How do I close my business if it is insolvent?
If you’ve recently become insolvent, closing your business can be a complicated and emotional time. All directors should understand the options and make a decision as soon as possible. Directors have a duty to prevent their company from trading while insolvent as you need to take the interests of your creditors into account. We’ve listed some of those key options if you’re looking to close your business as a result of it being insolvent.
Liquidation is the most direct and efficient way to wind up your company if it has ceased to trade or you want to cease trading. Once you appoint a liquidator, the liquidator will take steps to make sure the business has ceased trading and will then sell the remaining assets. Once the assets have been sold the liquidator will distribute the surplus funds in accordance with the priorities as set out under the Corporations Act.
If your company is still trading but it is insolvent (or likely to become insolvent) and you want to try and save it then you may wish to consider a voluntary administration. A voluntary administration is easy to initiate if the majority of the company’s directors pass a resolution to appoint a voluntary administrator. Once appointed the voluntary administrator will take control of the company and the director’s powers will be suspended. The voluntary administrator will investigate the company’s affairs and report to creditors on the future of the company. At this point the directors can put a proposal to creditors for a Deed of Company Arrangement. Usually a Deed of Company Arrangement will set out a proposal to restructure the debts of the company which may involve asking creditors to accept something less than what they are owed. The voluntary administrator will call a meeting of creditors, at which time creditors will be asked to vote on 3 possible outcomes:
- For the administration to end and pass control back to the directors;
- For the company to enter into a Deed of Company Arrangement; or
- For the company to be wound up and placed into liquidation
This process can exist simultaneously with voluntary administration or liquidation and it is not a direct pathway to closing an insolvent business. Only a secured creditor or a Court can appoint a Receiver. The Receiver will only protect the interests of the secured creditor who appointed them.
Things to consider
Your company will only officially be closed after it has been deregistered with ASIC. If you have more than $1,000 owing to creditors or your company has assets you cannot apply to ASIC for it to be deregistered and instead you must appoint a liquidator. After the liquidation has finalised the liquidator, they will apply to ASIC for it to be deregistered.
At CRS we are here to help you and we operate a toll FREE 24 hour advice line. Call now on 1800 210 073 to receive free and impartial insolvency advice today.