Dissolving a Company

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There are a number of reasons for dissolving a company. You may decide to dissolve your business due to bankruptcy, loss of profits, obtaining funds, investing in other business opportunities or an inability to attain synergy. There may also be other factors that compel you to shut down your business.

No matter the reason for dissolving a company, if you are closing down your business you should firstly deregister your business as it will cease to exist only upon deregistration. Should you require assistance on how to dissolve a company in Australia, please contact our commercial lawyers at Owen Hodge.

Ways to deregister a 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 outstanding debts, if any to all the creditors and distribute the surplus assets among its members.

(b) Australian Securities & Investment Commission’s (ASIC) voluntary deregistration:

A company may apply to the ASIC to voluntarily deregister,  provided the company meets the following legal requirements for dissolving a company such as:

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

The process of members’ voluntary winding-up of a solvent company

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

Solvency declaration

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 debts within 12 months of starting the winding up process.

Special resolution

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:

  1. Lodge a printed copy of the resolution with the ASIC within 7 days after passing the special resolution; and
  2. Cause a notice to be published in the prescribed manner setting out the required information with regard to the resolution.

Asset realisation

In the final stage, a liquidator is appointed by the members for managing the affairs of the company and realising the company’s assets.

Process of ASIC initiated winding up

In some cases, dissolving a company may be considered compulsory where the matters of insolvency is involved. For example, the ASIC may initiate to wind-up your company when your company has failed to:

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

For the purpose of deregistration, the ASIC will:

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

If you have found yourself in such a situation and require guidance, please contact our insolvency lawyers.

Insurance proceeds upon dissolving a company

When it comes to dissolving a company, sections 471 B and 500(2) of the Corporations Act prohibit a person from initiating a claim proceeding against a company in liquidation. This is with the exception of the Court’s decision, depending on 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:

  1. that amount was payable to your company under the insurance contract;
  2. your company has a liability to that person; and
  3. the liability is covered by the insurance contract immediately before the deregistration of your company.

The experts at Owen Hodge Lawyers are here to guide you through company dissolution. With a team of specialists, including business support lawyers, we can help you in the process of dissolving a company based on your type of business structure. Contact us now for more information on how to get started.

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