Wind-up notices are a type of statutory demand that’s typically served by creditors, including the ATO, to enforce the payment of debt by a business. The wind-up notice, usually made under section 459E of the Corporations Act (‘the Act’), requires a business to appear in court with its creditor to determine whether the business is solvent and how it might repay outstanding debt owed.
Businesses that receive a wind-up notice should act quickly by obtaining professional advice. While receiving a wind-up notice is a serious and urgent matter, there could be different options available to your business and your advisors can assist with exploring these with you.
Opposing a wind-up notice
There are different ways by which you might be able to successfully challenge a wind-up notice. These include filing evidence of solvency, demonstrating that creditors have a better chance of getting paid if the company is not wound up, and notify where a voluntary liquidation is already in progress.
The outcome of successful opposition to a wind-up notice is the court simply rules not to wind up your business when the hearing date arrives. Always act quickly to seek advice to explore the best options for your business’s unique situation if you plan to oppose the notice.
Evidence of solvency
If you believe the wind-up notice has been served erroneously to your business, you can challenge the notice under Section 465C of the Act by filing evidence of solvency. Wind-up notices are generally served after a statutory demand has already been served and you have not paid the required amount within 21 days. At this stage, the court and your creditors assume your company is insolvent.
Hence, if you can demonstrate that your company is in fact solvent, you might be able to successfully oppose the wind-up notice. If possible, you should also provide evidence of why you did not comply with the statutory demand, if there were good reasons for why you did not do so.
Always seek legal advice if you are seeking to oppose a wind-up notice. The kind of evidence you will need provide to the court for a successful opposition includes information on your business’s financial position, but can vary depending on the case. Having lots of assets is not necessarily an indication of solvency, but the court might consider the types of assets your business holds and how quickly these can be converted into cash.
Demonstrate creditors have a better chance of repayment
In some situations you might be able to successfully oppose the wind-up notice if you can show your creditors will have better chances of being paid if your business were allowed to continue trading.
You might be able to convince the court your business can in fact repay the creditors if the winding-up notice was to be successful opposed. You would need to provide evidence your business can in fact continue to trade successfully so that the applicable debts can be repaid.
Other creditors oppose wind-up order
Another way you could successfully oppose a wind-up is if there are creditors who are in fact opposed to your business being wound up. In that case, on hearing day, the court will take their views into account. However, it is still up to the court to consider the impact of these creditors’ opinions. For example, the court might be more likely to not make a winding-up order if it would adversely affect unsecured liquidators.
Voluntary liquidation
If a voluntary liquidation is already in progress, the court will generally not order the company to be wound up when the hearing date arrives. This is because the courts, for most cases, do not see any difference between a voluntary liquidation and a court-ordered winding up.
Paying the debt off in full
Note that opposing the wind-up notice in the ways outline above might not be the only options available. If your business can pay off creditors in full, or if you can enter a mutually agreeable repayment arrangement, this is another way to ensure your business is not wound up at the hearing date. In this case, you’ll need to negotiate with your creditors to make sure that you can offer a repayment arrangement they will be willing to agree to.
Other considerations
Once a wind-up notice has been served you will usually have 21 to 28 days before the hearing date. Any actions you take in response will need to fulfil strict procedural requirements, so it’s vital to act quickly to explore your options. If you decide to do nothing, the court will order your business to be wound up. Whether you think you can continue trading, set up an acceptable repayment plan, or need to pursue an alternative option, the earlier you obtain advice from advisors such as company debt specialists, turnaround specialists, and lawyers, the better your chances are of a good outcome for all concerned.