• Can Your Company Be Deemed Insolvent?

Imagine you have just arrived at work, you are the Director of a Company, you open the mail and find that you have been served with a “Creditor’s Statutory Demand” demanding payment of money within twenty one (21) days. What should you do?

A Creditor’s Statutory Demand is a demand made under the Corporations Act 2001 which a Creditor is able to issue against a Company demanding payment from a debtor.  This can be done by a Creditor after obtaining judgment or simply demanding payments of accounts rendered.  You have two choices:

  1. Pay the demand; or
  2. Make an application to the Court to set the demand aside.

What happens if there is a failure to comply with the demand?

It is very important that you do not ignore the demand.  If the demand is ignored, or the Company fails to pay the demand, it is presumed to be an act of insolvency and the Creditor issuing the demand may apply to the Court to have the Company wound-up.  Where a Creditor is successful in its application to the Court to have the Company wound-up in insolvency, liquidators will be appointed to liquidate (“sell off”) the Company’s assets and distribute the proceeds to Creditors.

Allowing the Creditor’s Statutory Demand to lapse without paying it can have serious consequences for your Company including its liquidation on application and Order by the Court.  Once the assets of the Company have been sold and the proceeds of those sales distributed to Creditors, the Australian Securities and Investment Commission will deregister the Company.

Sometimes, a debtor may dispute the amount claimed under the demand either because it is in excess of what the debtor believes the amount to be or that there is no amount owing.  It may be that the debtor is able to prove those things and have the demand set aside. However, if the demand is the result of a judgment against the Company, there are very few avenues available to have the demand set aside.

You will have ample notice of a debtor’s intention to wind-up the Company because the Company will have been served with documents commencing proceedings in the Court and directing that certain things be done.  Again, if the Company simply ignores to do anything about being served with documents or is not able to prove that the Company is solvent, then the Court will have discretion to make an Order to appoint the liquidator and wind the Company up in insolvency. The reason the Company will have notice of the Application is because it is advertised in the newspaper indicating that proceedings have been brought by a Plaintiff against a Defendant (the debtor Company) and that those proceedings will be determined in the Court on a certain date.

How can we help?

Being served with legal documents demanding payments and seeing distressing ads in newspapers about the winding-up of your Company is stressful. We are able to provide you with advice on the options available to you to avoid your Company being liquidated.

Having worked hard to build your Company, is something that you would not wish to see lost because of a simple failure to do anything about being served with Court documents.  King Cain Solicitors can assist you in relation to any legal issue.

Have further questions or enquiries? Get in touch today.

Contact Us

Have further questions or enquiries? Get in touch today.

Contact Us
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