What is involved in winding up a business?

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Table of Contents

• Voluntary Deregistration
• Winding up a solvent company
• Conclusion

You may decide for a number of reasons that you no longer want to, or can no longer run your company. A company that is registered with ASIC will need to be deregistered or wound up to be removed from the ASIC register. Whether a company can be deregistered or wound-up will depend on its individual circumstances.

In winding up a business, the first question you need to ask yourself as a business owner or director would be “is the company solvent?”. A company is solvent if it can pay all debts when they fall due for payment. A company is insolvent if it is unable to pay all debts when they fall due for payment. For more information on Insolvency see http://asic.gov.au/regulatory-resources/insolvency/insolvency-information-sheets/

If the company is insolvent, as a director of business owner you have many duties including the obligation not to trade while insolvent, and the duty to keep adequate financial records. If you believe your company is insolvent, you should seek accounting and legal advice as soon as possible.

If the company is solvent, there are two options available. It can either be voluntarily deregistered, or it can be voluntarily wound up.

Voluntary Deregistration

To voluntarily deregister your company, it will need to meet a few requirements. These are:

1. all members (shareholders) of the company must agree;
2. the company is not carrying on business;
3. the company assets must be worth less than $1,000;
4. the company does not have outstanding debts;
5. the company is not a party to any legal proceedings; and
6. the company has paid all fees and penalties under the Corporations Act.

You will need to be able to declare that all of these requirements have been met. If the company holds any licenses or intellectual property, you may want to consider disposing of this prior to deregistering the company. Once the company has met all of the above requirements, and ASIC has been notified, the company will be deregistered and its ASIC company register will be changed to ‘deregistered’. At this stage, the company will no longer be able to trade or take action as a body corporate.

Winding up a solvent company

Sometimes a company will fail to meet some of the requirements outlined above to deregister voluntarily. In those circumstances, the company shareholders can decide to wind up the solvent company under s491 of the Corporations Act. The company must meet the following requirements:

1. The directors of the company need to make a solvency declaration. This is a declaration that the company will be able to pay its debts within 12 months after the commencement of the winding-up.
2. The shareholders of the company need to pass a special resolution to wind up the company. A special resolution requires a majority of 75% of the shareholders to agree to the winding-up.
3. The shareholders can then appoint a liquidator to take control of the affairs of the company. The advantage of this is that the shareholders can fix the remuneration of the liquidator and supervise their conduct.

If neither of the above options is possible due to your company’s circumstances, you could also consider simply not operating the company. That said, the company will still need to meet all of the ASIC requirements, and if you are a director, you will still be liable for the company. Another option is selling your share in the company to one of the current shareholders or a third party.

Conclusion

Please contact us on 1300 544 755 if you would like advice on your individual circumstances or would like assistance in deregistering or winding up a business, we’d be delighted to assist you.