Wind Up Orders
Wind-up orders are made by courts when a company is to be wound up in insolvency. Winding up is the process by which a company ceases to exist – its matters are finalised and its assets are sold. Companies can be wound up when they are solvent, i.e. they have no financial difficulties. However, it is perhaps more common to hear about companies being wound up when they are experiencing significant financial trouble and trading insolvent. There are specific procedures that must be followed when winding up a company.
What is insolvent trading?
If a company is trading when insolvent, it is unable to pay its debts when and as they become due. If you are a company director of a company that is trading when insolvent, you may be found liable to pay civil penalties or even found to have committed a criminal offence. If you suspect your company is trading while insolvent, it is important to obtain professional advice. You may need to appoint an administrator or liquidator to consider the affairs of the company and take appropriate action.
Who can apply for wind-up orders?
A creditor can apply for a wind-up order where a company has failed to comply with a statutory demand for what is owed to the creditor. The amount owed must be at least $2,000 and the statutory demand must be made in the prescribed form (this can be found in schedule 2 of the Corporation Regulations 2001). This situation is dealt with in section 459P of the Corporations Act 2001.
459P also provides that some other persons or entities can apply for wind-up orders. These include the company itself, a contributory (e.g. a share-holder), a director, a liquidator or provisional liquidator of the company, the Australian Securities and Investments Commission (ASIC – the corporate regulator) or an agency prescribed by the regulations.
Applications for wind-up orders must follow a specific format.
- Applicants must use Form 2 – r 2.2 (3) schedule 1A Uniform Civil Procedure Rules 1999 (Qld)(UCPR). This can be found on the Queensland Courts website under the forms relating to the Corporations Act 2001 – http://www.courts.qld.gov.au/forms;
- Include a copy of the statutory demand and judgement debt or affidavit verifying that the debt is still due and payable (the affidavit verifying the debt must use form 7 – r 5.2 schedule 1A of the UCPR. This form can be found on the Queensland Courts’ website under forms ‘Corporations Act 2001’ – http://www.courts.qld.gov.au/forms;
- Detail how the statutory demand was served and how it was not complied with.
- Be filed after the period for compliance with the statutory demand has passed (usually 21 days);
- Be filed within three months after the period for compliance with the statutory demand has passed;
- Be finalised within six months of the application being lodged or an appropriate extension must be served.
In addition, the following will need to be done in relation to the wind-up order application:
Notification to ASIC
ASIC must be notified that an application for a wind-up order has been made. This must be done by no later than 10:30am on the business day following the filing of the application. The notification to ASIC must be filed along with an affidavit detailing the service of the notice.
After a wind-up order application is finalised, the applicant must notify ASIC within two business days about the order or withdrawal or dismissal of the application. Details of any liquidators that are appointed must also be provided to ASIC. A copy of the wind-up order must be provided by the applicant to ASIC within seven days of the order being made. Copies must also be provided to the subject company and appointed liquidators. The liquidators are also to be given a statement of service for the order served on the subject company.
Publication of the application
In addition to notifying ASIC, the applicant must advertise or publish that the wind-up order application has been made. The time frame for publication is:
- At least three days after service on the respondent of the application; and
- At least seven days before the hearing date.
Consent of the liquidators
Before liquidators can be appointed in accordance with a wind-up order, their consent must be obtained. Their written consent must be filed before an application for a wind-up order can be heard, and must be served on the subject company at least one day before the hearing.
Draft wind-up orders
At the hearing of an application for a wind-up order, an outline of submissions and three copies of the draft wind-up order that is sought should be handed up. The submissions should address issues that might impact the decision of the registrar or judge in making their decision about whether to grant the order.
If you require legal advice or representation in any legal matter, please contact Armstrong Legal.