Winding up orders in Australia

Winding up orders in Australia

As a business owner in Australia, you need to be aware of the process of winding up a company. This legal procedure can be used by a creditor to dissolve a company. So, you need to understand how it works in case:

  1. You are owed money and want to wind up the debtor.
  2. Your business owes money and your company is at risk of being wound up.

In this article by our Gold Coast insolvency lawyers, we’ll provide an overview of the winding up process in Australia. We’ll also outline the steps you need to take if your business is threatened with closure.

What is a winding up order?

A winding up order is a court order that requires a debtor company to cease trading so its assets can be sold to pay creditors. The process is also known as compulsory liquidation.

A winding up application is usually made when:

  1. A debtor company is unable to pay its debts; and
  2. There is no realistic prospect of it being able to pay them in the future.

Creditors can commence the process of applying for the court to make a winding up order by issuing a creditor’s statutory demand. Once a creditor’s statutory demand has been served on a debtor, that debtor will have 21 days to either:

  1. Pay the debt; or
  2. Get the statutory demand set aside by a court.

Non-compliance with a statutory demand creates a legal presumption of insolvency, creating the necessary conditions for a winding up order.

Once a debtor company is wound up, its assets are sold off and the proceeds are used to pay its debts. Any money left over after the debts have been paid is distributed to shareholders.

Who can apply for a winding up order?

A winding up application is commonly brought up by creditors as a way to recoup what they are owed by an insolvent company.  

The process of winding up a debtor can be commenced by a creditor serving the company with a statutory demand or filing a statement of claim. If the debt contained in the statutory demand isn’t paid, the creditor can rely on the non-payment as a presumption of insolvency. The creditor can then file a winding up application to begin court proceedings. 

What is a statutory demand?

A statutory demand is a formal notice demanding payment of a debt. A statutory demand can be issued for debts of at least $4,000 by any person or organisation, including the government. (The ATO is a major source of statutory demands, using them to pursue unpaid taxes.)

Statutory demands are easy to issue but must be delivered (“served”) either personally or by registered post. 

Once the statutory demand has been served, the debtor company has 21 days to pay the outstanding debt. If they fail to do so, the creditor can apply to the court for a winding up order to be served to the company’s registered office. (More information here about statutory demands)

How do you wind up a company?

Winding up is the process of dissolving a company. This can be done voluntarily, by the shareholders or directors of the company. Winding up proceedings can also take place involuntarily, as directed by the court.

Voluntary winding up

Voluntary winding up is when the shareholders or directors of a company decide to dissolve the company. This can be done for any reason, but it’s often done because the company is no longer profitable. Or because the shareholders have disagreements about how to run the business.

Once you start voluntarily winding up, you can’t change your mind. The process of liquidating a company may bring considerable consequences for shareholders and directors. That’s why you need to be aware of those consequences and be sure this is the right decision for your company.

Involuntary winding up

Involuntary winding up is when the court appoints a liquidator to wind up a company. This can happen for several reasons. But the most common reason is that the debtor company is unable to pay its debts after being served with a creditor’s statutory demand.

If the court decides to wound up the company, a liquidator will be appointed to oversee the process. The liquidator’s job is to sell the company’s assets and use the proceeds to pay its debts.

What are the steps involved in winding up a company?

Winding up a company is the process of bringing it to an end. This can be done in a number of ways.

Winding up a solvent company

The first step of winding up a solvent company is for the directors to make a declaration of solvency. 

This is a formal document that states the company will be able to pay its debts in full within 12 months from the date of the winding up. The directors must sign this document and lodge it with the Australian Securities and Investments Commission (ASIC).

Once the declaration of solvency has been lodged, company members (shareholders) must pass a special resolution to have the company wound up. This resolution must be passed in favour of the winding up by at least 75% of the shareholders and must be filed with ASIC.

Notice of the resolution must be published on ASIC’s published notices website. A liquidator will be appointed to manage the winding up proceedings of the company. After the company is wound up, the liquidator will lodge a final report with ASIC.

Winding up of an insolvent company by creditors

Creditors may begin the winding up process of an insolvent company by issuing a statutory demand.

Companies issued with a creditor’s statutory demand have 21 days to settle their outstanding debts. If they fail to comply with the creditor’s statutory demand, the debtor company is presumed to be insolvent.

If the debtor company is presumed insolvent, the court may order the company to be wound up. The court will then have a registered liquidator appointed to act on behalf of the creditors. The liquidator will take the necessary steps to maximise debt recovery for the creditors during the liquidation process.

