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Compulsory Winding Up:

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Insolvent companies can be wound up under the Corporations Act, and winding up an insolvent company is similar to bankruptcy in requiring equitable sharing between rival creditors against an often limited and insufficient fund. Although the administration of a bankrupt's estate and the winding up of a company call for the services of a trustee in bankruptcy and a liquidator respectively, a company's property does not ordinarily vest in its liquidator in any way similar to the statutory vesting of a bankrupt's property in the trustee. An automatic vesting is not needed in a liquidation since, normally, the liquidator takes over from the board of directors as the person to administer the company's property. The liquidator's powers, however, are derived from the Corporations Act rather than by succession to the board. Obtaining professional legal advice from a qualified and experienced Bankruptcy and Insolvency Lawyer can assist you should you face a compulsory winding up ordeal.

Compulsory winding up is generally initiated by a creditor’s statutory demand accompanied by supporting affidavit. A creditor requires a debt of at least $2000 due and payable, and may serve on the company statutory demand specifying the debt (or the total debts) and requiring the company to pay or to secure or compound for the amount due to the creditor's reasonable satisfaction within 21 days after service. The affidavit needs to verify that the debt is due and payable by the company and complies with the rules of the Federal Court or the rules of a Supreme Court. If the debt is not satisfied or resolved within that time frame an application can be made for winding up or liquidation on the ground of insolvency. The company will also fail to comply with a statutory demand where execution is returned unsatisfied; or where action is taken to enforce a floating charge by appointment of a receiver (by either the chargee or a court) or by the chargee going into possession, personally or by agent. Obtaining holistic and thorough legal advice from a Bankruptcy and Insolvency Lawyer in this regard may be greatly useful and productive in this regard.

There are various methods to deal with such statutory demand. They include making an objection on grounds that there is a genuine dispute as to the existence or amount of the debt, defect in the demand or substantial injustice. Also, there are also various other grounds in which a court may order that a company should be wound up. These include reasons, such as, if the company resolves that it should be wound up by the Court by special resolution, if the company does not commence business within a year from its incorporation, where the company was formed without a genuine intention that it should carry on business in a proper manner, if the company's operations cease, become impossible or unmanageable or if the number of members falls below the permitted minimum, or where the company's affairs are being conducted in a manner unfair to some of the members.Consultation with an experienced Bankruptcy and Insolvency Lawyer can be hugely valuable in this respect.

A winding up that begins as a voluntary winding up can be converted into a compulsory winding up. This may be done by persons with standing such as liquidators, who apply to the court to have a court appointed winding up instead of a voluntary winding up. The rationale behind this is that there may be certain advantages such as ability to claim from insurance, the ability to enlarge the company’s estate, or if an alternative/replacement liquidator is sought. It is not necessary for the court to make an order terminating the voluntary winding up before making an order for winding up. Professional legal advice from a Bankruptcy and Insolvency Lawyer coupled with sound financial advice may be hugely beneficial during a compulsory winding up.

If you would like further information or wish to discuss your winding up matter with an experienced Bankruptcy and Insolvency Lawyer please do not hesitate to contact us by telephone on (02) 9233 4048 or by email to info@navado.com.au.

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