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Once a Creditor’s Statutory Demand (also known as a s459E Notice or a Form 509H) has expired- that is, 21 days have passed, there are decisions for both parties to make.

For creditors an expired 459E Notice is evidence of insolvency and for 3 months after expiration can be relied upon for the purposes of filing a winding up application.

The creditor’s decision to proceed at this point in time will often involve the following considerations:

1. Is there evidence (as opposed to rumour) to suggest that the debtor company is about to fold at the hands of a major creditor- such as a financier, the ATO or a large trade creditor?

2. Is the debtor company ignoring the matter?

3. Is the creditor prepared to spend the $5500-$8800 necessary to bring finality to the matter?

If the creditor elects to proceed the process from filing the application to the making of the winding up order usually takes 4-6 weeks.

The creditor needs to be aware that the winding up is a public process- no closed doors allowed! This also means that other creditors can join in the winding up. Even if the debtor company pays out your debt another creditor can substitute in and continue with the winding up. If this happens the first creditor will almost certainly have received a preferential payment.

After the winding up order is made the liquidator nominated by the creditor will take control of the companyand attempt to realise the assets and then distribute them in accordance with s556 of the Corporations Act 2001. If there is money in the company your costs of applying to wind up the debtor company get paid as a priority, so you at least get that back.

For the debtor company an expired s459E Notice presents as a catastrophic time. The debtor company can:

1. Pay the debt in full.

2. Try and negotiate, remembering that the creditor now holds the fate of the company in their hands.

3. Gather the evidence to establish that the company is in fact solvent and then attempt one of the limited legal arguments left on offer.  Essentially, once the s459E Notice has expired the debtor company is prevented from trying to argue that the debt is not owing.

4. Appoint a voluntary administrator and rely upon their skill and guile to navigate the company to calmer waters. NB You can skip the voluntary adminsitration and put your own company into liquidation with a liquidator of your choosing at any time before a winding up application is filed.

In summary, once they have come this far we find that most creditors press on and take the final step.

For the debtor company- don’t treat the s459E Notice lightly. Treat it as a time bomb.