If your business has ceased trading or if you are looking to wind down operations and cease business, there are a number of options which may be available to you. The first and most important step is to determine whether your company is solvent. A company will be considered solvent if it is in a position to pay all of its debts when they fall due for payment. 

One debt that is important to remember is the annual review fee payable to ASIC each year while your company is registered with ASIC (which will be the case until it is deregistered). The fee differs depending on the type of company, but currently, for private companies it is $273, and for public companies it is $1,267. 

Whether your company is solvent or insolvent will affect your options available for winding up. This article focuses on the options available if your company is solvent.

Option 1 – Deregistration

Deregistration is only available when a company is no longer carrying on business. The company also needs to meet other criteria set out below. As such, this option is available in limited circumstances only. If it is available, it is the preferred route to take. This is because it is generally quicker, easier and cheaper than undertaking a winding up.

To voluntarily deregister your company, the company:

  • have all shareholders agreeing to the deregistration;
  • cannot be carrying on business; 
  • must have assets worth less than $1,000;
  • must have no outstanding liabilities (this includes unpaid employee entitles);
  • cannot be a party to any legal proceedings; and
  • must have paid all fees and penalties to ASIC required to be paid under the Corporations Act 2001.

You should also ensure that the company’s tax and superannuation obligations are up to date.

Deregistration Application

If your company meets the above criteria, you must lodge an application for deregistration with ASIC (using Form 6010 and paying the filing fee). The application can be lodged by a:

  • director;
  • shareholder; or
  • liquidator (if one is appointed).

It can also be lodged by the company itself (i.e. by the Board). In this case, it must nominate a person to be given notice of the deregistration.

Within the application, the applicant must declare that they have met the requirements to deregister the company. Making a false or misleading statement to ASIC is a serious offence. It carries a maximum penalty of five years imprisonment. 

As such, you should seek legal advice if you are unsure whether any of the requirements have been met. At the least, you should undertake searches before applying for the deregistration to make sure you are adequately informed of the company’s position.

ASIC Notice

Once ASIC has received and accepted the application, it will publish notice of the proposed deregistration. After two months has passed, ASIC may deregister the company and give notice of this to the applicant or the person nominated by the company to receive notice. If ASIC believes the company to be unable to pay its debts, it may refuse to deregister the company and may instead order a winding up.

Once you have deregistered the company, it is no longer a legal entity, and the directors of the company cease to have ongoing obligations. This includes any obligations to file updates with ASIC. It is important to be aware that directors may continue to be liable for things the company did before they deregistered the company in certain circumstances.

One final point to be aware of in deregistration is that, if your company has any assets (even though they have a value of less than $1,000), you should deal with these before the company is deregistered. To the extent that assets remain in the company’s name, they will revert to the Commonwealth (if they are on trust) or otherwise to ASIC on deregistration.

Option 2 – Voluntary Winding Up

If your company does not meet the criteria set out above for deregistration, you will need to apply to ASIC to wind up the company. This process essentially involves: 

  • finalising the affairs of the company;
  • liquidating its assets; and
  • deregistering the company so that it is no longer a legal entity.

1. Directors Make a Declaration of Solvency

To commence this process, a majority of the directors need to make a declaration of solvency at a meeting of the Board. This means that the directors believe that the company will be able to pay all its debts in full within 12 months of commencing the winding up. 

To make this declaration of solvency, you need to complete Form 520 and lodged it with ASIC along with a statement of the company’s assets and liabilities at the latest practicable date before making the declaration.

As with the declaration required when deregistering a company, making a false or misleading statement to ASIC is a serious offence. You should obtain legal advice if you are not certain that the company is solvent.

2. Shareholders Approve the Winding Up

After lodging Form 520 with ASIC, the directors must either send out a notice of meeting or a circular resolution to shareholders to approve the winding up. Shareholders must have at least 21 days’ notice of the meeting unless they consent to shorter notice. For the resolution to pass, shareholders holding at least 75% of the voting shares of the company must approve it.

Once the resolution is passed, you need to lodge Form 205 with ASIC. It should set out the text of the resolution that the company passed. The date that the resolution passes is the date that the winding-up begins.

3. Appoint a Liquidator

The company must appoint one or more liquidators. The liquidator must lodge Form 505 with ASIC within 14 days advising of their appointment. By the end of the next business day after the liquidator is appointed, a notice of the resolution to wind up the company must be published on ASIC’s published notices website (a fee is payable to publish this notice). 

If the company is a private limited company (a Pty Ltd), a person who is not a registered company liquidator can carry out the liquidation. The role of a liquidator is to:

  • wind up the affairs of the company;
  • distribute the company’s assets among its creditors; and
  • examine the circumstances before the liquidation and consider whether further enquiry is necessary.

On the appointment of a liquidator, the directors of the company no longer have control of the company.

4. Liquidator Winds Up the Company’s Affairs

The liquidator carries out the process of winding down the affairs of the company. This involves selling off assets and paying creditors. The proceeds of sale which remain after creditors have been repaid are paid to shareholders in line with the winding-up provisions in the company’s constituent documents.

The liquidator is responsible for accurately valuing the company’s assets to ensure that its debts can be met as required. If at any point the liquidator believes that the company will be unable to pay its debts in full within 12 months, they have three options. They can:

  1. convene a meeting of creditors;
  2. appoint a voluntary administrator or
  3. apply to the court to wind up the company in insolvency.

On each anniversary of their appointment date, the liquidator must lodge Form 5602 with ASIC. This form must contain a list of receipts and payments incurred by the liquidator in administering the affairs of the company.

Within one month after the end of the winding-up, the liquidator must lodge Form 5603 with ASIC and a further Form 505 notifying ASIC of the cessation of the liquidator’s appointment.

5. Deregistration of the Company

The company will automatically be deregistered three months after Form 5603 has been lodged with ASIC. At this point, the company ceases to exist. 

Key Takeaways

If your company is solvent, there are two methods for winding it up. The first is to undertake the steps of deregistering your company with ASIC. Alternatively, you could have the wound up. Both of these processes involve a number of complicated steps, so it is important you understand your legal obligations. If you have any questions about winding up your solvent company, contact LegalVision’s insolvency and restructuring lawyers on 1300 544 755 or fill out the form on this page.

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