Should You Deregister or Liquidate?
When a company stops trading, it is up to the director to deal with it correctly. Otherwise, it will sit dormant and accumulate fees. There are several ways to close your company. The best option depends on the current financial position of your company. For instance, is your company solvent or insolvent? Does it still have valuable assets? In this article, we run through the options, so you can make a decision whether to deregister or enter liquidation.
If Your Company is Solvent
(it has or can pay its debts)
Voluntarily deregister your company
If you have stopped trading and simply want to close the company, you can apply to have it deregistered. To deregister your company, it must have no assets or debts. If your company fits the criteria, you can apply for voluntary deregistration of your company using ASIC Form 6010. The form can be found on the Australian Securities and Investments Commission website and requires you to make the following declaration:
- All members of the company agree to the deregistration; and
- the company is not carrying on business; and
- the company’s assets are worth less than $1000; and
- the company has paid all fees and penalties payable under the Corporations Act; and
- the company has no outstanding liabilities; and
- the company is not a party to any legal proceedings.
There are other options for you if your company falls outside of these criteria. It’s important to find the most suitable solution as ASIC may prosecute you for making a false declaration.
Deregistering your company can save you from having to pay annual registration and administration fees for your company. Before you apply to deregister, you also need to cancel any additional licenses you needed to operate such as an Australian Financial Services Licence (AFSL) or an Australian Credit Licence (ACL).
Members Voluntary Liquidation
If your company doesn’t fit the criteria for a voluntary deregistration, a members voluntary liquidation is a better way to proceed. For example, you may still have assets to distribute or potential tax benefits that can be realised.
The benefits of a members voluntary liquidation include:
- It’s cost-effective; a straightforward engagement can cost as little as $4,000.
- An independent professional is responsible for the legal process and dealing with shareholders, avoiding the potential tax and legal risks and disputes.
- Tax benefits can be realised for shareholders, primarily by accessing the small business CGT concessions or the distribution of pre-capital gains tax reserves.
- It provides comfort to directors as the company’s affairs have been properly wound up. Therefore there is a limited risk of any issues later arising.
The voluntary liquidation process involves:
- The directors declaring the company’s solvency and completing an ASIC Form 520.
- The shareholders passing a resolution to wind up the company.
- An independent person appointed as liquidator to:
- Realise any remaining assets and pay any liabilities;
- Distribute any surplus property to the company’s shareholders;
- Finalise the company’s tax affairs; and
- Finalise the liquidation and apply to ASIC to deregister the company.
If Your Company is Insolvent
(meaning it can’t pay all of its debts)
If your company is insolvent there are some other options for you to consider.
For an insolvent company, undertaking a creditors voluntary liquidation can be the best option. However, if the company or its directors cannot afford to appoint a liquidator, it may come to an end in one of two ways.
ASIC-initiated deregistration
A company does not need to be insolvent in order for ASIC to deregister it, however, this is often the case. ASIC will deregister the company if it fails to pay its Annual Return fee for 12 months or fails to reply to a compliance notice within 6 months. Further information is available here.
Court liquidation
A creditor may file a winding-up application at court to wind up a company through court liquidation. This process begins when the creditor issues a statutory demand to the company’s registered office, or through a judgement at court.
The Australian Taxation Office may still issue a director penalty notice even if a company has been deregistered or is in liquidation.
A company can be reinstated, even if it has previously been deregistered. The options for company reinstatement include applying to ASIC or an application to the court. These methods can be time consuming and expensive.
The Next Steps
Looking to close your company but still unsure whether to deregister or liquidate? We are happy to talk through the above options or assist with a voluntary liquidation to close your company.
Complete our Instant Online Assessment to learn about your options. If your business uses XERO for its accounting, you can receive an instant score and suggested actions based on your personal situation, using our free Business Viability Tool. Alternatively, speak to one of the team now on 1800 861 247 or via our contact form for professional, and non-judgemental advice.
