What is a Voluntary Winding up?

Winding up a company voluntarily may occur for a variety of reasons, including if:
 you have sold the business the company operated;
 it has stopped trading; or
 the members have no desire to continue with the business.
Generally, the process of winding up a company involves:
1. finalising outstanding company matters;
2. paying off outstanding debts;
3. selling off any assets; and
4. bringing an end to the company’s existence.
A member’s voluntary winding up may be an option if your company is unable to meet the
requirements for voluntary administration or voluntary deregistration.
What is a Members’ Voluntary Winding Up?
Members, or ‘shareholders’, are the owners of the company. Members may wish to wind up
the company whilst it is still solvent to regain more of their initial investment. Company
members can only initiate a members’ voluntary winding up if the company is solvent.
Furthermore, a special resolution must be passed to give effect to a members’ voluntary
winding up.
Process of a Members’ Voluntary Winding Up
The members of a solvent company can decide to wind up the company by following the
process below:

1 The directors of the company must meet. A majority of the directors of the company
must make a declaration of solvency and attach to that declaration, a current statement of
affairs of the company, in the prescribed ASIC Form 520 (described below). The directors
must also resolve to convene a meeting of shareholders to consider a resolution to wind up
the company.
2 The ASIC Form 520 must be lodged prior to issuing the notice of the members’
meeting.
3 Before the member’s meeting is held, the proposed liquidator must consent in writing
to act as liquidator, if so appointed at the meeting.
4 A members meeting must be held (and the company will need to follow the relevant
notice and other procedures for holding a members meeting in accordance with its
Constitution, “Replaceable Rules” under the Corporations Act 2001 (Cth) and/or
Shareholders Agreement). At the meeting, members must pass a special resolution to
voluntarily wind the company up. This resolution must be passed within five weeks of the
directors making the solvency declaration and within 7 days after the passing of this
resolution, the company must then lodge an ASIC Form 205 notifying ASIC that a special
resolution to wind up the company has passed.
5 The company must publish on the ASIC website a published notice regarding the
voluntary winding up (in the prescribed form). This must be done by the end of the next
business day after the appointment of the liquidator.
6 A liquidator is appointed and a notice of appointment is lodged with ASIC within 14
days by using an ASIC Form 505.
Process Once the Liquidator Takes Over
Once a liquidator is appointed to a company, the powers of the directors of the company
cease. In addition, the company must cease carrying on its business. However, a business
may continue operating insofar as the liquidator determines it is beneficial for the winding up
of that business. Furthermore, the liquidator will commence winding up your company’s
affairs. The liquidator will undertake to:

take steps to confirm the liabilities of the company;

correspond with the tax authorities to lodged tax returns and obtain final tax clearance;
distribute any remaining assets of the company to shareholders; and
arrange for a final meeting of shareholders to be held to finalise the liquidation and lodge
minutes of the final meeting with ASIC.
Once these tasks are complete, ASIC will deregister the company within around 3 months of
the conclusion of the liquidation. On deregistration, the company ceases to exist

If at any point during the winding up, the liquidator believes that the company will be unable
to pay its debts in full within 12 months of the commencement of winding up, they must
either:

convene a creditors meeting;

appoint a voluntary administrator; or
apply to the court for the company to be wound up in insolvency.
Declaration of Solvency
The statutory declaration of solvency is one of the key aspects of the members’ voluntary
winding-up process. As such, it is important to know what you must do when you lodge the
declaration.
As stated above, a declaration of solvency requires that a majority of the directors look into
the company’s affairs and finances and decide that the company will be able to pay its debts
in full within 12 months after the commencement of the winding up. The declaration includes
a statement of the company’s assets and any liabilities.

In considering whether the company is solvent, directors will need to take into account a
number of factors. These include the business’s current liabilities which are presently due as
well as those that are due in the future. In addition, directors will need to consider any claims
which may fall due in the future. These claims could relate to certain unforeseen future
events. For example, warranty claims or litigation.

Importantly, the declaration will be ineffective unless:

it is made at the meeting of directors;

it is lodged with ASIC using the relevant form before issuing the notice of meeting to
members; and
the special resolution of shareholders resolving to wind up the company passes within 5
weeks of making the declaration.
Directors’ Duties and the Declaration of Solvency
As a company director, you must make sure that you provide an accurate and honest opinion
in your declaration and are able to support your opinion. A director who makes a declaration
of solvency without having reasonable grounds for his or her opinion that the company will
be able to pay its debts in full within the period stated in the declaration is guilty of an
offence

Further, if the company does become insolvent and you continue to trade, you may breach
your director’s duty to not trade while insolvent, which can have significant fines and
potential personal liability for the company’s debts incurred while trading while insolvent.

Differences Between a Creditors’ and a Members’ Winding Up

The process of a members’ voluntary winding up is less complex than the process of a
creditors’ voluntary winding up. Under a creditors’ voluntary winding up, the liquidator will
have to conduct a more thorough investigation into the company’s assets and liabilities.

One of the key differences between a members’ voluntary winding up and a creditors’
voluntary winding up is the solvency of the company. A members’ voluntary winding up is
only an option if the company is solvent. If the company is insolvent, it must be wound up
through a creditors’ voluntary winding up or another insolvency procedure.

A further difference is that a members’ voluntary winding up usually does not involve the
creditors, because the company is still in a position to pay its creditors in full. A creditors’
voluntary winding up, however, involves the creditors and members.
What is a Creditors’ Voluntary Winding Up?
Creditors are the people who the company owes money to for providing goods, services or
loans to the company. Customers who have not received goods they have already paid for and
employees who have outstanding wages may also be considered creditors.
A creditors’ voluntary winding up is the winding up of a company by a special resolution of
the shareholders under the scrutiny of the company’s creditors. This occurs when the
company is insolvent. If the directors of the company are unable to provide a declaration of
solvency, the company can proceed with the creditors winding up.
The situations where a company cannot be wound up through a creditors voluntary winding
up are when:
 a court has already ordered that a company be wound up; or
 an administrator has already been appointed.
Process of a Creditors Voluntary Winding Up
1. a meeting of the directors takes place to resolve that the company is insolvent and that
it should be wound up. The directors will then call a members’ meeting to wind up the
company;
2. the members meeting will take place to pass a special resolution (or a circular
resolution if no members’ meeting is held) that the company is insolvent and should
be wound up. You must complete a summary of affairs on an ASIC Form 509;
3. the members appoint a liquidator, and the company must provide, within seven days
of the winding-up date, a summary statement under ASIC Form 507. This is a
statement that outlines the company’s business, its property, financial circumstances
and any other relevant affairs;
4. the liquidator must convene a creditors meeting within 11 days after the date of
winding up. At this meeting, the creditors may decide to appoint a committee of
inspection or remove the liquidator and appoint another; and
5. the liquidator will administer the winding up process by paying out creditors with
available funds. They will then prepare a final report for creditors, lodge various
documents with ASIC and request for the company’s deregistration.
How to Prevent a Creditors Voluntary Winding Up
As a company director, one of your fundamental duties is to ensure that your company does
not trade while it is insolvent. One of the best ways to prevent a creditors voluntary winding
up is to avoid insolvency altogether. You can do so by ensuring that the company has
sufficient funds to pay company debts as and when they fall due.
If your company is insolvent, you should cease trading immediately and seek professional
advice about entering into voluntary administration or appoint a liquidator yourself.
Continuing to trade when your company is insolvent can result in a breach of your directors’
duties and personal liability for the debts of the company.
Warning signs that your company may be insolvent include when your company:
 is experiencing cash flow difficulties;
 is unable to pay creditors or suppliers;
 has outstanding payments of over 90 days;
 is unable to pay taxes when they are due;
 is defaulting on interest or loan payments; or
 is unable to obtain finance.
Differences Between a Creditors Voluntary Winding Up and a Members Voluntary
Winding Up
Solvency
The key difference between a creditors voluntary winding up and a members voluntary
winding up is that the members voluntary winding up is only an option if the company is
solvent. Solvency is a company’s ability to pay their debts as and when they fall due. If a
company is not solvent, it is insolvent.
Creditor Involvement
Another key difference is that a members voluntary winding up usually does not involve
creditors. This is because the company is still solvent and in a position to pay its creditors.
Process
The process for a creditors voluntary winding up is more complex than that for a members
voluntary winding up. This is generally because the appointed liquidator will have to conduct
thorough investigations and analysis on the company’s assets and affairs when paying out
creditors.