Winding Up Order – How to Wind up a Company

A winding up order is an order from the Court ordering that a company be wound up in insolvency.

Section 459P of the Corporations Act 2001 (Cth) (“Corporations Act“) says that a creditor can apply to the Court for a company to be wound up in insolvency.

The most common was that a creditor applies to the Court for a winding up order is after non-compliance with a creditors statutory demand.

Non-compliance with a creditors statutory demand raises the legal presumption that the debtor company is insolvent.

That presumption of insolvency, if not rebutted, is the basis for the winding up order.

Our Queensland insolvency lawyers explain how to wind up a company in Australia.

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Statutory Demand

If you are thinking about winding up a company that is insolvent and owes you money, the most common way is to serve the debtor company with a creditor’s statutory demand.

This website has a lot of content about statutory demands, do a quick search and have a read.

A creditor’s statutory demand is a demand for payment of money pursuant made pursuant to section 459E of the Corporations Act.

Once the statutory demand and supporting affidavit is correctly drafted, you must serve the demand on the debtor company pursuant to section 109X of the Corporations Act.

Once the statutory demand is served, the debtor company has to do one (1) of four (4) things, strictly within the twenty-one (21) day time limit:

1. Pay the amount of the debt or debts contained in the demand; or
2. Secure or compound for the debt or debts contained in the statutory demand; or
3. Ask the issuer to withdraw the statutory demand; or
4. Apply to set the statutory demand aside.

If the debtor company fails to do this, then it is presumed to be insolvent.

After the legal presumption of insolvency is raised, the creditor can apply to the Federal Court or the State Supreme Court for a winding up order winding up a company in liquidation.

Step 1 – The Winding Up Application

Once the debtor is presumed insolvent and you want to continue to get a winding up order, the first step is to draft, file, and serve a winding up application.  The presumption of insolvency lasts for three (3) months pursuant to section 459C(2)(a) of the Corporations Act.

From the date of non-compliance with the statutory demand by a debtor company, a creditor has three (3) months in which to make the application to the Court.

The winding up application contains the following:

1. The winding up application; and
2. The affidavit in support of the winding up application; and
3. The affidavit of service of the statutory demand.

Winding up Order – Conduct an ASIC Search

Importantly, the same day that the winding up application is to be filed, the creditor must conduct a search of the online records kept by ASIC for current information on the debtor company.  Strictly speaking, according to the Federal Court (Corporations) Rules 2000 (Cth) (“the Rules”):

Subject to rule 2.4A, an affidavit in support of an originating process must annex a record of a search of the records maintained by ASIC, in relation to the company that is the subject of the application to which the originating process relates, carried out no earlier than 7 days before the originating process is filed.

However, best practice is that it is done on the same day.

This is in case the debtor company has attempted to change the registered office of the company, or they have appointed a liquidator, or any number of other reasons.

Once you have ordered your ASIC current extract, and there is nothing in the extract that could be detrimental to the winding up application, you can make the application.

NOTE – check to see if the company is still registered, check to see if the address of the registered office is still the same, check to see if there are any judgments against the debtor company, and check to see if there have been any insolvency notices filed.

The Winding Up Application

The winding up application uses standard forms.  In the Federal Court it is a Form 2.  In the Supreme Court it is Corporations Act Form 2.

The application should contain a statement of:

1. Failure by the defendant to comply with a statutory demand.  A copy of the demand should be attached to the originating process;
2. The demand and an accompanying affidavit were served in accordance with 109X.  A copy of the affidavit of service should be attached to this originating process; and
3. The defendant’s failure to pay the amount of the debt demanded by the debt recovery lawyers or to secure or compound for that amount to the plaintiff’s reasonable satisfaction within 21 days after the demand was served on the defendant.

The application should also include draft orders, something like this for example:

1. That the Defendant, The Debtor Company Pty Ltd ACN 123 456 789, be wound up in insolvency by this Court under the provisions of the Corporations Act 2001 (Cth).
2. That John Liquidator, official liquidator, be appointed liquidator of the Defendant.
3. The plaintiff’s costs be fixed in the sum of $XXXXX and reimbursed in accordance with section 466(2) of the Corporations Act 2001 (Cth).

