The importance of keeping your ASIC details up to date. Increasingly, it seems that more solvent companies are being placed into liquidation by default. Following the company being placed into liquidation, Moore Stephens is now seeing an increase in cases where directors are trying to terminate the winding up because the company is solvent. It is not a simple case of paying the debt of the petitioning creditor.
Typically, such cases involve companies with significant assets and where the directors were unaware that a winding up action had been commenced by an aggrieved creditor. Quite often the directors have simply failed to update the address of the company’s registered office with ASIC. Statutory demands and winding up applications are only required to be served on the company’s registered office. Consequently the defendant may be unaware of the proceedings until it is too late and the company is wound up.
Too many directors underestimate the importance of advising ASIC of a change in the company’s circumstances and the ease in which a company can be placed into liquidation. Directors in this situation are understandably distressed as sometimes the company is still trading and/ or has considerable assets. Upon liquidation the control of the company is the sole responsibility of the Liquidator. By that time it is too late to raise genuine disputes regarding the petitioning creditor’s debt on which the company was wound up.
The directors must then seek to rectify the situation by making an application to the Court to terminate the winding up. This requires the directors to instruct a solicitor to make a Court application and provide evidence of the company’s solvency. This involves preparing financial statements and engaging an expert witness to provide a report on the financial position of the company. Sometimes this can delay the application being made to the Court for many months.
It is not unusual for this process to cost in the vicinity of $10,000 to $20,000 in legal fees, plus the added costs of the Liquidator’s remuneration and payment of all outstanding creditors. This is quite alarming, given that the company may have been liquidated for an initial debt as insignificant as $2,000.
Moore Stephens strongly recommends that directors ensure any changes to a company’s address are lodged with ASIC as this is surely a case of prevention being better than the cure.
Rick Porter and David Mansfield are regularly appointed as Official Liquidators by the Supreme Court of NSW.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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This Update highlights two recent cases that considered circumstances where liens could take priority over a registered security interest.
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