Author
Edwin NarayanDirector & ASIC Registered Liquidator
Time, money and effort go into building a company -and the same is true when it’s time to wind up that company. If you’re considering winding up your business, liquidating assets or entering administration, you should first know the different types of liquidation and how much they could cost.
1. Winding up a solvent company – Members' Voluntary Liquidation
Companies that are solvent and have combined assets worth more than $1000 cannot deregister. Instead, business must be ‘wound up’. There are a number of reasons why a business might be wound up while solvent, which we’ll look at below.
First, here is the process that company directors must take to wind up a solvent company.
Steps to liquidate a solvent company
- Declaration of Solvency - Company directors must make a Declaration of Solvency using Form 520 from the ASIC website. This declaration means the company can pay off outstanding debts within 12 months if winding up.
- Special Resolution - At least 75% of company members must vote in agreement to a special resolution to wind up the company. Members must be given 21 days’ notice to vote on the resolution, after which a liquidator should be appointed.
- Lodging Required Forms –You’ll also need to submit the following forms to ASIC:
- Notification of Resolution Form 205²
- Notification of appointment or cessation of external administrator Form 505³Notice of the special resolution must be published on ASIC’s Published Notices website by the day following the appointment of a liquidator.
4. Finalisation & Reporting - After the liquidator finishes the winding up process, they must lodge the following forms with ASIC:
- Notification of final meeting convened with liquidators Form 523
- End of administrator return Form 5603
- Copy of minutes of meeting Form 5011
Why wind up a solvent business?
There are a number of reasons businesses that are solvent are wound up. Often, it is the smarter choice to wind up a business that has a collapse in its future rather than wait for that future to hit.
For example, changing demands, technology and competition can mean some businesses won’t be viable in the future.
A pattern of diminishing returns and increased debts may be a sign that the business should be wound up. By winding up your business while it’s still solvent, you can ensure debts are paid off, creditors are kept happy, and there’s less stress for members and/or shareholders of the business.
2. Winding up an insolvent business – Creditors Voluntary Liquidation
When a business is no longer solvent, a business can enter into Creditors’ Voluntary Liquidation. Creditors’ Voluntary Liquidation is similar to Members’ Voluntary Liquidation and the process involves:
- Appointing a Liquidator – Directors and shareholders must agree to hire a registered liquidator.
- Shareholder Approval – Shareholders vote on the liquidation, and the appointed liquidator takes control.
- Liquidation Process – The liquidator will manage asset sales, creditor payments, and regulatory compliance.
3. Court appointed protections – Provisional Liquidation
Provisional Liquidation doesn’t necessarily liquidate the company. Instead, it places the company under the care and supervision of an outside party until the situation is resolved.
The three primary reasons for a court-appointed Provisional Liquidation:
- Hidden assets from Debtor company – For creditors who believe the debtor company is hiding assets, a court-appointed provisional liquidation can help prevent assets from disappearing while the wind up application is heard.
- Reckless behaviour of directors – For company shareholders who believe the directors are behaving recklessly, unprofessionally or in a self-benefitting manner, a court appointed provisional liquidation can be beneficial until the situation can be resolved.
- Company dispute – If there is conflict between directors over the company’s insolvency then a provisional liquidation can help the company find relief.
How much does liquidation cost?
The cost of hiring a liquidator will largely depend on the size of your business, the number of assets to be included, and the number of company creditors. A no-asset liquidation package will be cheaper than one with several assets, but overall you’ll want to look for a competitive quote from a respected administrator such as Mackay Goodwin.
General liquidation cost estimates
- Small company liquidation – $4,000–$8,000
- No-asset liquidation – May require directors to deposit funds into a trust account to cover fees.
- Complex cases – Fees increase if there are many creditors, multiple assets, or legal complexities.
While it may be tempting to save money and try and take on some of the work in liquidation yourself, it’s better to recognise that specialists are there for a reason. When it’s time to liquidate the assets of your company, let the professionals handle it.
Most companies offer free consultations to help you decide if hiring them is the right course of action. Depending on the size and complexity of your company, this consultation could take anywhere from 5 minutes to an hour.
Who benefits from liquidation?
At a glance, liquidation seems geared to benefit creditors, as assets are liquidated to recoup costs to creditors. But that doesn’t mean liquidation won’t help company directors as well. By being proactive in winding up a business, you maintain good relationships with your creditors, and do the best by your employees and business partners.
To speak with Mackay Goodwin about the cost of your company liquidation, give us a call on 1300 750 599 or fill out a quick enquiry form.
References:
http://asic.gov.au/regulatory-resources/forms/forms-folder/520-declaration-of-solvency/
http://asic.gov.au/regulatory-resources/forms/forms-folder/205-notification-of-resolution/
http://asic.gov.au/regulatory-resources/forms/forms-folder/205-notification-of-resolution/
http://asic.gov.au/regulatory-resources/forms/forms-folder/523-notification-of-final-meeting-convened-by-liquidator/
http://asic.gov.au/regulatory-resources/forms/forms-folder/5603-end-of-administration-return/
http://asic.gov.au/regulatory-resources/forms/forms-folder/5011-copy-of-minutes-of-meeting/
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