Winding up a company may be necessary when a company owes you money and is unable to pay. As a creditor, you have the right to recover what you are owed. If you’ve reached this stage, it is highly likely that the company in question is insolvent, making debt recovery more challenging. However, there are legal steps you can take to maximise your chances of reclaiming your funds from a business owing you debt.
To learn more about winding up a company that owes you money, read on. You can also talk to one of our experienced commercial lawyers.
Overview of How to Wind Up a Company
The process to recover debt from a business involves several legal steps:
3 Ways of Winding Up a Company That Owes You Money
Here are three key steps creditors can take to enforce payment and recover from a business owing you debt:
1. Demand for Payment
While it is not legally required that a creditor send the insolvent company a letter of demand, it is recommended that you do so. The letter of demand should include a short statement of the outstanding debt and a request that the monies be returned within a specific time frame. A letter of demand can demonstrate your intent to recover the debt, serve as evidence in court, and potentially resolve the issue without escalating it further. This will place the debtor company on notice and give them an opportunity to return the funds to you.
2. Statements of Claim
If you need to apply to the court for assistance to recover debt from a business, you will need to file a statement of claim.
What is a statement of claim?
A Statement of Claim is a legal document filed in court to initiate a lawsuit. It sets out the plaintiff’s allegations, detailing the facts of the case, the legal basis for the claim, and the relief or compensation sought from the defendant. The defendant must respond within a specified timeframe, either disputing or accepting the claim. If no response is filed, the court may issue a default judgement in favour of the plaintiff.
Possible court orders following a statement of claim:
A statement of claim will allow the court to order one of the following:
- Examination Summons: The company will be required to appear before the Court and explain the manner in which the debt will be paid in full.
- The Sheriff of the Court can be instructed to seize and sell property to make the creditor whole.
A Charging Order can be issued to give the creditor an approximate value in the company’s holdings.
3. Apply to the Court
If the business owing you debt is unable to pay the debt or set aside the findings of the Court, you can then use these failures against the company and proceed with the winding up of the company. An application for winding up a company that owes you money must include the following:
- Application
- Draft Order
- Affidavit in support of your application
After you make an application with the Court, you must do the following:
- The application must then be properly served on the company which you are attempting to wind up
- The application must be filed with the ASIC
- You must publish notice of the application
There are strict timelines that you must adhere to when working through how to wind up a company that owes you money. Therefore, it is highly recommended you enlist the services of a solicitor that specialises in the processes of dissolving a company.
The debtor can now choose to voluntarily liquidate and make payments to the creditors or they can choose to defend against the claim. If they choose to defend against the outstanding debt, a hearing will be scheduled by the Court.
If the Court determines that your application has merit and finds against the company that owes you money, the Court will appoint a liquidator to begin the process of liquidating the debtor company’s assets to pay the outstanding debt owing.
Liquidation Process
The appointed liquidator will then begin their investigation into the debts and assets of the winding up company. Once a thorough investigation has been completed and a full accounting of the company is available to the liquidator, distribution of the assets to the creditors can begin. The petitioning creditor will get paid first. The balance of the monies available will be distributed as follows:
- Liquidators fees
- Secured Creditors
- Employee’s owed wages or superannuation
- Outstanding employee benefit payouts
- Unsecured creditors
Post-Liquidation Phase: What Happens After a Company is Wound Up?
Once a company has been liquidated, the liquidator takes control of its remaining assets to distribute funds to creditors in accordance with legal priorities. This phase determines the liquidation outcomes for creditors, ensuring debts are settled to the extent possible.
1. Distribution of Funds
The liquidator gathers and realises company assets, including cash, equipment, and property. Funds are then distributed in the following priority:
- Secured creditors – Those with registered security interests (e.g., banks, lenders) are paid first.
- Liquidation costs and expenses – The liquidator’s fees and other administration costs.
- Employee entitlements – Outstanding wages, leave, and superannuation.
- Unsecured creditors – Suppliers, contractors, and other creditors.
- Shareholders – If any funds remain, they are distributed to shareholders (rare in insolvency cases).
2. What Happens to Unresolved Debts?
If liquidation funds are insufficient to recover all the debt from a business, creditors often face partial repayment or no recovery at all. Unpaid debts are generally written off unless personal guarantees were provided by company directors. The company is then deregistered, ceasing to exist.
3. Monitoring the Liquidator’s Progress
Creditors can track the liquidation process by:
- Receiving statutory reports – Liquidators provide updates on asset realisation and debt recovery.
- Attending creditor meetings – These meetings discuss liquidation progress and possible dividends.
- Reviewing the ASIC register – Public records provide liquidation status updates.
- Requesting direct updates – Creditors can contact the liquidator for information on expected distributions.
Understanding the post-liquidation process helps creditors set realistic expectations and explore potential legal avenues if they suspect misconduct in asset distribution.
The Role of ASIC in the Winding-Up Process
The Australian Securities and Investments Commission (ASIC) plays a crucial role in regulating and overseeing the winding up of companies in Australia. ASIC ensures compliance with the Corporations Act 2001, monitors liquidators, and maintains public records of companies undergoing insolvency proceedings.
1. ASIC’s Role in the Liquidation Process
The ASIC winding up process begins when a company enters voluntary administration, creditors’ voluntary liquidation, or court-ordered liquidation. ASIC’s key responsibilities include:
- Appointing a liquidator (if required) in court-ordered wind-ups.
- Regulating and overseeing liquidators to ensure compliance with legal obligations.
- Investigating potential misconduct, such as fraudulent trading or director breaches.
- Maintaining company records, including deregistration after liquidation is complete.
2. Filing Requirements for Insolvent Companies
Directors and liquidators must file specific documents with ASIC throughout the winding up process, including:
- Notice of Winding Up (Form 505) – Filed when a company is placed into liquidation.
- Statutory Reports to ASIC – Liquidators must submit reports on company affairs, assets, and potential misconduct.
- Deregistration Application (Form 6010) – Once liquidation is finalised, the company is officially deregistered.
3. Monitoring and Enforcement
ASIC has the authority to:
- Investigate insolvency cases where fraud or misconduct is suspected.
- Prosecute directors for breaches, such as trading while insolvent.
- Take action against liquidators who fail to act in the best interest of creditors.
ASIC ensures transparency in insolvency proceedings, protecting creditors and the public from unlawful practices.
Seek Help From Experienced Insolvency Lawyers
While the process can be time-consuming, if you are a creditor who has a business owing you debt, you are entitled to apply to the court to be made whole.
However, if you are going to pursue winding up a company that owes you money, it is highly recommended you see the professional advice of an insolvency lawyer in Sydney.
If you find yourself in need of assistance with debt recovery or any other legal advice for businesses, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.