Winding-Up a Company
What are your options?
We are often asked how to wind-up a company. The answer depends on the financial and operational position of the company. We’ve outlined below the various issues to consider and the options available to wind-up a company’s affairs.
Practical Aspects of ceasing to trade
In some cases you will have realised that your business is no longer viable. If a business is making losses and there is no reasonable prospect of returning to profitability then a director should cease to trade the business immediately. Why? Because the law requires it! There is a law about Insolvent Trading which, put simply, says that if a company is insolvent and it incurs new debts, then a director can be personally liable for those new debts. So that is a bad thing to do financially, but it can also be a criminal offence. We’ve got more information on that topic here: Insolvent Trading .
Assuming you have decided to wind-up the affairs of the company then you need to distinguish between its “business” and the company itself. The “business” is the operations that are performed within the company.
Generally, you need to cease to trade the business then separately need to wind-up the affairs of the company. Ceasing to trade the business is essentially a practical exercise:
- Shut the doors;
- Stop buying new stock;
- Terminate the employment of staff;
- Notify the landlord;
- Notify creditors;
- Sell the remaining assets (and bank the proceeds to the company bank account).
You can either:
Appoint a Liquidator to wind up the trading operations and the company.
The advantage of appointing a liquidator is that the liquidator immediately lifts the burden of dealing with the issues from your shoulders. As soon as you appoint the liquidator, he takes control of all matters.
Cease to Trade yourself and then appoint a Liquidator.
You might do this if you considered it likely that all creditors will be paid in full and if you are confident in your ability to perform the above steps. If you do this yourself, it will minimise the work to be done by the liquidator and thus the costs involved.
If you’ve done the above yourself and there is money in the company’s bank account BUT it is insufficient to pay all creditors in full, then we recommend you appoint a liquidator. A liquidator can perform an orderly process under the Corporations Law, to finalise the affairs of the business, notify creditors and pay a dividend to creditors in accordance with their statutory priority of payment.
After you’ve ceased to trade – what to do with the company
If you’ve ceased to trade yourself, and not all creditors can be paid, then you need to deal with the company itself. It is preferable for you to Appoint a Liquidator because, if you don’t, the company will continue to exist, creditors will continue to hassle the directors, and the ATO will continually send Notices requiring action.
Liquidation of a Company
Placing a company into liquidation can be initiated a number of ways. The easiest is for the directors and shareholders to appoint a liquidator by either initiating a Creditors Voluntary Liquidation, for insolvent companies, or a Members Voluntary Liquidation, for solvent companies.
If you’ve ceased to trade and all debts of the company have been paid, including the tax debts, then the easiest and cheapest option to wind-up a company is to apply for its Deregistration. The simple criteria is that:
- The company has less than $1,000 of assets (we’d suggest all assets be sold or disposed of so the company has no assets);
- No liabilities;
- All directors and shareholders are in agreement
If the above applies to your company then a Deregistration is cheap and easy. Dissolve can help you do that but it is so easy we suggest you do it yourself. Just go to the regulators website and search for Deregistration and you will find the relevant forms to complete and lodge.
]If the above advice has not answered your questions you might want to review the following pages and downloadable Information Sheets:
- Pre-liquidation Checklist for directors
- Why liquidate your company at all?
- Sale of Assets
- Appoint a liquidator
- Guide to Solvent Company Liquidations
If you would like to learn more about Liquidation, please access our full Liquidation guide created by Dissolve’s specialists explaining this in detail.