Winding up a Company that owes you Money

Are you thinking about winding up a company that owes you money?

If the debtor company is unable to pay its debts when they are due it is likely insolvent.

Are you enforcing a judgment debt against a company?

Do you have an unsatisfied creditor’s statutory demand for payment of debt?

If so, then this article will explain the steps needed to force that company into liquidation, the winding up application process, how you can satisfy your debt, and how to claim money back from a company in liquidation.

Winding up a Company that Owes you Money

You can’t just apply to wind-up a company.  Section 459P of the Corporations Act 2001 (Cth) outlines who may apply to wind up a debtor company.  This includes:

1. the company;
2. a creditor;
3. a contributory;
4. a director;
5. a liquidator or provisional liquidator of the company;
6. ASIC; and/or
7. a prescribed agency.

There are certain steps that may be taken before winding up a company that owes you money.  The most common way of winding up a company that owes you money is:

1. Commence Court proceedings by claim & statement of claim;
2. Get a judgment debt and/or money order against the company of $4,000.00 or more;
3. Serve the debtor company with a statutory demand;
4. Apply for an order winding up a company that owes you money.

Alternatively, if there is no genuine dispute about the existence of the debt or the amount of the debt, then a creditor can serve the debtor company with a statutory demand with an affidavit in support rather than a judgment.

Either way, it is non-compliance with the statutory demand which assists the creditor in the winding up application.

Firstly, it might be worthwhile to simply send a final letter of demand.

Letter of Demand

This is not a step that has to be taken when thinking about winding up a company that owes you money, but it is important that you put the debtor on notice of your intention to do so.

Putting the debtor on notice of your intention to take a step, prior to taking the step, may assist you with a costs order in your favour.

Litigation can be expensive, so it is best to plan your litigation with a focus on costs, so that if successful, the judgment debtor company may be ordered to pay a sizeable portion of your legal costs too.

Not only in the issue of costs, but sending letters to the debtor company may actually encourage these debtors to open negotiations with you and you may avoid litigation altogether.

See our content on letters of demand here.

Getting a Judgment Debt or Money Order

Winding up a company that owes you money will usually start with non-compliance with a creditor’s statutory demand.

Most commonly, we would recommend that you serve a statutory demand for payment after receiving a judgment.

You do not have to wait until you get a judgment!

But it is an easier process setting aside a statutory demand (if served with an affidavit in support of your statutory demand) than setting aside a judgment (if a judgment or money order in support of your statutory demand).

Getting a judgment or money order starts with commencing Court proceedings by claim and statement of claim in the Court with jurisdiction.

Claim and Statement of Claim

An action for debt is commenced by claim and statement of claim in the Court with jurisdiction.

Rule 22 of the Uniform Civil Procedure Rules 1999 (QLD) (“UCPR”) says that a claim:

1. Must be in the approved form; and
2. Must state briefly in the claim the nature of the claim made or relief sought in the proceeding; and
3. Attach a statement of claim to the claim; and
4. Show the court has jurisdiction to decide the claim; and
5. That the claim and attachment must be filed and then served on each defendant.

The approved form for the claim is UCPR Form 2.

The nature of the claim will usually be a breach of contract for a debt owing to a creditor by a debtor company.

It is important that you engage a suitably qualified debt recovery lawyer to draft your claim.

Rule 22(2)(b) requires that a plaintiff must attach a statement of claim to the claim.

The approved form for the statement of claim is UCPR Form 16.

It is vital that you correctly state the nature of the claim.  In Equititrust Limited v Gamp Developments P/L & Ors [2009] QSC 115 McMurdo J said:

A plaintiff cannot seek summary judgment for relief which is not within its claim as filed or as duly amended. There is no express requirement within r 292 for the plaintiff’s case for that relief to be entirely according to its pleading. But ordinarily that would be required because a defendant is entitled to be fairly informed of the case against it.

To be able to successfully claim everything you are entitled to under the law, we reiterate that it is important that you engage a suitably qualified debt recovery lawyer to draft your statement of claim.

Once you have been given judgment or money order, by requesting judgment in default, or applying for summary judgment, or after a trial, you can then annex that judgment to a statutory demand as a way of enforcing that judgment against the debtor company.

This is the first step in winding up a company that owes you money.

Statutory Demands for Payment

A statutory demand is a demand for payment on a company pursuant to section 459E of the Corporations Act 2001 (Cth).

If an insolvent company owes you a debt $4,000.00 or more you are able serve them with a statutory demand.

The insolvent company then has 21 days to comply with the demand or attempt to set it aside.

