Court-ordered winding up

A court-ordered winding up is where the Court makes an order to wind up the corporation and appoint a liquidator.

Who starts it?

A range of people can apply to the Federal Court for an order to wind up a corporation:

  • the corporation
  • a creditor of the corporation (even if the creditor is a secured creditor or is only a contingent or prospective creditor)
  • a member of the corporation
  • a director of the corporation
  • a contributory of the corporation
  • a voluntary administrator of the corporation
  • a special administrator of the corporation
  • the Registrar.

Reasons to apply for court-ordered winding up

The reasons or grounds that someone can apply to Court for a winding up order are set in section 526-5 of the CATSI Act. They include:

  • the corporation has by special resolution resolved that it be wound up by the Court
  • the corporation has been registered for a year and hasn’t started operating or has suspended operations for longer than a year
  • the corporation has stopped meeting one or more of the requirements for being registered under the CATSI Act
  • the corporation has become a trade union which is not allowed under the CATSI Act
  • the officers of the corporation have acted in their own interests rather than in the interests of the members of the corporation as a whole, or in a way that is oppressive or unfairly prejudicial or discriminatory against a member or members of the corporation (unless the officer was acting to comply with a requirement of native title legislation)
  • the corporation is insolvent (for this ground, the following people can apply only if the Court gives permission for them to do so: a person who is a creditor only because of a contingent or prospective debt; a contributory; a director; the Registrar.)
  • that winding up the corporation is in the interests of the public; the corporation’s members; or the corporation’s creditors.

The Registrar is the only person who can apply for winding up on these grounds:

  • the directors have failed to comply with a notice from the Registrar to comply with the CATSI Act (known as a section 439–20 notice)
  • the corporation has failed to lodge its reports under the CATSI Act
  • the complexity or magnitude of corporation’s activities make it inappropriate for the corporation to stay registered under the CATSI Act.

If a corporation is under special administration only the Registrar or special administrator can apply.

Most common reason for applying

The most common reason someone makes an application to the Court is when a creditor seeks payment of a debt from the corporation. 

What is a creditor?

A creditor is anyone the corporation owes money to. For example, customers who paid for goods but haven’t received them; funding bodies who have provided funding but services haven’t yet been delivered; suppliers who have provided goods or services that the corporation hasn’t yet paid for; employees with outstanding wages or superannuation; unpaid amounts owing to the ATO

We recommend corporations seek legal advice if they receive a statutory demand or notice of court action.

Extra statutory demand process required before a creditor can apply

Before a creditor can make an application for an order that a corporation be wound-up on the grounds of insolvency, the creditor must first serve the corporation a Statutory Demand for Payment. 

A statutory demand is a formal demand for payment that should only be made where there is no genuine dispute that the debt is due and owing.

The corporation’s options

Once a creditor serves a statutory demand, the corporation has 21 days to do one of these things:

  • pay the debt
  • make an application to the Court that the demand be set aside on the basis that there is a dispute, or
  • do nothing.

What if a corporation disputes a statutory demand

The corporation may apply to the Court for the statutory demand to be set aside if:

  • there is a genuine dispute that the debt is owing
  • there is an offsetting claim
  • there is a defect in the demand which wound cause substantial injustice; or
  • the corporation is able to persuade the Court that there is another reason why the demand should be set aside. 

If the corporation disputes the amount claimed in the statutory demand, it is very important that it seeks legal advice and takes the necessary steps to dispute the claim before 21 days passes.

What if the corporation does nothing? 

If 21 days passes and the corporation doesn’t pay the debt or apply for the demand to be set aside, the corporation will be presumed to be insolvent. 

The creditor has up to 3 months from the date of the statutory demand expiring to make an application to the court for orders that the corporation be wound-up. 

This is called a ‘petition for winding up’. 

The Court’s decision

If the court grants the petition or order, the court will then appoint a liquidator for the corporation.

Liquidation process

The liquidator:

  • collects the corporation’s assets and sells them
  • puts proposals to creditors to seek approval for paying the costs of the liquidation and debts to creditors. Creditors are paid in priority order. 
  • Investigates and reports to creditors about the corporation’s affairs
  • Look into why the corporation failed and if any of the people may have broken the law, and report this to us.

The liquidator must lodge with us a list of receipts and payments for the liquidation every year until the liquidation ends. Liquidators must use this form: Form 5602 Annual administration return

A liquidation ends when the liquidator has sold all of the company's available assets and paid out the money to those entitled to it. The liquidator notifies us within one month, using this form: Form 5603 End of administration return.

The liquidator applies to the court for an order for release and deregistration of the company by ORIC.

Three months after the liquidator lodges the Form 5603, ORIC deregisters the corporation. After the corporation is deregistered it no longer exists.

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