Whether your company is facing financial problems or you simply wish to wind up your company after it ceases trading, there are a number of options available to you to wind it up. The first important distinction is to determine whether your company is, in fact, solvent or insolvent.
A company will be considered solvent if the company is in a position to pay all debts when they fall due for payment. A company will be considered insolvent in circumstances where the company is unable to pay all debts when they fall due for payment. Whether your company is solvent or insolvent will affect your options available for winding up the company. This article will focus on your options if you company is solvent (i.e. can pay its debts when they are due).
Important Note: If you are seeking to wind up your solvent business, it is important to be aware that while the company is registered with ASIC, it remains subject to the legal requirements of a registered company which includes payment of the annual review fee each year.
Option 1 – Voluntary Winding Up
To commence the process of voluntary winding up of the company, the directors must provide ASIC with a declaration of solvency (ASIC Form 520). This process requires the directors to declare that they have enquired into the company’s affairs and that at a meeting of directors, the company has formed the opinion that the company will, in fact, be able to pay its debts in full within 12 months after the winding-up commencement. Making an incorrect statement of solvency is a serious issue. If a director fails to act with care and diligence or fails to inform themselves adequately of the company’s position before making a declaration of solvency, he/she may be found guilty of breaching his/her duty as director. This failure to act can result in the director being disqualified from acting as a director, incurring penalties of up to $220,000 and up to 5 years imprisonment.
Following a directors’ resolution, the shareholders of the company must make a special resolution to wind it up. The shareholders must be provided with 21 days’ notice in writing, and 75% of the votes cast by eligible shareholders must be in favour of the resolution. The winding up commences once the special resolution is passed. The procedure is as follows:
- the appointment of a liquidator and notice lodged with ASIC within 14 days of the appointment. In the circumstances of a Pty Ltd. company, a person who is not a registered company liquidator can carry out the liquidation;
- presentation of statements must be lodged within one month after the first six-month period from the date of the liquidator’s appointment; and
- the liquidator must lodge a notification of final meeting convened by the liquidator within seven days of the final meeting.
The role of a liquidator is as follows:
- to wind up the affairs of the Company;
- to distribute the Company’s assets among its creditors equitably; and
- to examine the circumstances before the liquidation and consider whether further inquiry is necessary.
On the appointment of a liquidator, the directors of the company no longer have control of the company.
Option 2 – Deregistration
Another option available to wind up a solvent company is to deregister the company if it is not currently carrying on business. You must be aware however that this option is available in limited circumstances.
To satisfy the requirements of deregistration, the following requirements must be met:
- all shareholders of the company must agree to the deregistration;
- the company assets must be worth less than $1,000;
- the company must have no outstanding liabilities which includes unpaid employee entitles;
- the company cannot be party to legal proceedings; and
- the company must have paid all fees and penalties under the Corporations Act 2001.
As you will note, the above requirements will limit many companies from simply deregistering their company. If however a deregistration is an option for you, the directors of the company must be able to declare that the above requirements are met and make an application to ASIC to voluntarily deregister the company. An application fee must also be paid.
If you believe your company is solvent and would like advice or assistance with winding up your company, contact our commercial lawyers.