Failure to pay or set it aside will result in a presumption that the company is insolvent.

You are then able to take steps to wind the company up in liquidation, where all of the company’s assets can be sold to satisfy the creditors.

This is the first step when winding up a company that owes you money.

Winding up a Company that owes you Money

1. Now that you have a judgment debt of over $4,000.00; or
2. No genuine dispute about the debt; and
3. You correctly drafted and served the company with a statutory demand; and
4. The debtor company has failed to pay the debt or set aside the statutory demand;
5. Then the company is presumed to be insolvent.

It is with this presumption of insolvency assisting that you can now commence the proceedings for winding up a company that owes you money.

What are Company Winding up Proceedings?

You initiate winding up proceedings against a company by winding up application to the Federal Court (or Supreme Court) pursuant to section 459P of the Corporations Act 2001 (Cth).

The form of this application is Form 2 Corporations Rules 2.2(3).

Like any other application, an application for an order winding up a company that owes you money should include the following:

1. The application; and
2. The draft order; and
3. You affidavit in support of the application.

The Affidavit in support of your application winding up a company that owes you money should include the following:

1. The ASIC search which must be conducted no longer than seven (7) days before application; and
2. States that the application is made pursuant to non-compliance with a statutory demand; and
3. States that you have correctly served the demand on the debtor company; and
4. Shows the failure to comply with the statutory demand; and
5. Attests that the debt (or debts) is still due and payable by the debtor company.

Unlike other applications you must also file the liquidator’s consent which must be served at least 1 day before hearing, which must include the liquidator’s hourly rates for winding up a company that owes you money.

A creditor will also be required to draft and file an affidavit of service of the creditor’s statutory demand, to prove that the presumption of insolvency is correctly raised.

Once this application has been made, and if everything being correct, you will be given an originating process sealed with the Court’s seal.  You then need to serve this on the debtor company.

Service of a Winding up Application

The service of documents under the Corporations Act 2001 (Cth) is permitted by section 109X(3) which says:

(3) Subsections (1) and (2) do not apply to a process, order or document that may be served under section 9 of the Service and Execution of Process Act 1992.

The winding up application is an originating process and so section 9 of the Service and Execution of Process Act 1992 (Cth) applies.  The relevant subsections of this section say:

(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.

There other sections and subsections under 109X(3) and section 9 of SEPA but this are the most relevant for the purposes of this article.  Once served, a representative of the debtor company will need to attend at the hearing of the application.

There are a number of strict time limits that must be adhered to in relation to the service of the originating process, so it is again vital that you engage a suitably qualified debt recovery and insolvency lawyer.

Other Requirements for a Winding up Order

No later than 10:30am the day after filing the application for winding up a company that owes you money, you need to lodge a notice with ASIC.

You also need to publish a notice of the application on the ASIC Insolvency Notices website, which must be published more than 3 days after service of originating process and more than 7 days prior to hearing date.

Evidence of both of these steps must then be annexed to an affidavit filed prior to the hearing date of the application winding up a company that owes you money.

The Hearing of a Winding up Application

If the debtor company intends to oppose your application then they must provide you with the following:

1. Notice of Appearance; and
2. Notice of the grounds on which the company opposes your application; and
3. Affidavit annexing evidence of the matters stated in their notice.

This notice and their affidavit must be served not later than three (3) days before the return date for the hearing of the application winding up a company that owes you money.

If you have done everything correctly, and there are no grounds for opposition, then the court will make the order winding up a company that owes you money.

The Liquidation Process

After a winding up order is made you need to inform the liquidator (previously consented to act as liquidator) within one (1) day after the order is made.

It is also important to lodge your Form 519 with ASIC within two (2) business days after the winding up order is made.

There are a number of other steps which must be taken after the winding up order is made.  You should engage a suitably qualified debt recovery and insolvency solicitor.

Role of the Liquidator

The role of the Liquidator is to:

1. Investigate the financial affairs of the company; and
2. Decide if any voidable transactions or preferential payments have been made; and
3. Identify insolvent trading or other offences by company directors etc;
4. Investigate the company records and the books, to identify the circumstances of the insolvency; and
5. The purpose of liquidation is to realise all assets, recover all monies, and attempt to distribute a dividend to creditors.

