What Does Voluntary Winding Up Your Company Mean?

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Table of Contents

• Voluntary Deregistration
• How Do You Wind Up a Company And What Does It Involve?
• Effect of Voluntary Winding Up
• Can the Court Order To Wind Up a Company?
• Key Takeaways

Are you looking to close down your business? Maybe you have just sold your business and no longer want to operate your company. Alternatively, you may just have a company you no longer use and want to stop paying your annual ASIC fees. Provided that your company is solvent, there are ways to dissolve your company. This article will explain the process of voluntarily winding up your company.

Voluntary Deregistration

The easiest way to wind up your company is to apply with ASIC to voluntarily deregister your company. Voluntary deregistration will close down your company so that it will no longer exist. It will also remove your obligations as a company officeholder. To be eligible to take this route, you will need to ensure that:

1. all of the company’s members agree to deregister;
2. the company is not conducting business;
3. the company’s assets are worth less than $1,000;
4. the company does not have any outstanding liabilities (e.g. tax liabilities and unpaid employee entitlements);
5. the company is not involved in any legal proceedings; and
6. the company has paid all fees and penalties payable to ASIC.  

If voluntary deregistration is not available to you, you may look to wind up your company voluntarily. This involves a process where your company’s outstanding matters are finalised, and its assets are distributed or otherwise liquidated and deregistered so that they will no longer exist. 

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How Do You Wind Up a Company And What Does It Involve?

1. Declaration of Solvency

You can only voluntarily wind up your company if it is solvent. This means that it can pay its debts when they fall due. It is important to ensure that the company is solvent. Under the Corporations Act, penalties may apply if you make a false declaration. 

If you are proposing to wind up your company, the majority of your company’s directors will need to make a written declaration. This declaration should outline that they have made an inquiry into the company’s affairs and that, at a meeting of directors, they have formed the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after commencing the winding up. 

When making the declaration, you should ensure that the lodgement is made before the date the meeting notice is sent to the company members to agree to the winding up.

Solvent vs Insolvent

In Australia, a company’s financial status is either solvent or insolvent. A solvent company can pay all its debts when they’re due, using its cash flow or easily sold assets. On the other hand, an insolvent company can’t meet its financial obligations on time, even if it tries to sell assets or collect money owed to it.

The key test is whether the company can pay its debts as they fall due, not just its overall asset value. Solvency allows a company to continue normal operations, while insolvency may lead to legal restrictions, potential administration, or liquidation.

2. Special Resolution by Your Company’s Members

Once you have lodged the Declaration of Insolvency with ASIC, the company’s shareholders can proceed with voluntary winding up the company by passing a special resolution. A special resolution means that at least 75% of the company’s shareholders agree to wind up the company voluntarily. This resolution can be made by either:

• a circular resolution; or
• by vote at a general meeting of the members.

You should ensure that you follow the required procedures in the Corporations Act and, where applicable, the company’s constitution or shareholders deed.

In agreeing to the company’s voluntary winding up, the shareholders will also need to appoint a liquidator to administer and carry out the winding up of the company. 

3. ASIC Notices

After your company passes a resolution for a voluntary winding up, your company must lodge with ASIC in the prescribed form (i.e. ASIC Form 205) a notice setting out the text of the resolution within seven days after passing the resolution.

After a liquidator is appointed to administer your company’s winding up, publish a notice on ASIC’s Published Notices by the end of the next business day. This notice must contain the following information in respect of the resolution passed:

1. the name of the company;
2. any trading name of the company;
3. the ACN of the company;
4. particulars of the law under which the notice is being given;
5. the name and contact details of the liquidator; and
6. the date on which the members pass the resolution. 

4. The Liquidator To Administer the Winding Up

This will generally involve:

• assessing the books and records of the company;
• lodging with ASIC a detailed list of receipts and payments for the administration; and 
• distributing any property of the company.

If at any time during the winding up, the liquidator forms the view that the company will be unable to pay its debts in full within 12 months, the liquidator must either:

• convene a meeting of creditors;
• appoint a voluntary administrator, in which case the company will be placed under external administration; or 
• make an application to the Court for the company to be wound up insolvency.

Effect of Voluntary Winding Up

From passing the resolution to voluntarily winding up your company, your company must cease to carry on its business. This is insofar as the liquidator believes it will benefit the disposal or winding up of your business.

However, until you deregister your company, it will still exist as an incorporated legal entity. 

Can the Court Order To Wind Up a Company?

If, for some reason, the above processes are not available to you, the Court may also make an order for a company to be wound up. These circumstances include if the:

1. the company has, by special resolution, resolved that it be wound up by the Court;
2. the company does not commence business within one year from its incorporation or suspends its business for a whole year; or
3. it has no members (i.e. shareholders); or
4. the directors have acted in the company’s affairs in their interest rather than in the members’ interest as a whole. Or in any other manner whatsoever that appears to be unfair or unjust to the interests of the members as a whole;
5. there is an act or omission, a proposed act or omission by the company or a proposed resolution of a class of company members that was or would be oppressive, unfairly prejudicial to, or unfairly discriminatory against a member. Or if it would otherwise be contrary to the interests of the members as a whole;
6. if ASIC has stated in its report that a company cannot pay its debts, it should be wound up. Or if it is in the interest of the public, the members of the company’s creditors, and the company to be wound up; or
7. if the Court is of the opinion that it is just and equitable.

Key Takeaways

If your company is solvent and you are looking to close it down, it may be open for you to take the steps to either voluntarily deregister or wind up your company.

In the event that you require any assistance with your wind up, or would like to discuss your options regarding closing down your company, our lawyers at LegalVision can assist you in finding an effective and efficient way forward. Contact LegalVision’s insolvency lawyers on 1300 544 755 or fill out the form on this page.