A solvent winding up initiated by a company’s shareholders. Commonly, it is used where there are pre-CGT assets or reserves which can be distributed to shareholders.
Other benefits of a solvent winding up as opposed to an application to ASIC to have the company dissolved by deregistration include:
- Clearance received from the Australian Taxation Office
- Early destruction of a company’s books and records as opposed to retention for 5 years; and
- If the company is reinstated it is returned to the control of the liquidator and not the directors.
Creditors’ voluntary liquidation
Company is insolvent or about to become insolvent and directors recommend to shareholders that it should be wound up.
Shareholders hold a meeting and pass a resolution to wind up the company and appoint a liquidator (only effective if an application to wind up the company in insolvency has not been filed with a Court).
The directors complete a report as to affairs for the company (statement of assets and liabilities) and within 10 business days following appointment the liquidator will write to all of the company’s creditors informing them of the liquidation and their rights to control the process.
Court ordered liquidation
There are many reasons why a company will be wound up by a Court.
The most common reason is the failure to comply with a statutory demand served on it by a creditor (i.e. failure to pay its debts as and when they are due and payable) resulting in the company being wound up in insolvency.
Other reasons a Court may order a company wound up can include:
- The company has by special resolution resolved that it be wound up by the Court
- The company does not commence business within one year from its incorporation or suspends it business for a whole year
- The company has no members
- Directors have acted in affairs of the company in their own interests rather than the interests of the members as a whole
- The affairs of the company are being conducted in a manner that is oppressive, unfairly prejudicial or discriminatory against a member(s)
The liquidator appointed by the Court will write to creditors within 20 business days of their appointment to inform them of the liquidation and their rights to control the process.