The winding up application must be supported by an affidavit.

The Affidavit in Support of the Winding Up Application

The affidavit uses standard forms.  In the Federal Court it is a form 59.  In the Supreme Court it is a Federal Court Rules form 7A.

The affidavit in support of a winding up application must include evidence of the requirements to bring the application, and that the Court needs to make the winding up order.

This information and evidence include:

1. That the Defendant is indebted to the plaintiff in the sum of $XXXXX;
2. That the sum was then due and payable;
3. That the statutory demand and affidavit in support of the demand was sent;
4. That the Defendant has failed to pay the amount of the debt specified in the statutory demand demanded, or to secure or compound for that amount to the reasonable satisfaction of the Plaintiff within 21 days after the statutory demand was served on the defendant;
5. Reference to the affidavit of service of the demand and the accompanying affidavit;
6. That the sum of $XXXXX demanded remains due and payable by the Defendant to the Plaintiff.

You must also include an affidavit of service of the statutory demand.  This can be included in the above, however I prefer to draft a separate affidavit.

The Affidavit of Service of the Statutory Demand

The affidavit of service of a statutory demand uses standard forms.  In the Federal Court it is a form 59.  In the Supreme Court it is a Uniform Civil Procedure Rules form 46.

The affidavit of service of the statutory demand needs to prove service of the demand on the registered office of the debtor company.

Without effective service, there can be no presumption of insolvency, the basis for the winding up order that you are seeking. It is very important that you take the time to ensure that you have served the statutory demand correctly, and that you have exhibited everything that you need to the affidavit of service needed to effectively prove service.

Lastly, you need consent of the liquidator.

Consent of the Liquidator

The consent of the liquidator uses standard forms.  In the Federal Court it is a form 8.  In the Supreme Court it is a Corporations Act form 8.

The consent of the liquidator is a form completed by the liquidator, stating:

1. The name and address of the official liquidator;
2. That they consent to be appointed by the Court and to act as the liquidator of the company;
3. That they are not aware of any conflict of interest or duty that would make it improper for me to act as liquidator of the company.
4. A statement pursuant to section 60(2) that they have not had any relationship with:
   1. the company; or
   2. an associate of the company; or
   3. a former liquidator, or former provisional liquidator, of the company; or
   4. a former administrator of the company; or
   5. a former administrator of a deed of company arrangement executed by the company; and
5. The hourly rates currently charged in respect of work done as liquidator.

This is not a requirement for the application, Rule 5.5 of the Rules says:

In an application for an order that a company be wound up, the plaintiff must:

before the hearing of the application, file the consent mentioned in subrule (2) of a registered liquidator who would be entitled to be appointed as liquidator of the company; and

serve a copy of the consent on the company at least 1 day before the hearing.

So, you strictly need to file and serve the consent at least one (1) day before the hearing, however this is something that I like to get done and serve it all together on the debtor company.

Once you have these documents, you can go ahead and file them in the Federal Court or the Supreme Court, depending on what you have chosen.

Step 2 – Filing and Service the Winding Up Documents

Personally, I prefer the Federal Court because of the Federal Court eLodgement System, but that is just a personal preference.

Once filed, the Court will stamp (or seal) the documents with the Courts seal.

To get a winding up order, the sealed winding up documents must be served on the debtor company.

Service of an originating process on a debtor company can be made pursuant to section 9 of the Service and Execution of Process Act 1992 (Cth) (“SEPA”) which says:

(1)  Service of a process, order or document under this Act on a company is to be effected by leaving it at, or by sending it by post to, the company’s registered office.

(2)  Without limiting the operation of subsection (1), a process, order or document may be served on a company by delivering a copy of it personally to a director of the company who resides in Australia.

So you can effect service by posting it to the registered office of the debtor company.

If you are serving the originating process interstate, then section 16 of SEPA says:

Service is effective only if copies of such notices as are prescribed are attached to the process, or the copy of the process, served.

The Form is prescribed in Schedule 1 of the Service and Execution of Process Regulations 2018 (Cth) as the SEPA Form 1.

