Someone Is Trying to Wind Up Your Company
A winding up application is not a negotiating tactic. It is a formal application to the Federal Court to appoint a liquidator and bring your company to an end. If the application succeeds, a liquidator will take control of the company's assets, the directors will lose their powers and the company will be wound up. If a creditor has filed a winding up application against your company, you must take it seriously and respond urgently. The consequences of inaction are irreversible.
What You Need To Know
A winding up application is usually based on a presumption of insolvency arising from the company's failure to comply with a statutory demand. If a statutory demand was served and not set aside or complied with within 21 days, the presumption arises automatically.
The application is heard in the Federal Court. You will be served with the originating process and supporting affidavit. The hearing date is typically set several weeks after filing, giving you a window to respond.
The company can oppose the winding up application by demonstrating it is solvent. This requires the company to prove it can pay its debts as and when they fall due. The court expects credible financial evidence, not mere assertions.
Even if the underlying debt is disputed, once the statutory demand period has expired, the court's focus shifts to solvency. It is generally too late to argue the debt does not exist at the winding up stage if you failed to set aside the statutory demand.
A winding up application is advertised in the Government Gazette and on ASIC's published notices. This can cause immediate reputational damage, trigger default clauses in contracts and cause banks, suppliers and customers to withdraw support.
Directors who allow a company to continue trading while insolvent face personal liability for debts incurred during the period of insolvent trading under section 588G of the Corporations Act.
What To Do Right Now
Do not ignore the application
Inaction will result in the company being wound up by default. You must file a notice of appearance and, if opposing the application, supporting affidavit evidence within the timeframe specified in the court's directions.
Assess whether the company is actually solvent
The critical question is whether the company can pay its debts as and when they fall due. Review the company's cash position, debtors, creditors, financial projections and access to funding. If the company is solvent, prepare the evidence to prove it.
Consider paying the debt
If the underlying debt is not genuinely disputed and the company has the capacity to pay, paying the debt and the petitioning creditor's costs may be the most cost-effective way to have the application dismissed.
Explore restructuring options
If the company is insolvent or approaching insolvency, a voluntary administration or small business restructuring process may be preferable to a court-ordered winding up. These processes give the company a chance to restructure its debts and continue trading.
Engage a lawyer immediately
The procedural requirements for opposing a winding up application are strict and the timeframes are short. A lawyer experienced in insolvency proceedings can assess your options, prepare the evidence and appear on the hearing.
How We Can Help
We defend winding up applications in the Federal Court on behalf of companies and their directors. We prepare solvency evidence, file notices of appearance, negotiate with petitioning creditors and appear at hearings. Where the company is insolvent, we advise directors on their personal exposure and the available alternatives to liquidation, including voluntary administration and small business restructuring.
File a notice of appearance before the deadline in the court's directions.
Don't wait until your options narrow.
We can usually assess your position within a single consultation. Call us or send an enquiry and we will get back to you promptly.