Introduction

The concept of winding up does not exclusively apply to insolvent companies. Solvent companies can also be wound up, on the initiation of the company’s directors and shareholders (for example, as part of a corporate reconstruction or to close down non-operating or redundant entities). 

An overview of the two key procedures to effect the dissolution of a solvent Australian company, being Members’ Voluntary Liquidation and Deregistration, is set out below. 

In brief

Even with the fiscal stimulus and other measures taken by the Federal and State governments in Australia, corporate insolvencies are likely to increase in coming months.

Under Australia's insolvency regimes, a distressed company may be subject to voluntary administration, creditor's voluntary winding up or court ordered winding up (collectively, an external administration). Each of these processes raises different issues for the commencement and continuation of court and arbitration proceedings.

In summary

In our previous alert we discussed how Justice Markovic in the Federal Court of Australia had granted the administrators of retailer Colette Group relief from personal liability for rent in respect of 93 stores.  

The Australian Federal Court has made orders relieving the administrators of retailer Colette from personal liability for rent in response to the COVID-19 crisis and the current uncertainty in respect of government policy about rent relief for tenants: see

What you need to know

Amendments to the Corporations Act 2001 (Cth) (Corporations Act) to implement the measures announced by Treasurer Josh Frydenberg on Sunday, 22 March 2020 to provide temporary relief for financially distressed businesses due to COVID-19 have now come into effect.

The Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPO Act) amendments were passed by the Parliament on 2 March 2020. They will apply for a 6 month period, but may be extended or have impacts beyond that timeframe.

The Treasurer, the Honourable Josh Frydenberg MP, has today announced proposed temporary changes to Australian corporate insolvency laws which will vary the minimum requirements for statutory demands and provide some relief for directors from insolvent trading. These announcements form part of the Australian Government's measures to support otherwise profitable and viable businesses due to the economic impacts of COVID-19.

What a director wanting to enter the safe harbour must do

Directors in Australia have long had a statutory duty to prevent insolvent trading. The duty is engaged where:

What should your company do if faced with a statutory demand or a winding up petition? Time is of the essence where there is a threat of formal insolvency proceedings. If a winding up petition is being threatened it must not be ignored. The consequences that can flow once a winding up petition has been advertised can be devastating, both to the company's reputation and its financial position.

We identify some of the key considerations and steps that should be taken immediately so as to reduce any damage that a winding up petition can cause.

A company has outstanding debts and it seems they are struggling financially. What can you do to try and get your debts settled? Is applying to have the company wound up the answer? Here, we take a look at what you will need to consider before a decision is made and we take a look at the key steps in the process.

What is winding up?

Winding up is also known as compulsory liquidation. It is action taken by creditors of the company which (if successful) will result in the company ceasing to trade and being closed down.

In our update this month we take a look at some recent decisions that will be of interest to those involved in insolvency litigation. These include: