Parties like the Australian Tax Office (ATO) or your company’s other creditors can make an application to have your business wound up, to a court. When they do, it usually means the ATO or your creditor(s) want to know whether your business is solvent and they want to start the process for a determination of solvency in court. You might owe a tax debt to the ATO or have some other outstanding debt owed to other creditors.
Typically a wind-up notice won’t be the first sign something is wrong with your business. Before you receive a wind-up notice, you’ll have already received a statutory demand, and you likely failed to respond to the requirements of the statutory demand. The requirements could be failing to pay the requested amount within 21 days, failing to set up a payment plan, or failing to have the statutory demand set aside in court.
Note this type of winding-up process is distinct from the winding-up of a solvent company. When winding up a solvent business, the process starts with the company directors making a declaration of solvency before the company members pass a special resolution for winding up.
Once a notice of special resolution has been published as required, the appointed liquidator can start wind up the company before it’s deregistered.
What can and should be done after you receive a wind-up notice
Your wind-up notice will specify a court date. By this date, if you do nothing your company will be wound up and you will lose your business; it’s that simple. By failing to respond, you’ll be leaving the issue to be resolved in court.
Alternatively, you could opt for voluntary administration or repay the debt in full (or through a payment arrangement with your creditor(s). So with a wind-up notice, your main options are as follows:
- Pay the debt – Pay the bill in full or enter into a payment arrangement and seek to have the wind up proceedings dismissed
- Do nothing – If you do nothing, the business will be wound up. The wind-up application will be heard in the court and the court will order your company to be placed into liquidation. Not only will your company be liquidated and deregistered; you, as a company director, could be found personally liable for its debts.
- Voluntaryadministration – Going into voluntary administration is a common option. The administrator will work through a deed of company arrangement (DOCA) – i.e., an offer/or deal to the creditors – and the business can continue to trade
Remember, although receiving a wind-up notice means things are very serious, you do have options. For example, if you choose to go into voluntary administration, you could eliminate up to 80% of your company debt and turn things around. An administrator will do their best to improve your company’s operations and reduce its debts. If the company is savable, you’ll return to trading. If not, the administrator has to recommend the next best course of action. Your company could be liquidated and you could be spared personal liability.
If the company returns to trading with a DOCA in place, the DOCA will set out how the company’s operations are to continue, and it lets your company continue trading as long as it can stay solvent. During voluntary administration, creditors could opt for this option as it could give them a better chance of have their debt repaid than liquidation.
The implications for your business after you receive a wind-up notice
If you’ve received a wind-up notice, you’re probably wondering if you need to stop trading right away. The good news is you don’t need to stop trading immediately after receiving a wind-up notice. Whether you do decide to cease trading or not depends on what you want to do and whether you can repay your debts. In some situations, you might need to continue to trade in order to pay off your debts, possibly through a payment plan or agreement.
At the same time, you need to consider the law against insolvent trading. You need to review whether continuing to trade would breach your duty as a director to prevent insolvent trading and expose you to the risk of personal liability for new debts incurred due to insolvent trading.
So whilst you aren’t obligated to cease trading immediately, you do need to respond within the given time frame or your company will be ordered to be liquidated by the court. On the date specified on your wind-up notice, the court will order your business be wound up and a liquidator will be appointed to sell the business assets and distribute the proceeds to your creditors.
If your company is placed into liquidation, whether it’s because you did nothing in response to the wind-up notice or because after voluntary administration liquidation was decided upon, as a company director, you’ll lose control over the business. The liquidator will sell the company’s assets to pay creditors, and the company will be shut down.
Contact our expert team today
Receiving a wind-up notice is a serious matter, although it’s likely not the first sign of trouble and you’ve already received a statutory demand. You’ll have three main options: do nothing, pay the debt, or go into voluntary administration. If you can make a payment arrangement to repay the debt, you might choose this option. However, if you can’t repay the debt, voluntary administration might be the best option, and it could give your company a chance at a turnaround. Whatever your company’s situation, the most important thing is to seek advice from insolvency experts as soon as possible, given the tight time constraints of wind-up notices.
Australian Debt Solvers has helped numerous businesses through this process – even where the company thought they had lost the lot! Regardless of what you’re currently facing, the first step is to discuss your situation with a qualified expert today, so you can make the right decisions moving forward. But don’t delay. The faster you act on your own behalf and take charge of the situation, the better your outcome could be.
Here at Australian Debt Solvers we are experts and specialists in this area, especially in voluntary administration, so please call us to work through the right plan for your particular situation. We’re committed to getting your business back on its feet after financial hardship.
Contact us on 1300 789 449 to discuss your business’ wind-up notice today.
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