Commencing Winding Up Proceedings: 5 Things You Need To Know

Feb 27, 2019
Reading Time: 2 minutes
Written by Jackie Olling

Commencing winding up proceedings is no light matter. In effect, lodging a claim to wind up a company means that a Court will order that a company cease to exist. It stands to reason then, that the requirements to do this successfully are stringent.For an application to be successful, a strict process needs to be followed.

In this article, we’ll outline 5 things you need to know about commencing winding up proceedings before you start the process.

You need to have served a statutory demand and affidavit

A creditor must serve a statutory demand and affidavit. These must be served at the company’s registered office. Further, this demand should:

  • Be in the prescribed format
  • Outline the amount of the debt owed. The amount of the debt also needs to be in excess of $2,000.
  • State that the debtor has 21 days in which to comply with the demand
  • Be signed by or on behalf of the creditor
  • Be supported by an affidavit which verifies the debt

Serving a statutory demand has serious consequences for both parties involved. Before serving a statutory demand, it is important to get the advice of a corporate lawyer.

The demand needs to have gone unpaid or undisputed for 21 days

If a debtor has repaid the loan or disputes it, then you cannot commence proceedings to wind up the company. The debtor can apply to have the demand set aside if there is a genuine dispute about the amount or existence of the debt. Further, 21 days need to pass before a winding up application can be made. Debtors have 21 days to respond from the day the statutory demand is served. After the 21-day period lapses, you can make commence proceedings in the Federal Court to wind up the debtor.

You need to undertake a recent search on ASIC

An applicant in winding up proceedings needs to have undertaken a search of the debtor company’s records on ASIC. This search needs to have been undertaken within the previous 7 days. This is to confirm that the debtor isn’t the subject of any other winding up proceedings and that it’s not in liquidation.

A presumption of insolvency will arise

Companies will be presumed to be insolvent after 21 days. Section 459C of the Corporations Act 2001 (Cth) provides that a Court must presume that a company is insolvent if they fail to comply with a statutory demand. If the debtor has not previously applied to have the demand set aside if there is a dispute regarding the debt, they cannot rely on this in Court. A defendant in winding up proceedings can only defend them on the basis that they are solvent.

You have 3 months to commence proceedings

From the end of the 21-period in which a debtor has failed to respond to the demand, a creditor has 3 months to lodge an application for winding up. After 3 months, the presumption of insolvency ends.

Commencing winding up proceedings requires a strict adherence to the guidelines provided by the Federal Court. Creditors need to ensure that they have grounds to apply for winding up. Further, creditors need to follow all the necessary steps. Otherwise, creditors will not only be unsuccessful, but also face a hefty legal fee.

Need more information? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

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