If you have a company and want to cease operating the company you could either deregister the company or wind up the company. By deregistering a company, you do not have to continue your obligations as an officeholder (director or secretary etc.). However, this option is not available if the company has assets over $1,000 or if the company is insolvent. If you do not meet this test, and the company is solvent, you can wind up the company.
Winding up is the process of selling all the assets of the company, paying creditors, distributing any remaining assets to the shareholders, and then dissolving the company. After a wind up has completed, the company will cease to exist.
Winding up a solvent company
The following steps are involved in winding up of a solvent company:
Step 1: Directors must make a declaration of solvency;
Step 2: Company members must pass a special resolution;
Step 3: Notice of the Special Resolution must be passed on the Published notices website;
Step 4: Liquidator winds up the company’s affairs;
Step 5: Liquidator finishes winding up company and lodges financial documents.
Winding up an insolvent company
On the other hand, if a company is insolvent a Court has the power to wind up the company and appoint a liquidator. A company itself may also elect to place itself under Voluntary Administration which would place control of the company over to a registered liquidator. A creditor with a debt over $2,000 can also apply to the Court to wind up the company and appoint a liquidator.
If the Court is satisfied all procedural requirements have been complied with and the company is insolvent, a liquidator can be appointed. A creditor can also appoint a liquidator of their choice, however, their appointment can be challenged on certain grounds.
Liquidation involves a registered liquidator taking control of the company. Liquidators have an obligation to ensure that creditors are treated fairly as part of the liquidation.
While a company is insolvent, it must not trade or continue conducting business as usual. Insolvent trading could lead to civil penalties or criminal charges under the Corporations Act.
If you need help understanding your position and current options available to your company, or if you want to apply to have a company wound up, contact the Sydney insolvency lawyers at Rockliff Snelgrove Lawyers so we discuss the options available to you so you can make an informed decision. We have over 40 years of experience in all types of insolvency law and can advise you on all aspects of liquidation and the winding up of a company.