Winding Up a Company

What does it mean to wind up a company?

Winding up is the end of the life of a company. Strangely enough, just like people, when the life of a company ends they can wind up slowly and quietly, peacfully, or the end of their life can be fraught with conflict with all of the associates of the company bitterly fighting over what is left of their lives together.

Winding up a solvent company

Winding up a solvent company is quite easy, all you need to do is to get the appropriate form from ASIC and file it. Assuming that you have the consent of the controlling sharholders and the directors, this should be relatively easy. In the case of a company that is being wound up whilst solvent, there is usually little conflict between the parties because the company is being wound up as a result of its purpose no longer being fufilled.

Winding Up an Insolvent Company

This is much more complicated. An insolvent company will normally have a series of creditors who have a legal right to a stake in the outcome of what happens to the company after it has become insolvent. There are choices to be made about if the company goes into voluntary administration or fully into liquidation. The secured creditors are given priority over the assets and the unsecured creditors have to fight over what is left (usually nothing). If liquidation occurs and the liquidator makes payments to particular creditors, and it is later determined that these are unfair payments, the creditors can later make a legal claim against the liquidator that it is an unfair preference payment under the terms of the Corporations Act 2001 (Cth).

Also, if it is discovered that the company was continuing to trade while insolvent, this is a serious problem and can lead to prosecution by ASIC for breach of directors duties. Other complications which can arise in relation to the winding up of an insolvent company are that if the company goes into a deed of company arrangement, how will the company be arranged going forward? Who will control it and what will it do? How will it trade itseld out of its present insolvency? The possibilities and complications in a situation like this can become very complicated very quickly.

If you are the employee of an insolvent company you need to be very careful that you ensure that your wages are paid before the companies affairs are finalised otherwise it will be impossible to be paid for your work later on. If you are a trade creditor of an insolvent company the same applies. If you need more specific information about this matter or you would like to speak to a lawyer (it is highly recommended) then we have professionals available online now who can assist you with any questions you might have.

Debt Collection Letter Resources

• Preference payments Some information about preference payments and how they can affect a company that has gone into liquidation.
• Voluntary Liquidation Basic information about voluntary liquidation. What it is and how it works.
• What is a liquidator? And what do you need to know about how to deal with them? What is a liquidator? What do they do and how do they work?