Winding Up Notices
By Lovegrove Smith & Cotton
Winding up notices are generally issued by creditors on a company in order to enforce payment of a debt. The winding up application usually follows failure to comply with a statutory demand, or where the statutory demand has not been set aside or settled within 21 days after service.
An application for winding up is usually heard by the Court within six months, so if you have been issued with a winding up notice it is imperative that you act quickly to challenge the validity of the winding up application and to preserve the position of your company, if you wish to dispute the notice.
If you do not take prompt and effective action to have an application for winding up of your company dismissed it is likely that you will be dragged into the lengthy and painful process of liquidation. This will involve other creditors being joined to the process and the eventual demise of your company and any assets it once held.
A creditor may apply to the Supreme Court under the Corporations Act 2001 (“the Act”) to wind up a company. An order for winding up a company operates in favour of all the creditors and contributories of the company as if it had been made on the joint application of all the creditors and contributories.
The Notice of application for winding up must:
- Be lodged in the form prescribed by the Act;
- Be served on the company within 14 days; and
- A notice of the application must be published in accordance with the Act.
The Court must not grant on application for winding up unless there is a prima facie case for winding up the company that has been established. However, failure to comply with a statutory demand is indicative of insolvency.
Failure to file a winding up application in the prescribed format may render the application invalid on a technical point.
A company can oppose the application for winding up by filing and serving notice of the grounds on which the person opposes the application together with an affidavit challenging the grounds on which the winding up has been sought.
It is vital that the company provide immediate evidence of solvency to rebut the presumption that the statutory demand has not been complied with because of a lack of capacity to settle the debt.
If you have not complied with a statutory demand for good reason, for example because it is flawed or erroneous, or without a genuine basis, these reasons and the evidence for them should be provided to the Court.
If there is a further basis for seeking a winding up notice, the company must address each of the grounds for the winding up application identified in the affidavit served by the applicant.
Statutory demands and winding up notices are technical legal documents which must be prepared, filed and served in strict accordance with legislation and regulations. You may need legal assistance swiftly in order to properly prepare such documents and respond to them.
Therefore it is crucial that you seek expert legal advice whether you are preparing or on the receiving end of one of these notices.