Winding up a company is the process of bringing a company to an end. If your company is solvent (i.e. able to pay its debts), it can enter into liquidation through a members’ voluntary winding up. On the other hand, an insolvent company is unable to pay its debts when they fall due for payment.  As a company owner, it is important to know whether your company is solvent or insolvent. This is because if your company is insolvent, its creditors can forcibly wind it up through a creditors’ voluntary winding up

This article will explain:

  • what a members’ voluntary winding up is;
  • what the process looks like; and 
  • the differences between a creditors’ and members’ winding up. 

What Is a Voluntary Winding up?

Winding up a company may occur for a variety of reasons, including if:

  • you have sold the business;
  • it has stopped trading; or
  • the business has been restructured (this is more common for larger corporate groups). 

The process of winding up a company involves:

  1. finalising outstanding company matters;
  2. paying off outstanding company debts;
  3. selling off any company assets; and 
  4. bringing an end to the company’s existence.

Winding up the company voluntarily may be an option if your company is unable to meet the requirements for voluntary administration or voluntary deregistration. When a company is being wound up, a liquidator will be appointed to manage and finalise the process. From this point, the company stops trading and the directors will not run the company. 

What Is a Members’ Voluntary Winding Up?

Members, or ‘shareholders’, are the owners of the company. The members of a company can only initiate a members’ voluntary wind up if the company is solvent.

Members may wish to wind up the company whilst it is still solvent in order to have a better chance of receiving their initial investment back. This is because the creditors are the first to be paid back if a company becomes insolvent. In this case, the members will only receive any remaining company assets. 

How Does a Members’ Voluntary Winding Up Work?

The members of a solvent company can decide to wind up the company by following the process below. 

  1. A majority of the company directors lodge a declaration of solvency with ASIC by using the ASIC Form 520. This declaration notifies ASIC that, in the directors’ opinions, the company will be able to pay its debts in full within 12 months following the voluntary wind up; 
  2. The company members pass a special resolution within five weeks of the directors making the solvency declaration and lodge an ASIC Form 205 notifying ASIC that a special resolution has passed; 
  3. A liquidator is appointed and a notice of appointment is lodged with ASIC within 14 days by using an ASIC Form 505; and
  4. The liquidator winds up the company’s affairs and lodges the final documents with ASIC. 

If at any point during the winding up the liquidator believes that the company will be unable to pay its debts in full within 12 months of the commencement of winding up, they must either:

  • convene a creditors meeting;
  • appoint a voluntary administrator; or 
  • apply to the court for the company to be wound up in insolvency. 

Declaration of Solvency

The statutory declaration of solvency is one of the key aspects of the members’ voluntary winding-up process. Accordingly, as a company director, it is important to know what you must do when you lodge the declaration. 

A declaration of solvency requires that a majority of the directors look into the company’s affairs and decide that the company will be able to pay its debts in full within 12 months. The declaration includes a statement of the company’s assets and any liabilities. 

Importantly, the declaration will be ineffective unless:

  • it is made at the meeting of directors; 
  • it is lodged with ASIC using the relevant form before issuing the notice of meeting to members; and
  • the special resolution of shareholders resolving to wind up the company passes within 5 weeks of making the declaration. 

As a company director, you must make sure that you provide an accurate and honest opinion in your declaration and are able to support your opinion. Making a false declaration is an offence under the law, and fines and other penalties can apply if you make a false declaration.

What Are the Differences Between a Creditors’ and a Members’ Winding Up?

Process

The process of a members’ voluntary winding up is less complex than the process of a creditors’ voluntary winding up. This is because in a creditors’ voluntary winding up, the liquidator will have to conduct a thorough investigation into the company’s assets and liabilities. 

Solvency

One of the key differences between a members’ voluntary winding up and a creditors’ voluntary winding up is the solvency of the company. A members’ voluntary winding up is only an option if the company is solvent. If the company is insolvent, it must be wound up through a creditors’ voluntary winding up or another insolvency procedure. Solvency refers to whether the company is able to pay its debts as and when they fall due. 

Member Involvement

A members’ voluntary winding up usually does not involve the creditors, because the company is still in a position to pay its creditors in full. A creditors’ voluntary winding up, however, involves the creditors and members. 

Key Takeaways

You may wish to wind up your company if:

  • the company is no longer trading ; or
  • you have recently sold the business assets.

Winding up the company may be the only option remaining if the company is unable to meet the requirements of voluntary deregistration. You can wind up your company through a members’ voluntary winding up if the company is solvent. You will need to ensure that you follow the prescribed process with ASIC and provide accurate information about the company’s affairs. If you require advice on winding up your company, contact LegalVision’s insolvency lawyers on 1300 544 755 or fill out the form on this page.

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Jessica Coventry
Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy