When your company stops trading, it’s up to you as the director to decide what to do with it. If you do nothing, it will accumulate fees.
There are a few different ways for you to close your company – we’ll go through them with you in this article.
Start by asking yourself: “Is my company solvent?” That is, can it pay its debts?
My company is solvent
If your company can pay its debts (or it has already paid its debts), you can choose:
voluntary deregistration
members voluntary liquidation.
Voluntary deregistration
Deregistering your company can save you from having to pay annual registration and administration fees. You can apply to have your company deregistered if:
you’ve stopped trading and you simply want to close the company
you have no assets or debts.
How to undertake voluntary deregistration
Before you apply to deregister, ensure your company’s affairs are finalised because, once deregistered, the company can’t exercise any authority or sign documents. This can include:
transferring vehicles and other assets
submitting ATO lodgements
cancelling registrations or licences.
To apply for voluntary deregistration of your company, fill in a Form 6010 application for voluntary deregistration of a company on the Australian Securities and Investments Commission (ASIC) website.
The ASIC 6010 form requires you to declare the following:
a) All members of the company agree to the deregistration; and
b) the company is not carrying on business; and
c) the company’s assets are worth less than $1000; and
d) the company has paid all fees and penalties payable under the Corporations Act; and
e) the company has no outstanding liabilities; and
f) the company is not a party to any legal proceedings.
It’s important for you to know that ASIC may prosecute you if you make a false declaration. If your company doesn’t meet these criteria, there are other solutions available.
Members voluntary liquidation
So, your company doesn’t tick the boxes for a voluntary deregistration – perhaps you still have assets to distribute or tax benefits that can be realised. If this is the case, a members voluntary liquidation is a better way to go.
A members voluntary liquidation (MVL) is a formal way to wind up a solvent company. To undertake an MVL, your company must:
be able to pay its debts
have all tax lodgements up to date.
How to undertake a members voluntary liquidation
Once your accountant has calculated the potential tax savings for your company, contact us to help prepare for the appointment. We’ll provide a preparation checklist and draft:
all forms for you to complete, including a Form 520 declaration of solvency
the appropriate notices to hold a shareholders’ meeting to pass a resolution to wind up the company.
A liquidator must be appointed to:
finalise the company’s tax affairs
realise any remaining assets and pay any liabilities
distribute any surplus property to the company’s shareholders
finalise the liquidation and apply to ASIC to deregister the company.
The benefits
Here are some of the advantages of an MVL:
It’s reasonably priced and can cost as little as $6,000.
Because an independent professional (the liquidator) is responsible for the legal process and dealing with shareholders, you avoid the potential tax and legal risks and disputes.
There can be tax benefits for shareholders, primarily by accessing the small business capital gains tax concessions or the distribution of pre-capital gains tax reserves.
You can rest easier because your company’s affairs have been properly wound up, minimising the risk of issues arising down the track.
My company is insolvent
If your company can’t pay all its debts and you don’t want to save it, your best option can be to undertake:
creditors voluntary liquidation.
If your company or its directors can’t afford to appoint a liquidator, it may be finalised via:
ASIC-initiated deregistration
court liquidation.
Creditors voluntary liquidation
Although it’s called a creditors voluntary liquidation, this liquidation is actually initiated by the shareholders of a company, who acknowledge that the business can’t pay its debts in full and is no longer sustainable.
A liquidator for a creditors voluntary liquidation will:
wind down the company’s affairs
communicate with creditors
collect and sell any remaining assets
investigate the company’s affairs and report the findings to creditors and ASIC
take any further necessary steps, such as pursuing legal recovery claims
distribute any surplus property to the company’s creditors
finalise the liquidation and apply to ASIC to deregister the company.
ASIC-initiated deregistration
Your company will be deregistered by ASIC if it:
hasn’t paid its annual review fee within 12 months of the due date;
hasn’t responded to a compliance notice within six months, hasn’t lodged any documents in 18 months, and ASIC thinks it’s not in business; or
is being wound up and there is no liquidator.
It’s important to note that the Australian Taxation Office ATO may still issue a director penalty notice, which makes you as a director personally liable for outstanding GST, PAYG or superannuation, even if your company has been deregistered.
You can find out more about how an ASIC-initiated deregistration works on the ASIC website.
Court liquidation
A creditor may file a winding-up application at court hoping to force your company into liquidation.
If the debt is not disputed:
the creditor can serve a statutory demand on your company, giving 21 days to pay the debt.
If the debt is genuinely disputed:
the creditor will have to first apply to court to get a judgement before serving the statutory demand.
If your company fails to pay the money demanded in the statutory demand, the creditor can then make an application to the court to have your company wound up.
A company can be reinstated, even if it has previously been deregistered. The options for company reinstatement include applying to ASIC, which can take up to two months, or an application to the court. These methods can be time consuming and expensive.
Still have questions?
If you intend to close your company but you still have questions about liquidation or deregistration, get in touch with our team today. We’re happy to walk you through the options.
