RMB Articles

Important Considerations when winding up a Company

Posted 05-07-2016
Written by admin 101

A company owes you money. You may be an individual or you may be a company.

Regardless, you have already been through the process of initial court proceedings and you finally have succeeded in obtaining default judgement against the debtor.

Now what…? It seems that you have exhausted all other options in your attempts to recover the money owed to you.  The only option left remaining to you is to embark on the journey of winding up the company.

On one hand, winding up a company can be the most effective means of trying to recover the debt. If you are successful, and the company retains significant assets, then you will of course receive the full amount of your debt or what is proportionate to the money owed to you in the form of dividends depending on the status of the company's assets.

It may not even go as far as the liquidation stage. Once the notice is published on the (Australian Securities Investment Commission) ASIC website, if a company is particularly conscious of the media or the way in which the public may perceive that company, then you may see your money turn up earlier than expected.

Nevertheless, caution should always be taken when electing to wind up a company. I have already foreshadowed above the risk of the company not having adequate assets to fulfil the debt.

That is why you should always balance the costs involved against probable outcomes and should generally seek legal advice throughout the entire process. Special attention should always be paid to the rules and timeframes outlined in the Corporations Act 2001 and Corporation Rules to ensure that the documents you file and serve will be accepted by the court and ASIC. This is crucial to being successful in the proceedings.

For example, after the statutory demand has been served, the debtor will have 21 days to pay the debt. If this is not done within that timeframe, then you will be able to initiate the 'winding up' process after the 21 day period has expired. You should however make sure that you file the Originating Process within three months of the expiry of the statutory demand. Otherwise you will need to provide evidence to the court outlining why you believe the company is insolvent. This principle, known as the presumption of insolvency, is highlighted in Section 459C (2) of the Corporations Act 2001.  You should be aware of this, particularly if the parties are still negotiating payment close to the end of the three months, as the Corporations Act 2001 does not allow for extensions of time.

If you need advice about winding up a company, contact us today.