COVID-19 has greatly impacted businesses especially small medium enterprises. If your company is in financial distress and is unlikely to recover, your company has the options to commence either a director-initiated liquidation or voluntary administration.
Typically, a complaint or application will be filed in court and, once a judgment is entered, becomes an enforceable debt. A winding up application is filed (alongside an affidavit) if the statutory demand has not been set aside or settled within 21 days.
The application and statutory demands are technical documents requiring compliance to strict legal requirements and court rules. It is vital for the statutory demands to be valid, as flawed demands may result in a defective winding up application. Legal assistance is required to prepare, file and serve these documents.
If the company is insolvent or thinks it will be insolvent in the near future, the company needs to appoint a voluntary administrator or liquidator as quickly as possible. An insolvent company must cease all trading and usual business. Trading while insolvent is a breach of the Corporations Act 2001 and the company may be liable for civil penalties or criminal charges.
If the company decides not to take any action, the company’s creditors can apply to the court to wind up the company and appoint a liquidator.
Companies should take caution when moving assets out of a struggling company to avoid paying outstanding debts or amounts owed. This practice is known as ‘phoenix activity’ and directors or secretaries found to be engaged in it may be required to pay large fines and serve up to 15 years in prison.
If the company does not meet the requirements for voluntary deregistration, the company can apply to be wound up.
The company directors must first make a declaration of solvency by filing a ‘Form 520’. It is a breach of the Corporations Act 2001 for making false declaration of solvency and the company will be penalised for the act. The company members must then pass a special resolution and lodge further forms whilst publishing a notice of the resolution on ASIC’s Published Notices Website after a liquidator is appointed.
The lodgement of forms and deregistration time frames do require adherence to the legal processes and it is important to obtain advice around these issues.
If you require advice regarding winding up procedures, Straits Lawyers are here to help. We are now offering online services in both English and Chinese.
Simply book an online consultation with us via this link: https://straits-lawyers.square.site/product/online-consultation-/11?cs=true or email us at firstname.lastname@example.org or call at 08 8410 9069 to arrange an appointment.
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Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.