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Money / Financial management

Goodbye: How to correctly end your company

Winding up a company can be a complex and daunting process. These tips will keep you one step ahead.

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End it properly, or pay

As director of your company, it’s your duty to ensure that it’s not trading in insolvency. If you don’t satisfy this duty, you may become personally liable for some of your company’s debt.

Moreover, if you’ve been involved with two or more liquidated companies within seven years, you may also face lengthy disqualifications imposed by ASIC, restricting you from managing or directing a company for up to five years. There is also the potential for civil penalties, compensation proceedings and criminal charges. 

Two ways to end your Pty Ltd

Deregistration

The simplest process for ending a company is to apply to ASIC for deregistration, whereupon your company will cease to exist. Among other things, this process requires that your company no longer carries on business, has assets of less than $1,000.00 and has no outstanding liabilities.

"As you can see, concluding your Pty Ltd is not as easy as dropping everything and walking away."

These circumstances are not likely to be present in the majority of instances, primarily because a company facing insolvency will often have outstanding liabilities beyond which there is equity/money available in the company to cover. 

Administration

Administration involves the appointment of an external administrator who takes full control of the company for the purpose of investigating the company’s affairs and recommending whether it should: enter into a deed of company arrangements, go into liquidation or be returned to the normal control of the directors.

If your company is in financial difficulty, entering into administration, whether voluntary or otherwise is not a totally fatal process to your operations; though it is often the first step towards its conclusion.

Administration allows you some respite while your company’s future direction is resolved, but there are fees associated with appointing an administrator, and they are often paid as a priority over secured creditors, employees or shareholders. 

Want more articles like this? Check out the financial management section.

Three ways others can end your Pty Ltd

Liquidation/Winding-Up

The liquidation or winding-up of your company involves the appointment of a liquidator who will conclude the operations and cause your assets to be realised (sold). The proceeds from the realisation/sale of a company’s assets are then applied to renumerate the liquidator, creditors (including employees) and shareholders; usually in that order. After this process, the liquidator can then apply to have your company deregistered. While your company may be voluntarily wound-up, in certain circumstances the creditors or even ASIC may also apply to the court to have it wound-up. This process is conclusive.

Receivership

Where a secured creditor of your company holds security over some or all of your company’s assets, he or she may appoint a receiver. The receiver’s primary role in the receivership process is to gather and sell enough of the companies ‘charged’ assets to cover the debt owed to the secured creditor. This means that unsecured creditors, including employees, are only paid out as a priority after the secured creditor.

Administration

In certain circumstances, the administration process described above can also be initiated by third parties. 

Walking away

As you can see, concluding your Pty Ltd is not as easy as dropping everything and walking away. Accordingly, it is always prudent to seek expert advice in situations where your company is facing financial difficulty.

This article provides generalisations of the existing processes for ending a company, for more comprehensive information, visit this ASIC page.

If you’ve had to end a company, share your further tips here. 

Adam Dimac

holds a bachelor of laws with honours and is an Assistant Adviser with Avenue Solutions.

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