Insolvency & Liquidation
7. Winding Up Insolvent Comp
Firm / Chambers:
Last updated: 11 Aug 2015
- The usual procedure used by creditors to wind up a company in insolvency follows a four step process:
- service of a statutory demand;
- filing of court documents;
- a directions hearing; and
- a winding up order.
- The creditor who wishes to wind up a company must first serve a statutory demand on the company. Most applications are based on a company’s failure to comply with a statutory demand as this creates a presumption of insolvency
- Where an application is based on a statutory demand it must:
- be in writing;
- adhere to a certain format; and
- be accompanied by an affidavit.
- The statutory demand requires that the company pay the amount of the debt or enter into an arrangement with the creditor for example to:
- pay the debt by instalments which are satisfactory to the creditor within 21 days; and
- be served on the company in the manner required by law.
- A company which has been served with a statutory demand should do one of the following within 21 days of receiving the demand:
- pay the creditor;
- enter into a payment arrangement with the creditor; or
- make a court application to set aside the demand.
- A company can have a demand set aside on certain grounds for example on the basis that:
- there is a genuine dispute between the parties regarding the debt’s existence;
- there is an off-setting claim; or
- the demand contains a defect and as a result of that defect there will be substantial injustice unless the demand is set aside.
- If the company fails to do one of the above within the 21 day period the creditor may make an application for a winding up order against the company on the basis that the company is insolvent.
- As long as the winding up application is filed within three months of the date of the company’s failure to comply with the statutory demand the company will be presumed to be insolvent by the court.
- If there has been no response to the statutory demand after 21 days the creditor can attend to filing the court documents.
- A number of tasks need to be carried out before the court will list the matter for hearing. To make an application the creditor must:
- arrange for a search of the ASIC records in relation to the company no more than seven days prior to filing the application;
- complete an originating process or ‘claim form’ and attach a copy of the statutory demand; and
- complete an affidavit attaching certain documents.
- have a copy of the ASIC search attached;
- explain how and when the demand was served on the company;
- detail the company’s failure to comply with the demand; and
- state whether and if so to what extent the debt remain due and payable at the date of the affidavit.
- The applicant must then file the application and affidavit at the Federal Court within seven days of the date of the affidavit and pay the court filing fee. If the documents comply with the formal requirements the documents will be stamped and the court’s registry staff will write the time and date when the matter will be considered by the court on the application.
- The filed and stamped copy of the application and affidavit must then be served by the applicant on the company within 14 days of filing the application and no less than five days before the court hearing date.
- The applicant must then:
- notify ASIC of the application;
- file affidavits stating how and when the company was served with the application and how and when ASIC was notified of the application;
- obtain the consent of a suitably qualified person to act as liquidator and serve a copy of the consent on the company at least one day prior to the hearing;
- publish notice of the application on the Insolvency Notices page of the ASIC website no less than three days after the application was served but at least seven days before the hearing; and
- file an affidavit before the first directions hearing which annexes a copy of the published notice and proves it has been published.
- Any person wishing to oppose the application must file and serve a notice of grounds of opposition as well as a verifying affidavit.
- In order to avoid a winding up order the company may be required to prove that it is solvent.
- This may involve putting into evidence the company's balance sheet and financial statements.
- At the directions hearing several things may happen:
- one or both of the parties may request that the matter be adjourned;
- the matter may resolve; or
- the court may hear and determine the application for winding up.
- If a winding up order is made the creditor must:
- inform the liquidator of the order no later than a day after the order was made;
- notify ASIC of the order within two business days;
- lodge a copy of the order with ASIC and serve a copy of the order on the company within seven days of entry of the winding up order; and
- provide a copy of the order to the liquidator together with confirmation that the order was served on the company within the required timeframe.
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