The notice under this section is a SEPA Form 1, which must be attached to the process or a copy of the process.  Simply staple a SEPA form 1 to the front of your winding up application.’

There are certain time limits when a company has to be served, so ensure that these times have been fully complied with to ensure that you can successfully obtain a winding up order against the debtor company.

Once properly served, to be successful in obtaining a winding up order, the creditor has to do a few more things, and file some further documents before the hearing of the winding up application.  These are:

1. Affidavit of service of originating process (winding up application); and
2. Notification to ASIC of application to wind up the company; and
3. Publishing notice of application on Insolvency Notices website.

I will discuss these a little further below.

Notification to ASIC of Application to Wind Up the Company

Once the application and supporting documents are filed, and you have a sealed version back from the Court (including a proceeding number and a return date for the hearing), then you will need to let ASIC know that the debtor company has a winding up application pending.

What is a notice of application for winding up order?  Section 465A(1)(a) of the Corporations Act says:

(1)  A person who applies under section 459P, 462 or 464 for a company to be wound up must:

(a)  lodge notice in the prescribed form that the application has been made

The form to use is the ASIC Form 519.  You must complete this form and email it to ASIC before 10:30am on the next business day.  The email address is form519documents@asic.gov.au.

Section 470(1)(a) of the Corporations Act says:

(1)  An applicant (other than ASIC) for the winding up of a company must:

(a)  lodge, not later than 10.30 am on the next business day after the filing of the application, notice of the filing of the application and of the date on which the application was filed

There are late fees if this is not done in time.

Once done, you will receive an acknowledgement of receipt of the Form 519 from ASIC.

You then have to draft an Affidavit of Lodgment of Notice at ASIC and file it in the Court.

Once done, you must then draft and file your affidavit of service of the winding up application.

Affidavit of Service of Originating Process

You must also draft and file an affidavit of service of the winding up application to prove service of the process was made in accordance with the legal requirements.

The affidavit of service must:

1. Annex a copy of the winding up application and supporting affidavits; and
2. Prove that the originating process and supporting affidavits were served within 14 days of filing; and
3. Prove that the originating process and supporting affidavits was served more than 5 days before hearing; and
4. Annex the affidavit of service of the statutory demand; and
5. Prove that service was made in a manner of service permitted by the legislation.

Once this has been filed, you will have to publish a Notice of Application on ASIC’s Insolvency Notices website.

Publishing Notice of Application on Insolvency Notices Website

Rule 5.6 of the Rules says:

If a person applies under section 459P, 462 or 464 of the Corporations Act for a company to be wound up, the person must cause a notice, setting out the information prescribed by regulation 5.4.01A of the Corporations Regulations, to be published in the manner provided by section 1367A of the Corporations Act and regulation 5.6.75 of the Corporations Regulations

After read all of those sections, rules and regulations, is basically says that you must provide all of the information requested, in the prescribed form, and it can be published on ASIC’s Insolvency Notices website.

There is a time limit for publishing this notice.  Rule 5.6(2) of the Rules says:

A notice … under paragraph 465A(1)(c) of the Corporations Act, of an application for a company to be wound up must be published:

(a)  at least 3 days after the originating process is served on the company; and

(b)  at least 7 days before the date fixed for the hearing of the application.

So, you have a window of between three (3) days after the originating processed is served, to seven (7) days before the return date for the hearing of the application to publish this notice.

There is also a fee with ASIC for publishing this notice.

Once you have published this notice of the insolvency notices website, you will have to draft and file an affidavit proving that you have published the notice, in the required form, including the required information, within the required time.

Draft, annex the evidence, and file in the winding up application.

Hearing and Obtaining your Winding Up Order

That is basically all of the documents that need to be filed.

Unless the debtor company intends to oppose the winding up order being made, you will likely get your winding up order, ordering the debtor company into liquidation.

The hearing itself is really just a formality. All of the work required to be done has been done in the various documents filed in the Court.

What are the Consequences of a Winding Up Order

The liquidator will take control of the company and administer the process of insolvency.

