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Companies - Winding Up - An effective weapon |
Where a debtor is a company incorporated under the provisions of the Corporations Act 2001 ("the Act") a creditor is in certain circumstances able to apply to Court to wind up the company. Winding up is the process whereby the assets of a company are realised, the creditors paid out in accordance with the Act, any surplus is distributed amongst the shareholders and the company is then de-registered.
There are various circumstances which enable the Court to order the
winding up of a company. The most common procedure is in terms of
Section 459C(2)(a) of the Act where a company is presumed to be
insolvent where it fails to comply with a Statutory Demand in terms of
Section 459(F) of the Act.
One of the main advantages of proceeding against a debtor in terms of a
Statutory Demand is that it is not necessary for a creditor to have
obtained a judgement against the debtor. Accordingly, a creditor who
has a claim against a debtor is not obliged to obtain a judgement prior
to making a Statutory Demand on the debtor. It would however be
preferable to rely on a judgement as the basis for the Statutory Demand
as this will create difficulties for the Debtor Company to set aside
the Statutory Demand on the basis of, for example, a denial of the debt.
STATUTORY DEMAND
The procedure although relatively straight forward is very technical
and there are various formalities which must be complied with namely:
- debt must be specified in the Statutory Demand which is
served at the registered office of the Debtor Company by ordinary
pre-paid mail.
- The demand must be in writing.
- The
demand must be accompanied by an affidavit verifying the debt unless
the debt is a judgement debt. Accordingly, a creditor is entitled to
wind up a Debtor Company whether or not a judgement has been granted
against the Debtor Company in favour of the creditor.
- The debt must be for an amount of not less than $2,000.00.
The Debtor Company served with a Statutory Demand has 21 days in which to comply with such demand.
APPLICATION TO SET ASIDE A STATUTORY DEMAND
A company that has been served with a Statutory Demand may apply to
Court to set the demand aside which application must be proceeded with
not more than 21 days after service of the demand. Generally, the
grounds upon which an application is made to set aside the Statutory
Demand are restricted to a denial of the debt or the existence of a
set-off.
If a Debtor Company has not applied to set aside the Statutory Demand
application can be made to the Court for the winding up of the Debtor
Company. It is in respect of this application and the procedures to be
followed that same are specific and technical. The Originating Process
for the winding up of the Debtor Company is supported by an affidavit
deposed to by the applicant creditor or, where the applicant creditor
is a company, one of its directors or principal officers. Pursuant to
the Originating Process for the winding up of the Debtor Company being
issued there are procedures regarding service and publication which
must be followed. These include the nomination of a Liquidator,
arranging service, advertising in a daily newspaper and preparing the
relevant affidavits of service. The winding up procedure would usually
take approximately 8 weeks.
Although there will be costs incurred in respect of the application for
winding up (and the application may be opposed or application may be
made by the Debtor Company to set aside the Statutory Demand) the
alternative procedure available to a creditor who is owed money by a
Debtor Company is to institute proceedings for recovery thereof which
proceedings may themselves be costly and time consuming.
A creditor should take particular care in ensuring that if a Statutory
Demand is made the amount claimed from the Debtor Company is
immediately due and payable. There must be no dispute in regard to the
indebtedness failing which the creditor may be ordered to pay the costs
of the application to Court by the Debtor Company to set aside the
Statutory Demand.
It follows from what is set out above that if a Statutory Demand is
received from a creditor urgent steps should be taken to set aside the
demand within the aforementioned 21 day period.
The risk with winding up a company is that a creditor may receive
little or no dividend even if the application for the winding up of the
Debtor Company is successful. Whatever assets are available have to be
shared amongst all creditors according to the ranking of the various
classes of creditors. On the other hand if the company's assets are
sufficient, a creditor should be able to recover the entire debt owed
(or a substantial portion) together with costs in relation to the
winding up application.
In summary, the procedure outlined above relating to Statutory Demands
can be a useful tool which a creditor can utilise in the circumstances
and on the grounds set out above. On the other hand a Debtor Company
receiving a Statutory Demand should react swiftly and appropriately to
avoid an application for the winding up of the Debtor Company.
Rosendorff Lawyers will advise in regard to when it is appropriate and in clients interests to utilise the above procedures.
For further information please contact Trevor Rosenthal on
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(03) 8320 2954 www.rosendorff.com.au
Please note that the information referred to above provides general
comments only and may not be applicable to your specific requirements
in respect of which you should obtain legal advice.
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