ATO Forced Business Wind Up
Winding up is a process where a company’s outstanding matters are finalised and the company ceases trading. Owners can either choose to do this or they can be forced to do so by the ATO.
There are different types of wind up proceedings which essentially are split between whether the company is deemed as solvent or insolvent. This means whether they are still able to trade or not.
The ATO commonly winds companies up as insolvent. They deem this to be the case when tax debt exists which is unable to be repaid. Having outstanding tax debts is the most common way Australian business is forced to close its doors.
We help our clients avoid this situation, with finance options and advice about company structure. We can also negotiate with the tax office and other people owed money by business owners.
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Winding up a solvent company
A solvent company must be is a position to pay all its debts within a 12 month period and the directors make a declaration of solvency under a form 520 (ASIC). It is an offense under the corporations act 2001 to make a false declaration for solvency. We advise obtaining professional advice prior to making a declaration for solvency or proceeding with any wind up actions.
The liquidator can then begin winding up the company and lodge the appropriate documentation during the 12-month period. If at any time the liquidator believes the requirements for winding up a solvent company cannot be met, they must either convene a meeting of creditors, apply to the court for the company to be wound up in insolvency, appoint voluntary administrator.
Winding up an insolvent company
There are number of different requirements when an insolvent company is being wound up. The most important is that the company cannot trade or conduct business as usual, as it can result in civil penalties or criminal charges under the corporations act.
A liquidators job is to take over control of the insolvent company and is required to ensure that creditors are treated fairly. The liquidators job is to liquidate the company assets and pay back a fair distribution to the creditors.
It is important to employ the services of a professional insolvency practitioner to assist in determining if your company is solvent, insolvent and the steps required to move your company through this transition.