How to Voluntarily Wind-Up a Business  

In some circumstances, members of a solvent company may decide to wind-up the company. This process is governed by the Corporations Act 2001 (Cth). Different processes apply where a company is insolvent.

Before winding-up a company, members should consider whether they should simply deregister the company rather than wind-up. Deregistration can only take place if specific requirements are met. In particular, all members of the company must agree to deregister. The company must not be not carrying on business and its assets must be worth less than $1000. The company must have paid any fees or penalties under the Corporations Act , cannot have any outstanding liabilities and cannot be a party to any legal proceedings. Where all of these requirements are met, an application to deregister the company can be lodged.

If the members of a solvent company voluntarily decide to wind-up the company rather than simply deregister it, the following process applies.

1. Solvency Declaration  

First of all, the directors of the company must make a written solvency declaration in the prescribed form (Form 520). The declaration must state, firstly, that the directors made an inquiry into the affairs of the company and, secondly, that at a meeting of directors they formed the opinion that the company will be able to pay all of its debts in full within twelve months after the commencement of the winding up. Form 520 must be lodged with the Australian Securities and Investments Commission (ASIC) before the date on which notices are sent out of the meeting at which the resolution for the winding up of the company is to be proposed.

It is important that directors make the solvency declaration honestly. If it is later found that a director did not have reasonable grounds for making the solvency declaration, the director may be found guilty of an offence under the Corporations Act and may face either a fine and/or imprisonment.

The voluntary winding-up process does not apply to companies that are insolvent. A company cannot be voluntarily wound up if an application for the company to be wound up as insolvent has been filed in a court, or if a court has already ordered that the company be wound up unless leave of the court is obtained.

2. Special Resolution  

After making the solvency declaration, there must be a meeting at which a special resolution for the winding up of the business is passed. The resolution must be passed within five weeks of the date of making the solvency declaration. A special resolution requires that there be at least 21 days notice of the meeting and a 75% majority of eligible voters who vote at the meeting.

Within seven days of the resolution being passed, notice of the special resolution (Form 205) must be lodged with ASIC. Notice of the resolution must also be published in the Commonwealth of Australia Business Gazette within 21 days from the date of the resolution being passed.

3. Appointment of the Liquidator  

The advantages of a voluntary winding-up by members are that members can choose the liquidator, fix their remuneration and, in general, supervise the liquidator's conduct.

Notice of the appointment of the liquidator (Form 505) must be lodged with ASIC within fourteen days of the appointment.

4. Liquidator's Accounts  

Liquidator's accounts (Form 523) must also be lodged with ASIC within one month after the first six month period from the date of appointment and thereafter every six months.

If at any time during a member's voluntary winding-up the liquidator forms the opinion that the company will be unable to pay its debts in full, then they must either apply to the court for the company to be wound up in insolvency, appoint and administrator or convene a meeting of creditors.

5. Role of the Court  

During the winding-up process, a creditor or a member may ask the court to determine any question arising in the winding-up, review the liquidator's remuneration or exercise any power that a court possesses in a compulsory winding-up (such as choosing a liquidator).

6. Final Meeting

The final meeting must be advertised in the Commonwealth of Australia Business Gazette at least one month before it is to be held. The liquidator must lodge the liquidator's accounts (Form 523), together with a copy of the account showing how the winding up was conducted, within seven days after the final meeting. The company is dissolved three months after the date on which Form 523 is lodged.