The liquidator will investigate the affairs of the debtor company, report offences to ASIC and shareholders, and bring the company to an end.

The aim is to realise any assets of the company, void any voidable transactions, and attempt to distribute funds to creditors in order of priority.

This is the way that payments (if any) can be made to a creditor.

Useful Links

https://www.courts.qld.gov.au/__data/assets/pdf_file/0005/190850/guidelines-for-winding-up-applications.pdf

http://www.fedcourt.gov.au/law-and-practice/guides/corporations-guides/checklist

http://www.fedcourt.gov.au/law-and-practice/guides/corporations-guides/checklist

http://www.fedcourt.gov.au/law-and-practice/guides/corporations-guides/information-sheet-1

Frequently Asked Questions – Winding Up Order

How to stop a winding up application?

If a debtor company wants to oppose a winding up application, then it will need to file and serve a notice of appearance and/or a notice giving the alleged grounds of opposition. One of the main grounds for opposition to a winding up order being made is that the debtor company is actually solvent.  The debtor company will need to prove solvency. Another way to stop a winding up application is to pay the debt and legal costs.

What is a notice of application for winding up order?

As above, the notice of application for winding up is the ASIC Form 519. You must complete this form and email it to ASIC before 10:30am on the next business day after filing the winding up application. The email address is form519documents@asic.gov.au.

What happens after a winding up order is granted?

The company goes into liquidation, a liquidator is appointed, and the company is brought to an end. The liquidator also tried to realise all of the assets of the company to pay company creditors.

How much does it cost to issue a winding up order?

It is quite expensive.  We have an article about the cost of insolvency. The filing fees and legal fees can cost around $10,000.00, but if successful, then the costs of the winding up application can be paid from the liquidation.

What is a statutory demand for payment?

A statutory demand is a formal request for payment issued under section 459E of the Corporations Act. It’s served by a creditor to a debtor company demanding payment of an outstanding debt. The debtor company has 21 days to respond to this demand. If the company fails to comply, it is presumed insolvent, which can lead to a winding up application. This demand is a critical first step in the process of winding up an insolvent company.

This presumption, if not rebutted, forms the basis of the winding up order.

What are the types of winding up?

There are court appointed winding up orders – as per this article.

There are also creditors’ voluntary liquidation, and members’ voluntary liquidation.

1. A creditors’ voluntary liquidation happens when the members of the company resolve to appoint a liquidator because the company is insolvent, or likely to become insolvent.
2. A members’ voluntary liquidation occurs when the members of the company resolve to appoint a liquidator to bring a solvent company to an end.

How long does liquidation process take?

It depends on a number of different factors.  But a general rule-of-thumb is somewhere between 12 to 18 months.

How does a company respond to a statutory demand?

Upon receiving a statutory demand, a company has four options within a strict 21-day period. It can either pay the debt, secure or compound for the debt, request the creditor to withdraw the demand, or apply to set the demand aside. Failure to respond appropriately within this timeframe leads to a presumption of insolvency. This presumption is a key factor in the creditor’s decision to initiate a winding up application against the company.

What is involved in a getting a winding up order?

A winding up application is a legal process initiated by a creditor against a debtor company presumed insolvent. It involves drafting and filing a winding up application, supported by an affidavit and evidence of insolvency. The creditor must also conduct an ASIC search on the day of filing to check the debtor company’s status. This application is filed in either the Federal Court or State Supreme Court, and it seeks a court order to wind up the company in insolvency.

What is the role of ASIC in the winding up process?

ASIC (Australian Securities and Investments Commission) plays a crucial role in the winding up process. When a winding up application is filed, the creditor must notify ASIC using Form 519. This notification must be done before 10:30 am on the next business day after filing the application. ASIC maintains records of such applications and insolvency notices, ensuring transparency and regulatory compliance in the winding up process.

How is a winding up application served?

After filing the winding up documents, they must be served on the debtor company. This can be done by posting them to the company’s registered office or delivering them personally to a director residing in Australia. The service must comply with the Service and Execution of Process Act 1992. Proper service is crucial as it ensures the debtor company is officially informed and can respond to the winding up application.

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