There are plenty of legitimate reasons to wind up your business. If the company has been sold, reached the end of its life, or if your priorities have changed, it may be time to deregister the company and streamline your responsibilities.
There are several options available, and it’s important to work with an insolvency practitioner to ensure your obligations are met and that the company is wound up properly.
In this article, we’ll discuss why you may want to deregister a company, as well as the options available to you in Australia.
What Happens When a Company is Deregistered?
When a company is deregistered, it is removed from ASIC’s register of companies and ceases to exist as a legal entity. Once a company is deregistered:
- Company officeholders no longer have a right to deal with company property
- New legal proceedings against the company cannot be commenced
- Ongoing legal proceedings to which the company is a party cannot be continued (except in limited circumstances)
- The remaining property the company owns is vested in ASIC
While there are some exceptions, deregistering a company is a final solution that winds up all trade, assets, liabilities and legal proceedings.
You should seek professional advice before deregistering a company. There are several options available, and it’s important to select the right tool to ensure all obligations are met.
Reasons for Deregistering a Company
Companies don’t last forever. If your business has evolved, changed hands, ceased trading or is no longer needed, it may be time to deregister. The directors, members and shareholders may decide to deregister a company:
- If the company is no longer trading (e.g. if it has satisfied its original purpose and has closed down)
- Due to poor financial performance
- To pursue other interests (e.g. the sole director of a company retires)
- During a merger or takeover
- The shareholders no longer want to continue the business (e.g. where a family business passes onto the next generation)
Should I Deregister or Liquidate a Company?
There are a few options available to directors when a company reaches the end of its life. In some cases, you can opt to voluntarily deregister or liquidate the company.
Choosing between your options generally comes down to the company’s financial position, liabilities and whether it is subject to any outstanding legal proceedings. To keep things simple, we have broken the options into two categories: solvent and insolvent companies.
If the Company is Solvent
Voluntarily Deregistering a Company
A solvent company has the option to apply for voluntary deregistration with ASIC.
Voluntary deregistration is exactly what it sounds like. If your application is successful, the company ceases to exist and your obligations as a company officeholder cease.
The process requires that you lodge an application with ASIC. ASIC will only accept your application if the company meets all the following criteria:
- All members must agree to the deregistration
- The company cannot be carrying on business
- The company’s assets must be worth less than $1,000
- The company must have no outstanding liabilities (such as employee leave entitlements)
- The company must not be involved in any legal proceedings
- The company must pay all fees and penalties payable to ASIC
These criteria are strict and can be difficult to meet for many companies. As a consequence, voluntary deregistration is best suited to small companies with little or no assets and liabilities.
Members Voluntary Liquidation
If your company is solvent but does not meet the criteria for voluntary deregistration, the directors can opt for a Members’ Voluntary Liquidation (MVL).
An MVL allows a solvent company to be liquidated and deregistered in an orderly manner. To be eligible for an MVL, the company must be able to meet all its debts and obligations within 12 months of commencing the winding up process.
Members’ Voluntary Liquidation is the better option for many companies. MVL provides greater flexibility to wind up solvent companies that:
- Are carrying on business
- Have assets worth more than $1,000
- Are involved in ongoing legal matters
During an MVL, a Liquidator is appointed to take control of the company and its assets. The Liquidator will realise any remaining assets and distribute them in accordance with the Tax Administration Act 1953. Once this process is complete, the company is deregistered and ceases to exist.
If the Company is Insolvent
Creditors’ Voluntary Liquidation
Insolvent companies are not eligible for voluntary deregistration or MVL. Instead, insolvent companies can opt for a Creditors’ Voluntary Liquidation (CVL).
A CVL allows insolvent companies to appoint a Liquidator and wind up the company without the need for creditor or Court intervention.
If the directors, members and shareholders of a company determine that the business is insolvent, they can vote to approve a CVL. If the majority of the members agree, a Liquidator is appointed and the company is wound up in liquidation.
Creditors’ Voluntary Liquidation is available to companies that:
- Are insolvent
- Are actively trading
- Have outstanding debts and liabilities
- Have any amount of assets
- Are subject to ongoing matters
During a CVL, the Liquidator will investigate why the company has failed, realise assets and distribute any monies to creditors. Once the process is complete, the company is deregistered and ceases to exist.
The major advantage of a CVL is that it allows directors to control when and how the company is placed in liquidation.
Rather than waiting for creditors to apply to the Court, you can resolve to appoint a Liquidator. This may improve outcomes for employees, avoid insolvent trading claims, and provide a reprieve from legal action (such as creditors pursuing you for debts).
Wind Up Your Company with Advice from Business Savers!
There are dozens of reasons to wind up an ongoing company. If your business has reached the end of its life, voluntary deregistration, members’ voluntary liquidation, or creditors’ voluntary liquidation are all viable solutions.
It’s important to consider your company’s position before commencing winding up. Outstanding liabilities, taxes and legal matters will all influence which option is the best for you, and it’s important to ensure your obligations as a Company Director have been met.
We strongly recommend booking a consultation with Business Savers before making a decision. We’re a team of experienced, Registered Liquidators with expertise in managing the liquidation and winding up of companies. That means we can assess your situation and provide advice on the best solution for your situation.
Contact us online to book a consultation, or give us a call if you are ready to wind up your business and need more information!
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