What happens if you are owed money by a company which is refusing to pay?
Whether you are owed money by a company for an overdue invoice for goods or services you supplied to the company; or from money you lent to the company, provided that the debt is due and payable and is at least $4,000, you are entitled to issue a creditor’s statutory demand for payment.
If the company does not, within 21 days after being served with the demand, pay the debt in full, compromise the debt to the creditor’s satisfaction or commence proceedings to have the demand set aside, then the company is deemed to be insolvent.
The consequence of deemed insolvency is that the creditor who served the demand can apply to a Court with appropriate jurisdiction to wind up the company.
Before applying to wind up the company, the creditor must get the consent of a registered liquidator to act as the company’s liquidator. Some liquidators will only act if there are some assets in the company from which the liquidator can recover his or her costs of liquidating the company, or if the creditor provides an upfront payment to the liquidator to cover his or her expected costs of the liquidation.
The creditor must then file and serve on the company an originating process and affidavit verifying the company’s failure to comply with the statutory demand and that the debt remains due and payable. The creditor must also:
- file an affidavit verifying that the statutory demand was properly served on the company;
- notify ASIC of the court action by lodging a Form 519 with ASIC; and
- publish a notice on ASIC’s website, so that the world-at-large is on notice that the company is subject to a winding up action.
The Court will set a first return date for the winding up application. Before the first return date, the creditor must file with the Court:
- an affidavit of service, proving that the company was served with the relevant court documents;
- another affidavit verifying that the debt remains unpaid;
- a short form bill of costs, setting out the legal costs claimed by the creditor in bringing the winding up application.
If the company does not appear at Court on the first return date to defend the application, the Court may make an order to appoint a liquidator to the company that day, subject to the Court being satisfied that all the requirements for the winding up application have been satisfied. The Court will usually make an order that the applicant creditor’s costs (limited to what the Court rules specify can be claimed by a creditor on an undefended winding up application) be paid from the company’s assets. Of course, a creditor’s ability to enforce a costs order will depend on whether the company has sufficient assets to meet the order.
If the Court is not satisfied that all the requirements have been met, the application could be adjourned or dismissed, resulting in wasted time and costs for the applicant creditor.
If the company does defend the winding up application, the Court will make orders for the company to serve evidence and set the matter down for a contested hearing. However, the grounds on which a company can oppose a winding up application after having failed to comply with a statutory demand are limited.
Winding up applications are quite technical in nature and even undefended applications can present difficulties to those who are not familiar with the process and the documents required to ensure a successful application.
This article is a summary only of the process and does not exhaustively set out all the requirements for a winding up application. It should not be relied upon as any form of checklist for a winding up application.
Further information
For more information about debt recovery or winding up applications, feel free to contact Daniel Fleming at d.fleming@pigott.com.au
This article is intended to provide general information in summary form on a legal topic, current at the time of publication. The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.