Last month, we discussed the ways in which a company can respond to a statutory demand. But what happens if the strict 21-day deadline to apply to set it aside is missed?

If the deadline passes without action, the company is legally presumed to be insolvent. A creditor is able to rely on that presumption to apply to the court to wind up the company. Accordingly, creditor-initiated winding-up proceedings commonly rely on non-compliance with a statutory demand issued under section 459E of the Corporations Act 2001 (Cth) as evidence of insolvency.

So, if facing winding-up proceedings after missing the 21-day deadline attached to a statutory demand, what can a company do? Whilst the options available are more limited, there are still several possible responses.

Dispute the debt during the winding-up proceedings

Even if the statutory demand was not set aside, the company may still argue that the debt is genuinely disputed. However, courts are often reluctant to entertain disputes raised at this later stage, especially if the company had the opportunity to challenge the demand earlier and failed to do so.

Rebut the presumption of insolvency

A company can oppose the winding-up application by proving it is solvent. This usually requires clear financial evidence, such as current financial statements, asset valuations, and cashflow forecasts showing that the company can pay its debts as they fall due.

Negotiate payment or settlement

In many situations, the most practical solution is to pay the debt or negotiate a settlement with the creditor. If the creditor is satisfied and withdraws the application, the winding-up proceedings will usually end.

Consider restructuring options

If the company is facing financial difficulty, its directors may consider formal restructuring processes such as voluntary administration and/or a deed of company arrangement (DOCA).

Although there are still ways to respond once a winding-up application has been filed, the best and safest approach remains to act quickly as soon as a statutory demand is received. Responding within the 21-day deadline leaves more options open to companies which receive statutory demands, and can prevent the matter from escalating into winding-up proceedings.

Ming Yip
Lawyer