Closing a Company - Streamlined Approach

6 Options to Close an Australian Company

Closing a company in Australia involves careful planning and adherence to legal requirements.

This article outlines six methods for closing a company, highlighting key considerations.

Whether working with a Sydney or Gold Coast accountant, understanding these options can streamline the process for family business owners.

Option 1 – Voluntary Administration

Voluntary Administration (VA) is used when a company is insolvent and unable to meet its financial obligations. A Voluntary Administrator is appointed to assess the company's financial status and recommend solutions, such as restructuring or liquidation. During this period, creditor actions are paused. VA typically lasts 25 to 30 business days and may end with a Deed of Company Arrangement (DOCA) or proceed to liquidation.

Option 2 – Liquidation

Liquidation involves ceasing operations, settling debts, and distributing remaining assets. There are two types: court liquidation, initiated by a creditor’s petition, and creditors’ voluntary liquidation (CVL), initiated by the company's directors or shareholders. Liquidators, appointed in either case, manage asset sales and debt settlements. Liquidation generally takes six to twelve months and may result in a dividend for shareholders.

Option 3 – Members Voluntary Liquidation

Members’ Voluntary Liquidation (MVL) is a streamlined process for solvent companies that shareholders decide to close. It avoids creditor involvement, reduces costs, and may offer tax benefits such as the 50% capital gains tax discount. MVL typically concludes within three to six months if the company is solvent and meets all criteria.

Option 4 – Voluntary Deregistration

Voluntary deregistration is a straightforward, cost-effective method for companies that have ceased trading. Requirements include no business activities, no outstanding liabilities, and assets valued under AUD 1,000. The process involves submitting Form 6010 to ASIC, with deregistration taking two to three months. Unlike other methods, a deregistered company can be reinstated.

Option 5 – Receivership

Receivership involves appointing a Receiver by a secured creditor to manage debt recovery while allowing the company’s owners some control. The Receiver's main duty is to the secured creditors but may also sell company assets if necessary. Receivership requires ongoing ASIC reporting.

Option 6 – Sale of the Business

Selling the business before closing the company can maximize returns and facilitate a controlled dissolution. This method can integrate various closure options and may offer tax benefits.

Common Challenges and Pitfalls

Challenges in closing a company include underestimating time and costs and managing tax implications. Protecting directors with insurance and ensuring thorough planning can mitigate risks and facilitate a smoother process.

Regulatory Compliance and Reporting

Compliance with the Corporations Act 2001 and ASIC guidelines is crucial. Different closure methods have specific reporting obligations, and directors must avoid allowing the company to trade while insolvent.

Choosing the appropriate closure method involves assessing taxation, financial status, and regulatory compliance. By consulting with a Sydney or Gold Coast accountant and adhering to guidelines, business owners can effectively manage the closure process.

We specialise in family businesses, offering tailored advice and comprehensive support for business.

Contact us to explore your options and ensure a smooth transition.