Facing a winding-up application?

The stage after the demand

When a statutory demand is not complied with, the creditor can rely on the resulting presumption of insolvency to apply to court for an order winding up the company. Once filed, the application is advertised and listed for hearing. If the court makes the order, a liquidator is appointed, the directors lose control and the business usually ends.

For a company that is fundamentally solvent but was caught short on one or a few debts, this is a disaster that can still be avoided, provided action is taken quickly.

What resolving it usually involves

The details depend on the court and the circumstances, and your lawyer will guide you, but resolving an application commonly involves:

• paying the applicant creditor’s debt, often with its legal costs
• dealing with any other creditors who have sought to join or be substituted
• satisfying the court, where required, about the company’s solvency
• having the application dismissed or withdrawn by consent

Each of these takes money and time. A secured loan can provide the money; your lawyer manages the process.

How a secured loan helps

A loan secured over a director’s home, an investment property or business premises can fund payment of the debts and associated costs. Because the company is under pressure, lenders will look closely at the security and the exit and will want a clear picture of all creditors. No valuation is needed before approval, which saves time, and interest can be prepaid or added to the loan so the company has room to stabilise.

Get urgent funding advice now while your lawyer prepares for the hearing.

Preparing the information

Information	Why it matters
The application and hearing date	Sets the timeline for funding
Amount owed to the applicant, plus costs	The minimum to resolve the application
Other creditors and the ATO	Others may join; the full position matters
Property details and existing debts	Determines what can be borrowed
The exit	How the loan will be repaid once the company stabilises

Is the company actually solvent?

This is the critical question. If the company can pay its debts as they fall due once this debt is resolved, a secured loan can save a viable business. If it cannot, borrowing more may only delay the inevitable and put a director’s property at risk. A registered insolvency practitioner or your accountant can help you assess solvency honestly. ASIC publishes information for directors on their obligations and options.

An illustrative case

Illustrative only. A concreting company failed to pay a statutory demand from an equipment hire firm during a dispute it later conceded it could not win. The hire firm applied to wind the company up, and the ATO indicated it might join for an unpaid GST balance. A second mortgage over the director’s home funded payment of the hire firm’s debt and costs and the ATO balance before the hearing. The application was dismissed by consent, and the company continued trading.

After the application is resolved

Rebuild trust with suppliers, keep the ATO current, and put cash flow forecasting in place. Consider whether the company’s structure, pricing or customer mix contributed to the crisis and fix what can be fixed. The secured loan’s exit, whether a property sale, refinance or trading, should be planned and tracked.

Why speed matters so much

Between filing and hearing, the application is advertised, which can alert other creditors, suppliers and customers. The longer it remains unresolved, the more likely others are to take steps of their own, and the harder it becomes to keep the business trading normally. Arranging funds early gives your lawyer the best chance of resolving the matter cleanly at or before the first hearing.

Keeping the business running meanwhile

While the application is resolved, keep trading as normally as possible: pay staff on time, keep the ATO informed and talk to key suppliers. Customers and suppliers who see the business behaving responsibly are far more likely to stay with it. Avoid paying some creditors ahead of others in ways that could later be challenged; your lawyer can advise on what is appropriate while the application is on foot.

Choosing the right security

Because the borrowing company is under pressure, lenders usually prefer security that sits outside the company’s own trading position, such as a director’s home or investment property. A registered mortgage may be preferred over a caveat where the term may run longer. Your specialist will recommend the structure that balances speed with the time the company may need to recover.

Act now, with the right advisers

A winding-up application is the most serious stage of creditor action short of liquidation. Speak to a lawyer immediately, and tell us the debts, the hearing date and the property you can offer so funding can be arranged in parallel. There is no credit check when you first enquire, your details stay with one team, and a full and honest picture of the creditors lets us tell you quickly whether a secured loan can resolve it. Make an urgent enquiry.