Winding up a solvent company

The members of a solvent company may decide to wind-up the company under s491 of the Corporations Act 2001 (the Corporations Act).

Directors’ declaration of solvency

To commence a members’ voluntary winding-up, the majority of the directors must make a written declaration that they have made an inquiry into the affairs of the company and that at a meeting of directors they have formed the opinion that the company will be able to pay its debts in full within 12 months after the commencement of the winding-up.

If a director makes a declaration of solvency, and it is later found that he or she did not have reasonable grounds for making the declaration, then they may face a penalty of a $5,500 fine or one year in jail, or both under s494 of the Corporations Act.

Special resolution of members

 

After the solvency declaration the members of the company must make a special resolution to wind up the company.

 

All members must be given at least 21 days notice in writing of the special resolution and at the meeting at least 75% of the votes cast by members entitled to vote on a special resolution must be in favour of the resolution for it to be passed.

Notice of the resolution must be published in the Commonwealth of Australia Business Gazette within 21 days after the date of the resolution being passed.

Liquidating the company

The advantage of a members’ voluntary winding-up is that the members can choose the liquidator to take control of the affairs of the company, fix the remuneration of the liquidator, and in general terms, supervise their conduct.

In the case of a proprietary company, a person who is not a registered company liquidator can carry out the liquidation.
What do you need to lodge?

In a members’ voluntary winding-up, the following forms must be lodged with ASIC:

Form	When to lodge it
Form 520 Declaration of solvency	Must be lodged before the date on which notices of the meeting at which the special resolution for the winding-up of the company is to be proposed are sent out. The resolution must be passed within 5 weeks after the date of making the declaration of solvency.
Form 205 Notification of resolution	Must be lodged within 7 days after passing the resolution and must contain or annex a printed copy of the resolution.
Form 505 Notification of appointment or cessation of an external administrator	Must be lodged within 14 days after appointment. The same form is used to tell us when a liquidator has ceased.
Form 524 Presentation of accounts and statements	Must be lodged within one month after the first 6-month period from the date of appointment of the liquidator and every 6 months after that.
Form 523 Notification of final meeting convened by liquidator	The liquidator must lodge the form, together with a copy of the account showing how the winding-up was conducted, within 7 days after the final meeting. The meeting must be advertised in the Commonwealth of Australia Business Gazette at least one month before it is to be held. See www.asic.gov.au/gazettes for details of lodging a notice.The company is deregistered three months after the date on which the Form 523 is lodged.

Court involvement

During the course of a members’ voluntary winding-up, a creditor or a member may ask a 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.

The leave of a court must be obtained before a company can 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.

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

www.asic.gov.au