You may decide to dissolve your business for a number of reasons such as bankruptcy, loss of profits, obtaining fund, investing in other business opportunities and inability to attain synergy. There may be other factors too that may compel you to shut down your business. Whatever be the reason, if you are closing down your business, you should foremost initiate steps to deregister your business since your company will cease to exist only upon deregistration.

Methods to Deregister Your Company

Your company may be deregistered in any of the following methods:

(a) By way of a members’ voluntary winding-up: The members of a company may initiate steps to obtain a winding up Order from the Court or the appropriate authority, appoint liquidator(s) to realise the company’s assets, cease the company’s operation, pay off the debts, if any to all the creditors and distribute the surplus assets among its members; and

(b) Australian Securities & Investment Commission’s (ASIC) voluntary deregistration: A company may apply to the ASIC to voluntarily deregister it provided the company meets the following legal requirements that:

  • (i) All the members agree to deregister;
  • (ii) The company is not carrying on business;
  • (iii) The worth of the company’s assets are less than $1,000;
  • (iv) The company has no outstanding liabilities which include unpaid employee entitlements such as annual leave, long service leave, redundancy pay or wages;
  • (v) The company is not a party to any legal proceeding; and
  • (vi) The company has paid all fees and penalties payable under the Corporations Act 2001 (the Corporations Act).

Process of Members’ Voluntary Winding-up of a Solvent Company

The process to dissolve business through members’ voluntary winding-up despite your company being solvent, involves the following stages:

(a) The first stage begins with a written declaration from the majority Directors of a company, often referred to as ‘solvency declaration’. The declaration contains the Directors’ inquiry into the company’s affairs and the company’s ability to pay its entire debts within 12 months after commencement of the winding up. 

(b) In the second stage the Directors need to pass a special resolution to wind-up the company after the solvency declaration has been made. As per Section 491 of the Corporations Act, a company may be wound up voluntarily if the company so resolves by a special resolution. In that case, the company must:

  • (i) Lodge a printed copy of the resolution with the ASIC within 7 days after the passing of the resolution to voluntary winding up; and
  • (ii) Cause a notice to be published in the prescribed manner setting out the required information with regard to the resolution.

(c) The last stage involves the appointment of liquidator by the members for managing the affairs of the company and realise the company’s assets.

Process of ASIC Initiated Winding Up

The ASIC may initiate to wind-up your company when your company has failed to:

  • (a) Pay its annual review fee for at least 12 months after the due date of payment; or
  • (b) Respond to the return of particulars at least 6 months after the response was required to be made; or
  • (c) Lodge any other document in the last 18 months; or
  • (d) The ASIC has no reason to believe that your company is carrying on the business.

For the purpose of deregistration, the ASIC will:

  • (a) Give a notice of deregistration to your company or to its Directors or to the liquidator, if any, or publish the notice on the ASIC’s database;
  • (b) Publish a notice in the prescribed manner; and
  • (c) Deregister your company within two months after the notice is published.

Insurance Proceeds upon Dissolution

Sections 471 B and 500(2) of the Corporations Act prohibit a person from initiating a claim proceeding against a company in liquidation except with the leave of the Courtdepending on the fact that whether the company is being wound up voluntarily or is under compulsory liquidation. If the person’s claim stands successful, then any insurance money received by your company or paid to the liquidator by your insurer would be paid directly to the insured party in priority to all unsecured debts and claims as provided in Section 556 of the Act. Section 601 AG of the Corporations Act enables a person to recover an amount from your company’s insurer if:

  • (a) that amount was payable to your company under the insurance contract;
  • (b) your company has a liability to that person; and
  • (c) the liability is covered by the insurance contract immediately before the deregistration of your company.

Our experts at Owen Hodge Lawyers, including specialist Sydney-based bankruptcy lawyers can guide you in the dissolution process suitable for your business structure.

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