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Insolvency Law News August 2011

When is a company deemed insolvent in a winding up application?

As a matter of course we advise clients seeking to enforce a judgement debt, or seeking to demand payment of a debt from a company, to serve a statutory demand on the company, subject to costs and other considerations. Where there is a dispute about the debt, then we do not advise to serve a statutory demand, as it may backfire in a costs award against the creditor if the debtor applies to the court to have the demand set aside.

If a debtor company does not file an application to set aside the statutory demand within 21 days of service on the debtor company then the debtor company is deemed to be insolvent. It is very difficult to then dispute this presumption of insolvency  when a winding up application is commenced.

In the recent High Court decision in ASIC v Lanepoint Enterprises Pty Ltd the Court confirmed s.459C(2)(c) of the Corporations Act that a presumption of insolvency may also be deemed where a debtor seeks to wind up a company on the grounds that a Receiver has been appointed to the debtor company in the previous 3 months.

In this case a secured creditor appointed a receiver to Lanepoint. The High Court reviewed the 1993 changes to the law and the process of dealing with a winding up application. Prior to 1993 where a disputed debt was the grounds for a winding up application, then that dispute could be argued on the winding up application. Since the 1993 reforms, if a company does not succeed in having a statutory demand set  aside within the strict time frames, then the presumption of insolvency is not debatable at a winding up hearing.  In this case, Lanepoint should have promptly challenged the appointment of the receiver, to avoid other creditors being able to rely on the “presumption of insolvency” arising from the appointment to then wind up the company.

Forum Law can assist you with your concerns about claims against your company or against you and assist you in dealing with these claims promptly to avoid undesirable and irreversible damage to you or your company.

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