How Do I Close Down a Solvent Company?

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Table of Contents

• Voluntary Deregistration
• Voluntarily Winding Up
• Key Takeaways
• Frequently Asked Questions

As a company director, you might consider bringing your company to an end, despite the company being solvent. For example, you may have sold the assets of the business in an asset sale. Alternatively, you may simply want to cease operations because of changing market conditions or personal reasons. Under the Corporations Act 2001 (Cth), there are two options to willingly bring a company to an end: voluntary deregistration and voluntarily winding up (by members). This article will go over both alternatives and consider the circumstances in which they are appropriate.

Voluntary Deregistration

Voluntary deregistration involves applying to the Australian Securities and Investments Commission (ASIC) to de-register your company. If your application is successful, the company will cease to exist as a legal entity, and your responsibilities as an officeholder (whether a director or secretary) will end. This process is a lot simpler and less costly than voluntarily winding up. However, you must meet certain eligibility to be able to apply to ASIC.

Before you apply to ASIC to voluntarily deregister the company, you will need to ensure the following:

• all members of the company agree to deregister;
• the company is not conducting business;
• the company’s assets are worth less than $1,000;
• the company has no outstanding liabilities (e.g. unpaid employee entitlements);
• the company is not involved in any legal proceedings; and
• the company has paid all fees and penalties payable to ASIC.

Next Steps to Voluntarily Deregister a Company

If you meet the eligibility criteria, you can apply for voluntary deregistration by lodging an Application for voluntary deregistration of a company (Form 6010). Currently, it costs $44 to apply. This fee is non-refundable if you do not meet the eligibility requirements and ASIC rejects your application. You can lodge this form online or submit it via post. When lodging a paper form, a director or member of the company must sign the application. A liquidator of the company can also sign the form.

The company will be deregistered two months after the approval notice has been published.

Voluntarily Winding Up

If a company is solvent, they can alternatively close it down through a voluntarily winding up (by members). A solvent company typically means it can pay its debts as they fall due.

There is also another form of voluntary winding up, known as a ‘creditors voluntary winding up’) which is beyond the scope of this article.

Steps Involved in Voluntarily Winding Up

There are a number of steps that directors will need to follow to voluntarily wind up a company. 

1. Declaration of Solvency 

First, the majority of the directors must declare the solvency of the company by lodging a form with ASIC. This form acts as a written declaration that the directors have held a meeting and agree that the company is solvent and can pay its debts in full 12 months after the commencement of the winding-up process. 

Notably, you will need to be sure that the company is solvent, as declaring solvency and voluntarily winding up without reasonable grounds can be a punishable offence.

2. Voluntarily Winding Up

Next, the company must make a special resolution of members at a general meeting to voluntarily wind up the company. A special resolution requires at least 75% of votes cast to be in favour of winding up. Notification of this resolution must be lodged with ASIC and must be published on the Insolvency Notices Website. 

Upon the passing of a winding up resolution by its members, the company must cease carrying on business. An exception is if the liquidator believes that carrying on business is necessary for the beneficial disposal or winding up of the business.

3. Appointing a Liquidator

The next step is to appoint a liquidator through an ordinary resolution of members in a general meeting. The company must lodge another form with ASIC, notifying them of this appointment. Members of the company can choose any liquidator (who is a person rather than a registered company liquidator) to take control of the affairs of the company. They can fix the remuneration of the liquidator and supervise their conduct.

4. Presenting accounts and statements

Next, you will be required to lodge a form with ASIC at six-month intervals to show the administration’s progress and the current state of affairs after the administration has finished.

5. Assets and Liabilities

Once a voluntary winding up has commenced, the power to dispose of the company’s property is vested in the liquidator. The liquidator will seek to satisfy all probable debts and claims against the company. Once all of the company’s liabilities have been satisfied, any remaining assets must be distributed to the members.

6. Final Meeting and Deregistration

As soon as the company’s affairs have been fully wound up, the liquidator must present and explain an account of the winding up to a general meeting of the company. The meeting must be convened by advertisement in the Commonwealth Gazette at least 1 month before the meeting. The advertisement must specify the following information:

• date;
• time; 
• place; and 
• purpose of the meeting.

Within seven days after the meeting, the liquidator must lodge a return of the meeting (and attach the liquidator’s account of the winding) with ASIC. Following lodgment of the liquidator’s return, the liquidator or any other interested party may apply to the court for an order specifying a particular date to deregister the company. If no application to the court is made, the company is automatically deregistered three months after the lodgment of the liquidator’s return. 

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Key Takeaways

If the directors reasonably believe that the company is solvent, they have two options to bring about the end of the company: voluntary deregistration and voluntarily winding up. The former is far easier and cheaper but has strict eligibility requirements. In both cases, there are formal processes that you must follow to effectively shut down the company and ensure it ceases to exist as a legal entity.

For more information about closing down your company, our experienced bankruptcy, liquidation and insolvency lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions