How to wind down a company
An exit strategy is an important part of every business plan and when it finally comes down to shutting up shop, it is important to understand that it is not as easy as just simply walking away. By having an understanding of the legal requirements, this will assist you in successfully closing down your company.
There are two ways in which a company can be wound down and can be done by either:
- applying to the Australian Securities and Investments Commission (ASIC) to voluntarily deregister the company; or
- a members’ voluntary “winding up” (closing down) of a solvent company.
The availability of these two methods will depend on whether the company is still carrying on with a business and the size of the company’s assets.
Voluntary deregistration is perhaps the most straightforward manner in which you can close your company and initiating an action can be done by either the company, a director, or a member, all of who can apply to ASIC to deregister (and consequentially extinguish) the company.
However, this option will not be available to all companies. ASIC will only deregister a company if:
- all members agree to deregister;
- the company is not carrying on business;
- the company’s assets are worth less than $1000;
- the company has no outstanding liabilities;
- the company is not a party to any legal proceedings; and
- the company has paid all fees and penalties owed under the Corporations Act 2001 (Cth).
The voluntary deregistration requirements demonstrate that this option will only be open to a dormant company in which all members are of the belief that the company should be wound up.
The form for Deregistering a company with ASIC, can be found here.
Winding up a solvent company
Winding up a solvent company is a bit more complex, but a more realistic option for larger businesses that still has some affairs. The winding up of a solvent company is initiated by the members of the company and requires the directors to pass a resolution that the company will be able to pay all its debts in full within 12 months.
A company wishing to initiate an action of winding up, will usually appoint a registered liquidator to take control of the company’s affairs, along with the distributing of any assets the company may still hold (although this is not strictly required in the case of a proprietary company).
Owing to the risk of penalties under the Corporations Act 2001, it would be prudent to seek advice from a lawyer on whether your company is eligible for the more simplified voluntary deregistration. If not, you will almost certainly require legal assistance in navigating the legal requirements of a members’ winding up under the Corporations Act 2001.
Upon deregistration, all of the company’s assets becomes the property of ASIC (which include easily overlooked items like intellectual property or accounts), so it is vital that you are absolutely prepared to undertake the action of deregistering your company.