Statutory Demands and Winding Up Companies
Australian companies may be wound up by the Court if they are insolvent. The Corporations Act defines a company is insolvent if it is unable to pay its debts as and when they fall due.
Whether you are the one owed money, or it’s your company being accused of trading insolvently, you need to act quickly.
Someone who hasn’t received the money they are owed will generally be the one applying to the Court. In Australian courts the Australian Tax Office (ATO) is the most common applicant (by number). Workers Compensation Insurers are next, followed closely by State Government agencies.
The Court may order the winding up of the company and the appointment of an Official Liquidator to administer the affairs of the company.
An application to wind up a company may be brought before the Supreme Court of each State in Australia or alternatively the Federal Court of Australia. Often an application to wind up a company will be on the grounds that the company failed to satisfy a statutory demand (explanations below).
As Directors of a company you should quickly seek legal advice if you have received a statutory demand or an application to wind-up your company.
You do have alternatives if you act quickly. Company Directors may consider the appointment of a voluntary administrator. To be successful you may need to demonstrate to the Court that there is a good prospect that the administration process will result in a better outcome for creditors than if the company was wound up by the Court.
Quickly call Streeterlaw for a free no-obligation phone consultation to understand your options.
Question. What is a Statutory Demand?
Answer: A Statutory Demand is a demand made under 459E of the Corporations Act. This document is not issued by the Court. Failure to comply with a Statutory Demand or apply to the Court to set it aside, will result in the company being “deemed” to be insolvent and provide the basis for an application to the Court for the winding up of the company.
A Statutory Demand requires that the Debtor Company pay a specified sum of money within 21 days from the date of the delivery of the demand on the Debtor Company.
If the debt is disputed or there are irregularities in the document, the company should immediately seek independent legal advice and apply to the Court to set the demand aside on the basis that the debt, the subject of the Statutory Demand, is genuinely disputed. This application MUST be made within 21 days.
Question: What if the Statutory Demand expires unsatisfied?
Answer: Section 95(A) of the Corporations Act provides that a company is solvent if it is able to pay its debts as and when they fall due. Accordingly the test as to whether or not a company is insolvent is that it is not able to pay its debts as and when they fall due.
Under Section 459C of the Act the company is presumed to be insolvent if a company has failed to comply with a Statutory Demand.
Accordingly, the delivery to a Debtor Company and non-compliance with the Statutory Demand will provide “proof” which is sufficient for a creditor to apply to the Court for the appointment of a liquidator to the company.
Question: Can the Statutory Demand just turn up in the post?
Answer: The Statutory Demand may be:
- delivered (or served) by leaving a copy of the document at the registered office of the debtor company; or
- sending it by post to the registered office of the debtor company; or
- by delivering a copy of the Statutory Demand personally to the directors who reside in Australia
So yes, a Statutory Demand could just “turn-up” in the post and still be effective.
Question: What is a Director Penalty Notice?
Answer: Directors may become personally liable for tax debts of their companies in which they are directors if they fail to comply with the terms of a Section 222AOE Notice. This notice is also often called a Director Penalty Notice. (Letters of demand to Directors from the Tax Office - 222AOE Notices)
A Director Penalty Notice is NOT a court issued document. It is a document issued by the Australian Tax Office under the Income Assessment Act in respect of PAYG withholding amount (i.e. the tax amount deducted from the employee wages and entitlements but which have not been remitted to the ATO).
If the Director Penalty Notice is not complied with within 14 days, the Director(s) will become personally liable for the outstanding debt as described in the notice.
A Director Penalty Notice will usually provide you with the following options:
- the company’s liability be discharged; or
- you enter into a installment agreement under Section 222 (ALA) of the ITA 1936 Act; or
- the company goes into administration; or
- the company will be wound up
If none of the four options are available then, at the end of the 14 days, the director(s) will be personally liable for the debts as specified in the notice.
The notice is generally issued to a Director’s residential address as notified on the ASIC records.
A Director’s failure to maintain their current address details with ASIC may mean that they do not receive the correspondence (because it went to an old residential address). However this is not a valid defence to argue that the notice was not received.
Helpful Hint:
Ensure that your address details with ASIC are up-to-date!
|
|
You want to know your Sydney lawyer is professional, has proven results and saves you money. Discover what makes the Streeterlaw legal team different… More > |
To help you we need to know your story. The Streeterlaw team will give you an honest opinion so you’ll know your options … More >
|
While your own situation is unique these Australian stories will help you know what to expect. Real stories with proven results … More > |
|
