I’ve Received a Wind-Up Notice. What Does this Mean and What Do I Do?

If you have received a wind-up notice you MUST act immediately as a faiure to do so will see your company wound up and closed. Directors and business owners alike should be well aware of what a wind-up notiuce is and what it means along with their rights, responsibilities, and potential courses of action.

It is 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. These proceeding are generally initiated by the Australian Tax Office (ATO) or other company creditors who can make an application to the court to have your business wound up. When they do, it usually means the ATO or your creditor(s) want to know whether your business is solvent and subsequently able to repay any debts that are owed. This may consist of unpaid tax debt to the ATO or other outstanding debt owed to other creditors such as suppliers.

Typically, a wind-up notice won’t be the first sign something is wrong with your business. There are a host of indicators that a business is in financial distress and you will have already received a statutory demand prior to the wind-up notice which you likely failed to act on. 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. A failure to do anything by the nominated date will result in your company will be wound up. Just to be clear, this means that you will lose your business; it’s that simple. By failing to respond, you will be putting the future of your business in the hands of the court.

Alternatively, you should become aware of your options and act accordingly. You could opt for voluntary administration or repay the debt in full (or through a payment arrangement with your creditor(s). The main options availabel are:

• 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). This is an agreement with creditors that outlines how the debt will be repaid while allowing the business to 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, the administrator may recommend a restructure and turnaround that will allow your company to return to trading. If not, the administrator has to recommend the next best course of action. Your company may be forced into liquidation, and you could be spared personal liability.

There are additional options for small businesses as a result of changes to legislation. Those who are eligible can access small business restructuring and simplified liquidation.

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 that you do not 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, the directors will lose control of the business. This happens whether you have failed to respond to the wind-up notice or as a result of placing the company into voluntary administration. The liquidator will sell the company’s assets to pay creditors, and the company will be shut down.

As a director, you should havce a comprehensive understanding of insolvency, including the types of insolvency and the impact on each on directors and other parties.

Contact our expert team today

The presence of a wind-up notice is a clear reflection that a business is in financial distress. This is usually as a result of failing to act on previous statutory demands but does not have to mean the end of the road. With professional advice from out insolvency experts, we can devise the most suitable plan for the future of your business.

Australian Debt Solvers has helped numerous businesses through this process including many who 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. Time is of the essence and acting quickly will likely mean that you have additional options.

We can help you understand the difference between volutary administration and liquidation, assess your situation, and provide expert advice. We are committed to getting your business back on its feet and devising a plan than secures financial prosperity for your future.

Contact us on 1300 789 449 to discuss your business’ wind-up notice today.