To commence winding up proceedings, a creditor does not need to hold a judgment against a debtor. Instead, a creditor can simply issue a Creditor’s Statutory Demand which complies with s 459E of the Corporations Act 2001 (Cth) on the debtor company.
In order to proceed with a Creditor’s Statutory Demand, the debt amount is required to be above the threshold amount of $2,000.00, although during the COVID-19 pandemic this amount has been temporarily increased to $20,000. This temporary increase in the time for compliance with a bankruptcy notice will expire on 25 September 2020 unless otherwise extended.
If a creditor is owed 2 or more debts totalling more than the statutory threshold, these may be combined to form the debt claimed in the Creditor’s Statutory Demand.
A Creditor’s Statutory Demand is required to be supported by an affidavit sworn on behalf of the creditor, certifying the amount of the debt due and payable. However, a supporting affidavit is not required when a judgment has been obtained in an Australian Court and a copy is attached to the Creditor’s Statutory Demand.
Once the Creditor’s Statutory Demand has been prepared and executed, it is required to be served on the debtor company. Normally this will be service at the company’s registered office, although there are other means of service of documents on companies. It is important that an up-to-date company search be conducted immediately prior to preparing and executing the Statutory Demand to ensure the correct address is identified for service of the Creditor’s Statutory Demand.
I have served the Statutory Demand; what’s next?
Once the Creditor’s Statutory Demand has been served, the debtor company will have a period of 21 days to either:
- Pay the amount set out in the Statutory Demand;
- Reach a compromise or agreement with the creditor regarding the debt in the Statutory Demand; or
- Apply to the Court for the Statutory Demand to be set aside.
Should the debtor company fail to do any of the above options within the statutory period, this will give rise to a statutory presumption that the debtor company is insolvent. In turn, a creditor will be at liberty to commence winding up proceedings in the Supreme Court or the Federal Court of Australia against the debtor company. Note that during the COVID-19 pandemic the 21 day period has been temporarily increased to six months. This temporary increase in the time for compliance with a Creditor’s Statutory Demand will expire on 25 September 2020 unless otherwise extended.
Non-compliance with the requirements of the Creditor’s Statutory Demand within the 21 day period (or six months if applicable) creates a presumption that the debtor company is insolvent. It is important to note that the presumption of insolvency based upon failure to comply with a Creditor’s Statutory Demand will only last for 3 months. Winding up proceedings based upon that Statutory Demand must be filed within that period. Otherwise, a further Creditor’s Statutory Demand will be required to be served upon the debtor company.
In order to commence winding up proceedings, an Originating Process, together with the required supporting affidavits and documentation, is required to be filed with the Court. A substantial filing fee is payable to the court to commence such proceedings – at least one reason why commencing winding up proceedings is not an action that should be taken lightly.
Once filed, the documents are then required to be served upon the debtor company at its registered office.
At the first return date before the Court of the wind up application (which is listed on the sealed copy of the Originating Process), the Court will review the evidence relied upon by the creditor. Should all requirements be satisfied, a winding up order will be granted by the Court against the debtor company, immediately placing the debtor company into liquidation, and appointing a liquidator.
Winding Up Order entered!
Upon the granting of a winding up order, the debtor company will be placed into liquidation, and a liquidator appointed. A liquidator will take control of the company’s assets, business and interests, and will undertake investigations in relation to the company’s examinable affairs with a view to recovering any property or money for distribution to creditors.
Directors of a liquidated company still have obligations to assist the liquidator in respect of the winding up, and must provide a Report on Company Activities and Property within 14 days of being notified of the making of the winding up order. This is an important document setting out details of the company’s assets, income and liabilities and is a starting point for the liquidator’s investigations and recovery actions.
However not all creditors are included in a ROCAP or even in the Company’s books and records. If you are a creditor of a liquidated company, it is still important to take steps to immediately lodge a proof of debt form with the liquidator. This will ensure you are kept informed of progress in respect of the winding up, and are in a position to receive a distribution of any monies recovered.
It is vital that the information provided in the Creditor’s Statutory Demand is correct and in accordance with the guidelines in order to avoid providing the debtor company with the opportunity to seek to set aside a Statutory Demand on the basis that it is invalid. This may lead to significant costs being ordered against a creditor, as well as the creditor’s own costs of the proceedings.
Like bankruptcy proceedings, there are a number of technicalities and guidelines that determine the information required to be provided to the debtor company and the Court. We recommend that you seek legal assistance to proceed with winding up action. In this regard, contact Matthews Folbigg Lawyers for specialist advice in winding up proceedings.