Debt Collection
8. Winding Up for Company Debt
Firm / Chambers:
Last updated: 17 Jul 2015
- If a company owes a debt over $2000 a creditor can serve a notice on the company under s459E Corporations Act (Cth). This is useful as a test for the company’s solvency (creditworthiness). If the debtor company pays the debt or makes an offer for repayment then they will pass the solvency test. However this notice can also be an effective tactic for debt collection.
- You do not have to get a court judgment before you serve a 459E notice on a debtor company but it may still be a good idea to do so. The best example of when you could serve a 459E notice without a judgement is if the debt is not in dispute or if you have negotiated a written repayment offer that has not been complied with.
- If you do not have a court judgement then you run the risk that the debtor will dispute your right to make the application. They can do this by disputing the existence of the debt.
- If you have a court judgement then the debtor will need to take the case back to court and apply to have the judgement debt set aside.
- The 459E application will likely be dismissed in cases where the debtor can provide the court with evidence that the dispute about the debt is based on genuine and reasonable facts. The creditor will probably also have costs awarded against them.
- Even if the debtor succeeds in having the application dismissed it is likely that the court will order that the debtor is to pay the application costs incurred by the creditor.
- If you are a company director and you do not try to have the 459E notice set aside within the 21 day compliance period then you will not be able to dispute the debt in the creditor’s application to wind up the company during a later hearing.
- The Supreme Court can issue a winding up application if a debtor does not comply with the 459E notice.
- If the Supreme Court issues a winding up application then it must be served on the debtor and also advertised. This requirement to advertise can cause problems for a creditor if they are using this application as a tactic to get payment of a debt. This is because other creditors may also support the application and seek payment of their own outstanding debts. This may delay the winding up of the company. A different creditor may also be substituted and paid before you. For example this can happen if your debt is unregistered and there is also a registered mortgage making a claim for payment. The registered debt will take priority.
- You have the option to pay the debt in full to the creditor before the court makes the winding up order. In these cases the creditor will usually also demand payment for the costs they have incurred. Generally the total amount of costs is agreed and is within the court’s lump sum limit.
- If you are a creditor and want to support another creditor’s winding up application then you need to file and serve the appropriate court documentation. This action usually depends on the original creditor having a good chance of having their debt repaid.
- A debtor must pay all creditors who support the application. If they do not do this then the creditor with the highest priority may get the winding up order by being substituted on the application.
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