This is a very serious matter requiring immediate attention. Know your rights, responsibilities, and potential courses of action.
This is a very serious matter requiring immediate attention. Know your rights, responsibilities, and potential courses of action.
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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, also known as compulsory liquidation. A winding up application is usually made when a company is unable to pay its debts.
If you have received a wind up notice you must act immediately as a failure to do so will result in your company being wound up and closed. Directors should know their rights, responsibilities, and potential courses of action.
Personal Liability is where a company’s debt is made to be the directors personal debt.
These include disqualification, fines up to $200,000, and may lead to criminal prosecution.
Creditors can only take action against directors for their own debts whereas a liquidator can on behalf of all creditors.
A holding company can also be liable for the debts of a subsidiary if it allows the subsidiary to trade while insolvent.
Receiving a wind-up notice for your business can be a daunting experience, but understanding your options and taking decisive action can make all the difference in safeguarding your company’s future. Here’s what you need to know about winding up applications in Australia and the steps you can take to address them effectively:
Understanding the Consequences
Your wind-up notice will include a court date, and failing to respond by the specified date can have serious repercussions. If left unaddressed, your company will be wound up, leading to the loss of your business. By neglecting to take action, you essentially place the fate of your business in the hands of the court.
Exploring Your Options
Instead of ignoring the wind-up notice, it’s crucial to explore your available options and take proactive steps to resolve the situation.
Here are the main options at your disposal:
> Pay the Debt: One option is to settle the debt in full or negotiate a payment arrangement with your creditor(s). By satisfying the outstanding amount, you can seek to have the wind-up proceedings dismissed, thereby avoiding the risk of liquidation.
> Do Nothing: Choosing to take no action is a risky path that can lead to the compulsory liquidation of your company. If you opt for inaction, the wind-up application will proceed to court, where a decision will be made to place your company into liquidation. As a company director, you may be held personally liable for the company’s debts.
> Voluntary Administration: Opting for voluntary administration is a common strategy for companies facing financial distress. Under voluntary administration, an appointed administrator works with creditors to formulate a Deed of Company Arrangement (DOCA). This agreement outlines a structured repayment plan for creditors while allowing the business to continue trading under the administrator’s guidance.
> Duty to Prevent Insolvent Trading: As a director, you have a legal obligation to prevent your company from trading while insolvent. Trading while insolvent occurs when your company is unable to pay its debts as they fall due. Continuing to trade in such circumstances can expose you to personal liability for the company’s debts incurred during this period.
> Risk of Personal Liability: If your company is wound up due to insolvency, you may face personal liability for debts incurred by the company during the period of insolvent trading. This means creditors can pursue you personally to recover outstanding amounts owed by the company.
> Potential Legal Consequences: Failing to respond appropriately to a wind-up notice or allowing the company to be liquidated without taking necessary steps to address its financial difficulties can lead to legal proceedings against you as a director. These proceedings may result in disqualification from managing a company, fines, or even criminal charges in severe cases of misconduct.
> Duty to Act in the Best Interest of Creditors: As a director, you’re also required to act in the best interest of the company’s creditors, prioritising their rights and ensuring fair treatment in the event of insolvency or liquidation.
Whether it’s due to unexpected challenges, market fluctuations, or other factors, many businesses encounter periods of financial strain. AVA Advisory specialises in supporting businesses like yours through these tough times. We offer strategic insights, financial expertise, and a pathway to overcome business debt challenges, putting you back on the road to success.
AVA Advisory provides clear guidance on Directors Penalty Notice’s and resolution strategies tailored to your situation. With the right advice, directors can avoid personal liability and find the best path forward. Seek expert advice on your Directors’ Duties and options if you think your debts are becoming increasingly harder to manage.
Connect with AVA Advisory today for a lifeline. Let’s work together to calm the financial storm of uncertainty around ATO debt and set sail towards a brighter future for you and your business. Don’t delay – let us help you get through it all, not just for your sake – but also for those you care about the most. Book an obligation-free, cost-free consultation or call 1300 181 220 to discuss your options in confidence.
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