What are the Documents Required to Legally Wind Up a Business?July 17th, 2016
Winding up a business is different to merely ceasing trade. While the latter means that you’re effectively stopping business, you still have to abide by a handful of obligations and fees while the business remains registered.
The de-registration process is long and involved, and can take months to take from start to finish. Creditors have to be notified, forms have to be filed, and accounts have to be settled. The last thing that you want to do is find out that you’ve incorrectly lodged your documentation at the final hurdle.
To that end, here’s a quick runthrough and breakdown of the documentation that you’ll be required to submit, as well as a brief overview of the necessity and process for each one.
What is winding up?
Winding up simply refers to the process by which a company that does not meet the minimum requirements for voluntary de-registration undertakes to cease business.
In order to de-register, your company must meet minimum requirements that not everybody can achieve. They must possess no complex assets worth in excess of $1,000, the business must have fully stopped conducting affairs, it must have no outstanding debts or liabilities, and it must not be engrossed in any legal turmoil. Furthermore, all members of the company have to agree to it.
If you think that you do meet these requirements, consider looking into voluntarily de-registering your company instead.
Before you begin
Before you even start winding up, you’re going to need to get all of your accounts owed in order, and settle your taxes and payrolls. This will vary business-to-business, but there are a few major areas that everybody will have to comply with.
Before starting the process of winding up, you have a duty to:
- Notify both customers with accounts receivable and accounts payable.
- Deal with any remaining contractual obligations.
- Pay employees, settle payrolls, and finalise employee tax.
- Begin liquidating your assets (including leases) and finalise your debts.
For solvent businesses
Once you’ve done that, there are two ways of going forward: one deals with the path towards winding up for a solvent business, and the other deals with insolvents.
To dissolve a solvent business properly, you’re going to need the following (NOTE: This assumes that you’ve covered all your accounts and taxes).
Declaration of solvency
Firstly, you’ll need a Declaration of Solvency (Form 520). This is to prove that you’re solvent and since it’s a federal offence to lie on this form, you should be very meticulous before you lodge it.
Notification of resolution
Next, you’re required to pass a Form 205 (notification of resolution). After you’ve done this, you must wait a minimum of 21 days, and then call a meeting where 75% of the members agree to wind up.
As a part of this, you’ll also need to lodge Form 505 (notification of appointment or cessation of an external administrator).
After this meeting (assuming you get the necessary votes), you’ll still need to notify the Australian Government of it with another Form 205. This must include a notarised receipt of the resolution passed.
After all of this is complete, you’ll have 21 days to post the resolution on the ASIC notice page. Note that this usually incurs a fee (and that doing any of these steps past a cutoff date also incurs a further fee).
You can now appoint a liquidator to wind up the company. As part of the process, they’ll need to lodge Presentation of Accounts and Statement (form 524) once per 6 months of operation.
Once they’re completed, they’ll lodge a Notification of final meeting convened by liquidators (Form 523), followed by a Presentation of accounts and statement (Form 524) and Copy of minutes of meeting (Form 5011) within 7 days of said meeting.
As above, if at any time the liquidator believes the business may not actually be solvent, they must immediately take steps to begin wrapping up as an insolvent company through court application.
For insolvent businesses
Applying for wrapping up in insolvency, or moving a business that has been discovered part-way to be insolvent (whether through fault of the company or not), is a choice between a few options.
Firstly, you can appoint a liquidator in a similar fashion to a solvent business, of which you’ll need similar documentation to the above.
Secondly, you can go into voluntary administration, wherein a liquidator instead attempts to rally the business and bring it back into solvency. This is often done in the case of mismanagement, or in situations where a refocusing of priorities may help more than simply selling off the assets (after all, liquidators are contractually obligated to give everybody fair consideration).
If you wish to reinstate a deregistered or wound down business, then you should lodge an Application for reservation of a name (Form 410) to secure your company name while you undergo procedures.
After this, you’ll have to contact the ASIC directly to consider fees, and then lodge an Application for ASIC reinstatement.
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