Company directors may also opt to enter a voluntary administration. This is where an administrator is appointed to manage the company’s affairs and try to turn it around. Voluntary administration may result in a better outcome for the debtor company and its creditors than if the company was wound up by the court.

Is winding up the same as liquidation?

Winding up is the process of dissolving a debtor company and concluding its business affairs. Liquidation refers to the sale of a company’s assets to pay off debts in the winding up process.

Winding up is usually ordered by a court when it is clear the debtor company is insolvent and unable to pay its debts. The company’s shareholders may also voluntarily wind up the company. This happens if they believe it to be in the best interests of shareholders and creditors.

Once a winding up application has been made, an official liquidator will be appointed to oversee the process. They will take control of the company’s assets and use them to pay off debts.

How much does it cost to wind up a company?

The cost of winding up a company in Australia can vary. It depends on the size of the company, assets owned, and the number of creditors involved.

How long does winding up a company take?

The typical time frame for winding up proceedings in Australia is six to 12 months. However, this can vary depending on the complexity of the company’s affairs. It will also depend on the compliance of its directors and its shareholders.

What are the consequences of winding up a company?

If your company is wound up, there are a number of consequences that you need to be aware of. 

  1. Day-to-day operations of the company will be considerably disrupted or halted altogether. The company’s contractual terms will also no longer be certain. Subject to their terms and conditions, some of the contracts may go into default or be terminated.
  2. Your company’s bank accounts will be controlled by the company’s liquidator and its assets will be sold to repay its debts.
  3. Directors or shareholders who have guaranteed the company’s debts may have personal liability for those debts. 

Winding up a company can have serious consequences for the business and its shareholders. So, it’s important to understand the process and take steps to protect your interests. If your company is at risk of being wound up, seek legal advice on the best course of action.

Can you appeal a winding up order?

Directors may oppose a creditor’s winding up process in several ways:

  1. A director can oppose a statutory demand within 21 days of being served the demand. The director will need to provide proof of either the debt being paid off, or that there is a genuine dispute of the debt owed. 
  2. A director can oppose a winding up application before the winding up order is made. The director would need to prove the debt is being paid off. Alternatively, the director may provide proof there is no debt owed and the company is solvent.
  3. A director can also oppose orders to wind up a company. To do so would require leave of the court. If leave is granted, the director would need to offer new evidence that can be used to oppose the winding up order. The director would also have to prove the company is solvent.

If you are successful in your appeal, the court may set aside the winding up application. This will allow your company to continue operating. But if your appeal is unsuccessful, your company will be wound up and its assets sold off to pay creditors.

What can I do after receiving a statutory demand?

There are a few options you have at your disposal if you receive a Statutory demand. These are described in general terms below, but you should always get legal advice specific to your situation.

Settle your outstanding debts

This is the most obvious solution, which is likely to put an end to the statutory demand process. If you’re unable to pay your debts in full, you might be able to negotiate with your creditor to come to a payment plan that works for both parties.

Oppose the Statutory Demand

You may be able to apply to the court to have a statutory demand set aside. To do so, you’ll need to prove there is a genuine dispute on the debt owed, or there is a defect in the demand that’s causing substantial injustice. You may also file a counterclaim against the creditor who served you the statutory demand.

Enter voluntary administration

Voluntary administration allows you to keep your business afloat. Meanwhile, you can work with an insolvency practitioner to devise a plan to pay off your debts.

Don’t face the prospect of winding up your company alone

The article sums up the winding up process in Australia. We hope this will be useful for business owners or directors who may find themselves in that situation.

The key takeaways are that it is important to act quickly and decisively when winding up a company. Seek professional advice to ensure the best possible outcome for your business and its stakeholders. You can’t rely on general information (such as the above) to act in a critical situation.

The decision to wind up the business should not be taken lightly. It is one that will have significant implications for the company, its employees and creditors. There are several factors to consider when making this decision. These include the financial position of the company, the likelihood of it being able to trade out of its current difficulties, and the impact on stakeholders.

Are you facing the difficult decision of whether to wind up your company? We can help. We are experienced insolvency lawyers in the Gold Coast, who can advise you on the best course of action for your particular circumstances. Contact us today to discuss your options. Call us for a confidential chat on 1300 286 578 or email us at

Important note on this article

This article discusses the general state of affairs, which could change at any time because the law can change at any time. Also, your situation is unique, so an article like this one can’t give you all your options, and some of the options discussed here might not apply to you. For those reasons and others, you mustn’t treat what you’ve read here as legal advice for you. What you should do as soon as possible is get legal advice specific to you if you are affected by anything discussed above.

Liability limited by a scheme approved under Professional Standards Legislation.

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