Winding Up a Company and External Administration

There are three ways in which a company may be wound up: by Court order, by order of ASIC or voluntarily. These different types of winding up have specific steps and relate differently to the functioning of a company at the time they are made.

Court Ordered

A court may order that a company be wound up on the basis of insolvency or irregularities in the company’s conduct which may or may not relate to the company’s solvency. An example in which a company will be wound up by a court is a failure to comply with a statutory demand made by a creditor for payment of an outstanding debt. It is also not uncommon for companies to be wound up on ‘just and equitable’ grounds where the members of the company can no longer work together.

The court has wide powers in relation to companies which include the power to stay a winding up, order the transfer of company records and direct creditors to meet in order to identify the company’s debts. These administrative powers are exercised by the court but are then delegated to the liquidator who implements them.

Order of ASIC

In specific events the Australian Securities and Investments Commission (ASIC) may order that a company be wound up. Where an ASIC order is made the Commission will publish a notice of the order on the ASIC insolvency notices website at least ten (10) days before making the actual order.

On the order being made the company will be deemed to have passed a resolution for the voluntary winding up of the company. Even where the company has certain requirement for such a resolution an ASIC order will deem the requirements to have been complied with in order to allow the winding up. Following the company entering into voluntary winding up a liquidator will be appointed.

An order of ASIC to wind up a company might for example be made in order to assist employees to make a claim in relation to outstanding entitlements. ASIC will not, however, reinstate a deregistered company in order to allow for such a claim to be brought.

Voluntary Winding Up

A company may, by special resolution, agree to voluntarily wind up a company. Directors may resolve to wind up a company where it is still solvent. Otherwise creditors may agree to voluntarily wind up the company.

Winding up by Directors

In order to allow for the process of voluntary winding up to occur there are a number of steps which must be followed:

1. a majority of the directors who are willing need to make a Declaration of solvency to ASIC. This Declaration supports that the directors are of the belief that the company is able to pay any existing debts in full within 12 months of the winding up commencing;
2. after lodging the Declaration, a notice of the meeting to vote on a special resolution must be provided to all members with at least 21 days’ notice of the meeting. The special resolution must be passed by the members to wind up the company with at least 75% in favour of the resolution. The company is considered to have commenced winding up as at the date of the special resolution;
3. the appointment of a liquidator/s must also be undertaken by the members of the company;
4. a Notification of resolution setting out the contents of the resolution passed must be lodged with ASIC;
5. a Notification of appointment of external administrator must be lodged with ASIC to advise of the liquidator’s appointment;
6. notice of the resolution relation must then be published on the ASIC Published notices website  by the end of the following business day after the liquidator is appointed; and
7. the liquidator will then wind up the company’s affairs and lodge an Annual Administration Return to ASIC. A Notification of final meeting convened by liquidators needs to be lodged with ASIC at the completion of the company winding up process.

Here to Help

Proper experience in dealing with winding up orders and voluntary winding up is essential. Aitken Whyte Lawyers are focused on results. Our commercial law team will advise you on the proper course to take if a company has failed to comply with your statutory demand and you would like to apply for a winding up order, if an application for a winding up order has been brought against your company, or if you wish to wind up a company you are the director of.

Aitken Whyte Lawyers can assist you with all winding up matters.

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