The Payment of a Dividend

Section 556 of the Corporations Act 2001 (Cth) define the main priorities for payment under a Court ordered liquidation, they are:

1. Expenses properly incurred by a liquidator in preserving, realising or getting in property of the company, or in carrying on the company’s business; and then
2. The taxed costs of the petitioning creditor (or costs fixed in the short-form amount)

So, in most cases the petitioning creditor gets paid from the liquidation before the liquidator takes payment.  If there are funds left over from (1) and (2) above, then the remainder of the funds are distributed in the following priority:

1. The costs and expenses of the liquidation, including liquidators’ fees; then
2. The secured creditors (mortgagee’s for example);
3. The outstanding employee wage and superannuation entitlements; then
4. The outstanding employee annual leave, sick leave, and long service leave; and finally
5. Unsecured creditors.

Each category is paid in full.  If there is not enough money to pay an entire category, then the funds are distributed on a pro-rata basis, and that class may get cents in the dollar.  If there is not enough money in the pool of assets, then the remaining categories do not receive a dividend.

What to do if a Company that owes you Money has gone into Liquidation

If you are not the petitioning creditor, and you do not have a security for your debt, then unfortunately you are at the back of the cue as an unsecured creditor, in most cases.

This is why it is important to act fast, and employ qualified professionals, to ensure that you are the petitioning creditor when winding up a company that owes you money.

FAQ on Winding Up a Company That Owes You Money

This FAQ section provides clear and concise answers to common questions about the process of winding up a company that owes you money.

It covers the essential steps, legal requirements, and practical considerations involved in enforcing a judgment debt against an insolvent company.

What does winding up a company that owes you money mean?

Winding up a company, also known as liquidation, is the process of closing a business and distributing its assets to creditors. It involves appointing a liquidator to sell the company’s assets and use the proceeds to pay off debts.

When should I consider winding up a company that owes me money?

You should consider winding up a company if it is unable to pay its debts when they are due, indicating insolvency. This is particularly effective if you have obtained a judgment debt or if the company has failed to comply with a statutory demand.

What is a statutory demand?

A statutory demand is a formal request for payment of a debt of at least $4,000 served on a company. The company has 21 days to comply with the demand or apply to set it aside. Failure to do so results in a presumption of insolvency.

What steps are involved in winding up a company that owes you money?

The process involves sending a letter of demand, obtaining a judgment debt, serving a statutory demand, and filing a winding up application in court. If the company fails to respond appropriately, the court may order the company to be wound up.

How do I obtain a judgment debt?

A judgment debt is obtained by filing a claim and statement of claim in the appropriate court. If the court rules in your favour, you receive a judgment debt, which can then be enforced through various means, including winding up the debtor company.

What happens if a company ignores a statutory demand?

If a company ignores a statutory demand and does not apply to set it aside within 21 days, it is presumed to be insolvent. You can then proceed with a winding up application based on this presumption of insolvency.

What documents are needed for a winding up application?

A winding up application must include the application form, a draft order, an affidavit in support, and the liquidator’s consent. These documents must provide evidence of the debt, service of the statutory demand, and the company’s failure to comply.

How do you serve an application winding up a company that owes you money?

The application must be served on the company’s registered office or personally on a director residing in Australia. Proper service ensures that the company is formally notified of the winding up proceedings.

What role does ASIC play in the winding up process?

After filing the winding up application, you must lodge a notice with ASIC and publish a notice on the ASIC Insolvency Notices website. This provides public notice of the winding up application and ensures transparency in the process.

What happens at the hearing when winding up a company that owes you money?

At the hearing, the court reviews the evidence and any opposition from the debtor company. If the court is satisfied that the company is insolvent and the application is valid, it will order the company to be wound up and appoint a liquidator.

What is the role of a liquidator?

The liquidator’s role is to investigate the company’s financial affairs, realise assets, recover funds, and distribute the proceeds to creditors. The liquidator ensures that the liquidation process is conducted fairly and in accordance with the law.

How are the proceeds from liquidation distributed?

The proceeds are distributed according to priorities set out in the Corporations Act 2001. Payments are made first to the liquidator’s expenses, then to secured creditors, followed by employee entitlements, and finally to unsecured creditors.

Can I recover costs when winding up a company that owes you money?

Yes, as the petitioning creditor, you can often recover your costs from the liquidation proceeds. The liquidator’s fees and expenses are prioritised, but if sufficient funds are available, your costs may be reimbursed.

What if the company disputes the winding up application?

The company must file a notice of appearance, a notice of grounds for opposition, and an affidavit with evidence. The court will consider these documents during the hearing to determine whether the winding up order should be granted.

What should I do if a company that owes me money has already gone into liquidation?

If you are not the petitioning creditor, you should lodge a proof of debt with the appointed liquidator. The liquidator will assess your claim and, if valid, include you in the distribution of any available funds from the liquidation.