Author
Domenic CalabrettaChief Executive Officer & ASIC Registered Liquidator
If you’ve received a wind-up notice, you MUST act immediately. Ignoring it could see your company being wound up and liquidated. As a director or business owner, understanding what a winding-up notice is, what it means for your company, and what options are available to you is crucial.
It is common for businesses to be confused about their options after a wind-up notice has been issued, but one thing is clear: you need to act quickly and get expert advice as soon as possible.
In this guide, we explore what a wind-up notice is, what happens next, and what you need to do right away.
What is a wind-up notice?
A wind-up notice starts with a wind-up application to a court. These proceedings are generally initiated by the Australian Tax Office (ATO) or other company creditors who can make an application to the court to have your business wound up. When they do, it usually means the ATO or your creditor(s) want to know whether your business is solvent and subsequently able to repay any debts that are owed. This may consist of unpaid tax debt to the ATO or other outstanding debt owed to other creditors, such as suppliers.
Typically, a wind-up notice won’t be the first sign that something is wrong with your business. There are a host of indicators that a business is in financial distress, and you will have already received a statutory demand prior to the wind-up notice, which you likely failed to act on. The requirements could be failing to pay the requested amount within 21 days, failing to set up a payment plan, or failing to have the statutory demand set aside in court.
It’s important to distinguish between an insolvent winding-up and the voluntary winding-up of a solvent company. When winding up a solvent business, the process starts with the company directors making a declaration of solvency before the company members pass a special resolution for winding up.
Once a notice of special resolution has been published as required, the appointed liquidator can start winding up the company before it’s deregistered.
What can and should be done after you receive a wind-up notice
Your wind-up notice will specify a court date. If you take no action before this date, your company will be wound up.. Just to be clear, this means that you will lose your business; it’s that simple. By failing to respond, you will be putting the future of your business in the hands of the court.
Alternatively, you should become aware of your options and act accordingly. You could opt for voluntary administration or repay the debt in full (or through a payment arrangement with your creditor(s). The main options available are:
- Pay the debt – Pay the bill in full or enter into a payment arrangement and seek to have the wind-up proceedings dismissed.
- Enter Voluntary Administration – Going into voluntary administration is a common option. The administrator will work through a Deed of Company Arrangement (DOCA). This is an agreement with creditors that outlines how the debt will be repaid while allowing the business to continue to trade.
- Do Nothing (Not Recommended) - If you fail to act, the court will order your company into liquidation. This means the company will be shut down, and as a director, you may be personally liable for its debts.
Remember, although receiving a wind-up notice means things are very serious, you do have options. For example, if you choose to go into voluntary administration, you could eliminate up to 80% of your company's debt and turn things around. An administrator will do their best to improve your company’s operations and reduce its debts. If the company is savable, the administrator may recommend a restructure and turnaround that will allow your company to return to trading. If not, the administrator has to recommend the next best course of action. Your company may be forced into liquidation, and you could be spared personal liability.
There are additional options for small businesses as a result of changes to legislation. Those who are eligible can access small business restructuring and simplified liquidation.
If the company returns to trading with a DOCA in place, the DOCA will set out how the company’s operations are to continue, and it lets your company continue trading as long as it can stay solvent. During voluntary administration, creditors could opt for this option as it could give them a better chance of having their debt repaid than liquidation.
The implications for your business after you receive a wind-up notice
If you’ve received a wind-up notice, you’re probably wondering if you need to stop trading right away. The good news is that you do not need to stop trading immediately after receiving a wind-up notice. Whether you decide to cease trading or not depends on what you want to do and whether you can repay your debts. In some situations, you might need to continue to trade in order to pay off your debts, possibly through a payment plan or agreement.
At the same time, you need to consider the law against insolvent trading. You need to review whether continuing to trade would breach your duty as a director to prevent insolvent trading and expose you to the risk of personal liability for new debts incurred due to insolvent trading.
So whilst you aren’t obligated to cease trading immediately, you do need to respond within the given time frame, or your company will be ordered to be liquidated by the court. On the date specified on your wind-up notice, the court will order your business to be wound up, and a liquidator will be appointed to sell the business assets and distribute the proceeds to your creditors.
If your company is placed into liquidation, the directors will lose control of the business. This happens whether you have failed to respond to the wind-up notice or as a result of placing the company into voluntary administration. The liquidator will sell the company’s assets to pay creditors, and the company will be shut down.
As a director, you should have a comprehensive understanding of insolvency, including the types of insolvency and the impact on directors and other parties.
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