How do you wind up a company? Companies are wound up when they become insolvent or after they are no longer needed. This article explains the general principles involved in winding up a company.
There are two main ways in which a company may be wound up, they are:
1. Compulsory- upon application to the Court
2. Voluntary winding up by resolution of members etc.
Once a winding up order is made the company continues to exist only for the purposes of winding up. Disposition or transfer of any property since the winding up order are void, unless approved by the court.
No civil proceedings can be commenced or continued against a company in liquidation or in the process of winding up except by leave of the court.
The liquidator can take control of the company’s property but the company remains the legal owner of the assets.
The directors of the company cease to have any power over the company.
How do you wind up a company on the grounds of insolvency?
A court with sufficient jurisdiction has power to make an order winding up a company. The following entities can make an application to wind up a company:
• The company
• A creditor
• A liquidator
Winding up on other grounds
The court may also make an order that a company be wound up because the shareholders pass a special resolution resolving to wind up, a company is improperly managed, ASIC decides that the company should be wound up or it is otherwise just equitable to do so.
Creditors use statutory demands to require a company to pay debts. If a company fails to pay the debt after service of a statutory demand, or fails to have the statutory demand set aside, within 21 days after the statutory demand is served, the creditor can apply to the court to have a liquidator appointed to have the company wound up.
If the company succeeds to have the statutory demands set aside then it would be entitled to recover its legal costs. However, if the company fails to make an application to set aside the statutory demand they cannot later contest demand without leave of the court.
There is a presumption that when a company fails to comply with a statutory demand then it must be insolvent. This is only rebuttable by providing evidence of the company’s solvency. This is done by showing “fullest and best” evidence of the company’s financial position.
Opposing a winding up application
A company can oppose a winding up application if:
• the company is solvent.
• the creditors have a better prospect of recovering their debts without the company being wound up.
• a voluntary liquidation is in progress.
• the court takes into account the view of other creditors and whether they oppose the winding up order being made.
Insolvency is a very technical area of law and directors have a duty to act in the best interest of their company. It is important that directors of companies obtain legal advice immediately after receiving a creditor’s statutory demand notice. A lawyer should always prepare a creditor’s statutory demand notice to reduce the likelihood of it being set aside.
If you need assistance in relation to winding up a company or insolvency generally, please contact us.
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