Voluntary winding up

Voluntary winding up is a process where members decide to appoint a liquidator to finalise their corporation’s outstanding matters. After the corporation’s affairs are settled by the liquidator, the corporation can be deregistered. 

We recommend that directors speak to an accountant or other financial professional before taking steps to wind up a corporation.

There are 2 types of voluntary winding up: 

• members – this is an option only if the corporation is solvent. Solvent means it can pay its bills when they fall due. This type of winding up usually doesn’t involve creditors because the corporation has enough money to pay them out. 
• creditors – this option is for a corporation that is insolvent. Insolvent means it doesn’t have enough money to pay its bills when they’re due. A creditors voluntary winding up is more complex than a members voluntary winding up because the liquidator needs to consult and hold meetings with creditors about paying off debts.

Definition: A creditor is anyone the corporation owes money to. For example, customers who paid for goods but haven’t received them; funding bodies who have provided funding but services haven’t yet been delivered; suppliers who have provided goods or services that the corporation hasn’t yet paid for; employees with outstanding wages or superannuation; unpaid amounts owing to the ATO.

Members can decide to voluntarily wind up if: 

• a court has not already ordered the corporation be wound up
• the corporation isn’t under special administration.

What directors need to do

The first step to voluntarily winding up a corporation is the directors passing a resolution about the corporation’s solvency position and calling a general meeting to seek the member’s approval to wind up the corporation and appoint a liquidator.

Directors hold a directors’ meeting to pass a resolution declaring either the corporation is: 

• solvent and can pay all its debts within 12 months. Fill in and sign a ‘Declaration of solvency’ (use ASIC’s Form 520) and lodge it with ORIC, or
• insolvent. 

The directors then call a general meeting of members proposing a special resolution to wind up the corporation and to appoint a liquidator – remember for a special resolution, the exact words of the special resolution must be in the notice.

The directors should prepare for the general meeting by seeking a proposal from a liquidator.

What members need to do

At the general meeting members vote on the special resolution to wind up the corporation. Remember, for a special resolution to pass, at least 75% of the votes cast by members must agree to it. 

If the resolution is passed

If the special resolution passes, members then decide who will be the liquidator.

The corporation will then be in liquidation.

If the resolution isn’t passed

If directors recommend winding up a corporation but can’t get the required number of members to agree, the directors can apply for a court order to wind up.

We recommend directors seek legal advice before taking this step.