How do I wind up a company
Posted 23 Dec 16 by Trudy Hickey
Dissolving redundant entities within your corporate structure can save compliance costs and open the door to taxation benefits.
It is important to understand the ways in which a solvent entity can be wound up, and why a members’ voluntary liquidation is considered a more decisive termination of a company.
How do I wind up a solvent company?
If you have identified that a company is no longer required, you can take action to have the company deregistered with the Australian Securities and Investments Commission (ASIC).
There are two options:
- Undertake a ‘strike off’ procedure; or
- Undertake a Members’ Voluntary Liquidation (MVL).
What is involved in a ‘Strike Off’ procedure?
An application to strike off a company is made by lodging a Form 6010 with ASIC and payment of the applicable fee.
An application can only be made if ALL of the following conditions are met:
- all members agree to the deregistration; and
- the company is not carrying on business; and
- company’s assets are worth less than $1,000; and
- the company has paid all fees and penalties payable under the Corporations Act 2001; and
- the company has no outstanding liabilities; and
- the company is not a party to any legal proceedings.
What is involved in a MVL?
The MVL process is governed by the Corporations Act 2001 and enables a company to be wound up, provided it is solvent and therefore able to pay its debts in full within 12 months after the commencement of the winding up.
A summary of the MVL process is as follows:
- Directors resolve that the company’s affairs be wound up voluntarily and prepare a declaration of solvency, to be lodged with ASIC, listing all assets and liabilities.
- A Liquidator is selected, consents to act, and assumes control of the company’s affairs.
- Company property is realised and the Liquidator advertises a notice in the ASIC Published Notices inviting formal claims from creditors.
- The Liquidator liaises with the Australian Taxation Office to receive tax clearance.
- Debts are paid, and any surplus is paid as prescribed by the company’s Memorandum and Articles.
- The Liquidator holds a final meeting of the members of the company.
- Documentation is lodged with ASIC and the company is automatically deregistered after 3 months.
What to consider when deciding: Strike off vs. MVL
If your company is ineligible to adopt a ‘strike off’ procedure it must undertake a MVL to wind up its affairs.
If you have the freedom to choose, a MVL is often recommended by Liquidators as the MVL process provides a higher level of assurance that the company will not be reinstated.
By advertising for potential creditors’ claims, liabilities are dealt with during the liquidation. This is particularly important for businesses that have operated in a high risk industry or where warranty claims may be present.
During a MVL there is an efficient and orderly realisation of assets, and an independent distribution of net realisable assets to shareholders.
A key benefit is that the MVL process often utilises available franking credits or provides access to tax free dividends that would otherwise be lost by the deregistration of the Company.
With the costs of the liquidation tax deductible, if invoiced to and paid by the shareholders of the company, it is very often worth the investment in a MVL for peace of mind.
The discussion provided above with regard to winding up a solvent company is general commentary only. Specific advice should be obtained before entering into any wind up action to ensure the correct procedures are applied. PKF would be more than happy to assist in this regard.