Under the Corporations Act 2001, it is possible for a company to be wound up, even if the directors believe it to be solvent. This process is called ‘voluntarily winding up’, and will take place if the directors pass a special resolution in favour of winding up the company and, eventually, deregistering it.
Why wind up a company?
Directors of a company may resolve to voluntarily wind up the company to bring the company to an end, ensure that debts to creditors are paid in full, and that surplus assets are distributed to members. Generally, if the directors do not wish to retain the company structure and the company is still solvent, they may opt for the process of winding up the company.
However, directors must ensure, if they are voluntarily winding up the company, that the company is, in fact, solvent. If a company is voluntarily wound up without reasonable cause or is found to be insolvent, heavy penalties will apply.
So, how do I know if my company is solvent?
Usually, a company is solvent when it can pay its debts as they fall due. In the case of voluntary winding up, the directors will need to consider if the company can pay its creditors in full within 12 months of winding up.
What are the steps involved?
There are a number of steps that directors will need to follow in order to voluntarily wind up a company.
- Declaration of Solvency: First, the majority of the directors must declare the solvency of the company through lodging a form with the Australian Securities and Investments Commission (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. As stated earlier, you will need to be sure that the company is solvent as declaring solvency and voluntarily winding up without reasonable grounds can be an indictable offence.
- Voluntarily Winding Up: Next, the company must make a special resolution 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.
- Appointing a Liquidator: You will then have to appoint a liquidator through lodging 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. The members of the company can fix the remuneration of the liquidator and supervise his or her conduct.
- Presenting accounts and statements: Next, you will be required to lodge a form with ASIC at six-month intervals to show the progress of the administration and the current state of affairs after the administration has finished.
- Deregistration: Finally, you will have to show ASIC how the company was wound up. The details of this meeting must be advertised on the Insolvency Notices Website at least one month before the meeting is held. The deregistration process is crucial as a company will be required to pay annual review fees and continue to be subject to the legal requirements of a registered company. After winding up, the company will be deregistered, and the company will cease to exist.
For more information on the process of voluntarily winding up, please visit the ASIC website at http://www.asic.gov.au/asic/asic.nsf
To speak with a commercial solicitor regarding the winding up of your company, contact LegalVision on 1300 544 755 and get legal advice from our experienced commercial team.