Statutory Demands and Winding Up Applications – the risks of ignoring them!!

By Anil Herat

Experience has shown that most company directors do not understand the significance of Statutory Demands and Winding Up Applications when served on the registered office of the company.

The general presumption is –
  1. “I can pay this out before it gets to court” – in the case of a Statutory Demand
  2. “I can settle this matter in the eleventh hour before the matter proceeds to a hearing” – in the case of a Winding Up Application
  3. “I can appoint a Voluntary Administrator and prevent the court from appointing a liquidator” – in the case of a Winding Up Application
The above measures may delay the eventual process, but it still leaves at risk the possibility that your company may be liquidated.

In the event that your company is served with a Statutory Demand, you must respond to it within 21 days of service. The response can either be:
  1. to claim that the Statutory Demand is defective in some way; or
  2. have the Statutory Demand set aside because of the existence of a genuine dispute.

In either case the application MUST be filed and served within 21 days of service. There is no provision to extend this time, even if the issuing party agrees to extend the 21 day period. The legislation (Corporations Law) does not allow for this extension of time.

If you fail to make application to set aside the Statutory Demand, your company will be deemed to be insolvent, even if the facts (the Accounting Records) indicate otherwise.

A party relying on non-compliance with the rules in relation to a Statutory Demand will or can proceed to issue a Winding Up Application to wind up your company. It will also, under the rules, file with ASIC a Notice of Intention to Wind Up your company (Form 519). This then becomes public information.

Even if you intend to settle after the filing and service of a Winding Up Application, any other creditor of your company can file a Notice of Appearance and make an application to substitute their claim against your company, after you have settled with the party who issued the proceedings, based on the non-compliance with the Statutory Demand.

This process can technically continue until all potential creditors have been paid.

This process will leave your company in a precarious position because of the adverse publicity by having your company named in public records of ASIC, stating “An Application for Winding Up of the Corporation was filed on .../.../... “ and the adverse publicity that will result in an advertisement being placed in a national newspaper advising of the hearing date for the Winding Up.

This inconvenience does not end there. You would have incurred substantial legal costs in having representation in relation to substitution by many creditors.



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