Why a ‘wind-up application’ doesn’t mean you need to wind things up

A wind-up notice is a formal, written document informing a business that it’s required to meet with its creditors in court. This is done to identify if the business can repay its debts. If the business cannot repay its debts, it is deemed insolvent and the debt will be collected some other way, often through a process of administration or liquidation. This can be a pretty scary situation to be in, but it doesn’t have to be. Directors are protected under several different legislative acts, and have plenty of room to move if served with one of these.

What is a wind-up notice?

A wind-up notice is a type of statutory demand. While we’ve written about statutory demands in general before, wind-up notices are their own special animal. All creditors (including the Australian Tax Office) can serve them, which means that there may be many ways to oppose it. Should the wind-up notice be successfully opposed, then the business won’t need to wind-up the business.

 

How to oppose a wind-up notice

The key to opposing a wind-up notice is to pay attention to what it is. A wind-up notice doesn’t mean you need to wind-up your business. Technically, it just requires you to meet your creditors in court to discuss how re-payment will work.

As such, you can oppose the notice if:

  • You can pay the debt. If you have the funds to pay the debt, now is the time to do so. This is the quickest and easiest method of sorting this situation out. If you can’t pay it in full, you might be able to implement a repayment plan with the creditors, which would again circumvent this whole scenario.
  • You can prove solvency. The number one opposition to a wind-up notice is to prove that the creditor’s application is erroneous. A wind-up notice is usually served after an initial statutory demand has elapsed. If this is the case, both court and creditors can presume insolvency. If you can demonstrate otherwise, you may give yourself some breathing room. However, this can be tricky and isn’t always successful. If you are solvent and facing a wind-up notice, you’ll want to involve an expert to show you the path.
  • You are considering voluntary liquidation. A court will generally view a voluntary liquidation and a court-mandated winding up of a business as equivalent. If you can demonstrate that the liquidation is already in progress, then during the hearing you’re less likely to be required to wind-up the business.
  • You can provide a clear alternative to repayment. If you can demonstrate to the creditors that you have a better method of paying them off while continuing to trade, then the opposition to the court-mandated winding up may be successful.
  • You can get your other creditors involved. Not all creditors want to wind-up a debtor, especially unsecured lenders, who are generally promised very little in any administrative proceeding. Courts are required to consider the situation of other lenders when hearing a wind-up application and if enough other creditors are opposed, then you might be successful and continue to trade.

 

All of these options have a number of legal bumps to navigate and each needs to be considered in terms of your personal situation. Moreover, approached incorrectly, you could be breaking the law, so ensure you seek professional advice before deciding on a course of action. You will need to act quickly, however, as generally speaking you will only have 21-28 days before the hearing date. If you act now, you'll have plenty of time to get your business finances in line and stand a better chance of avoiding having to wind up your business.

If you’ve been served with or think you might be served with a wind-up application, call My Business Path on 1300 656 945, fill in the form below for a free consultation, or contact your preferred wind-up specialists.

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