For a business, the receipt of a wind-up notice can be one of the worst things that can happen. From the moment you receive the notice the clock is ticking, and you have a short period of time in order to deal with the notice and its consequences. It is important to get advice as soon as possible as ignoring these notices is not an option.
The notice will generally arrive via the process server or in a registered post. It is important not to ignore the notice. The more time we have to deal with the wind-up notice, the better your options are for the business. Leaving it to the last minute rarely, if ever, will result in a better outcome and this thing is not going away on its own.
What is a Wind-Up Notice?
A wind-up notice is the result of a wind-up application being made to the court by a creditor or government body, which is subsequently granted and served on you. As this is a court notice, the wind-up notice is a publicly available document. As such, you will most likely start to receive calls from firms offering to act for you in court to defend the wind-up notice. As it is a court proceeding you will need to defend yourself against it.
For a business receiving an ATO wind-up notice, this will generally be after a period of failed lodgments or failed negotiations – it should not come as a shock. A wind-up notice from a creditor will generally occur due to a failure to address unpaid debts and where there you have not satisfied a creditor statutory demand. Consequently, the wind-up notice should not be unexpected, but it can be a shock as the business is now on the edge of being closed down. Generally, wind-up notices manifest where there has been no payment of the debt, no dispute raised or negotiation resolution achieved.
Received a Wind-Up Notice, Now What?
The wind-up notice means that a court date has been set and, unless you can prove the company is solvent, the company will be placed into liquidation. From the point of receiving the notice to the court date is generally four to six weeks. There are very few options that are available to deal with the wind-up notice.
What is Solvency?
This is a formal statement that can prove that the company can pay its debts (i.e. the company is solvent). Reports prepared by forensic accountants can determine whether a company is a solvent. Such reports are often costly and difficult to obtain.
Just Paying the Debt?
Paying the debt will not be enough, as once the process has commenced other creditors can join the queue. If you pay one debt, it does not mean that the other debts are not now due and payable. We often assist business owners that have just paid off the debt related to the wind-up notice and then assumed that the notice will simply go away. This is not the case.
As the wind-up notice is public knowledge, it may also result in your bank withdrawing your facility, a landlord giving you a breach notice, and it certainly will be difficult, if not impossible for your business to be able to borrow money.
Who can Join the Proceedings?
Any creditors of your business can join the proceedings, which means that a simple notice can rapidly become multiple fights if there are additional creditors pressing for payment. It may be that when the ATO receives the notification of the wind-up proceedings, that if your tax affairs or tax compliance is poor that they will substitute into the proceedings even if the petitioning creditor is paid in full.
Going into Administration?
An option for a business with a wind-up notice is to place the business into administration. Placing a company running a business into administration is time-critical. There are risks that the court will ignore the appointment and continue with the liquidation process. We have assisted businesses to undertake this process at the last minute, but it is often difficult to achieve the closer the date of the wind-up.
We often see business owners immediately being advised to go into voluntary administration. We often find that this is not the best option for businesses and that all that happens is that the business enters into administration, pays a lot of fees and then falls into liquidation. There needs to be a coherent plan. As we are independent, we work for a solution that not only protects the business but will also give the best result for creditors, without unnecessarily jumping into a solution that may not be the best for your business.
The biggest risk you can take to deal with a wind-up notice is to borrow money without receiving advice as to what the flow on consequences are going to be. All too often we see that loans have been scrambled to pay off debts, only to find that the business owners have placed other assets at risk or reduced their ability to trade out of the situation. Before borrowing money to deal with a wind-up notice, wait and get advice.
A Strategic Plan
From the point of the receipt of the wind-up notice, time is ticking and there is a need to develop a strategic plan in order to determine if there is a viable business and whether there are options to deal with creditors. This time is often difficult for business owners. It can be tough to identify the options and harder to understand that decisions need to be made without significant time to think through.
Before agreeing to the cold callers, it is important to understand what is happening, what is being proposed and whether it is going to be the best for your business and overall family group.
From the point of our engagement, we work with you to explore the options available, what we can do to protect your assets, examine the viability of your business and then determine a course to deal with the wind-up notice.
What happens if you do nothing?
Not doing anything means that the business will be placed into liquidation and the liquidator will step in to protect the creditors of the business. Practically this means that you will lose control of the business and someone else will be making all the decisions. All too often we attend the court and number of business owners trying to stop a wind-up notice on their own is terrible, a person with their entire life being placed in the hands of an indifferent Registrar, finding out that they are going to lose not only their business but also their livelihood.
For businesses facing a wind-up notice, getting advice should be the first and last thing that you do, doing nothing is not an option and assuming that it will all go away will not protect you, your business or family assets.
Talk to us
We have worked with businesses that are facing a wind-up notice and need clear, practical and direct options. We are candid in our assessment and are not going to recommend a solution that just makes things worse but buys you a few more weeks or months, nor will we recommend a solution just in isolation to push the problem a little further down the road.