19 SEPTEMBER 2013
In our experience, it is not uncommon for a company to be set up for a specific purpose and the company then remains dormant after that purpose has been achieved or the purpose for setting up the company falls away. There are costs and risks associated with allowing a company to remain dormant which should be considered as part of a wider consideration of whether to deregister the company once its purpose has been achieved or lapses.
While a company remains registered, it also remains subject to the ordinary legal requirements imposed by the corporations legislation including the payment of an annual fee. The directors of the company also remain subject to legal obligations relating to the affairs of the company.
Before deregistering the company, it is important to review its financial position to ensure that it is solvent and to obtain a full understanding of the applicable taxation consequences of moving any assets out and closing down loan accounts. The extent of this review will depend on the extent of the trading history of the company.
Ordinarily there are two ways to dissolve a company, generally dependant on the trading status of the company and the existence of assets and liabilities. The first is a voluntary winding-up by the shareholders. This requires the appointment of a liquidator to realise the company’s assets and otherwise finalise its affairs. This method can be expensive and embarrassing.
The second is by applying to the Australian Securities and Investments Commission (ASIC) to voluntarily deregister the company, where certain legal requirements are satisfied. These include (among other things) the director signing a statutory declaration that the company is no longer trading, the assets of the company are less than $1,000 and the company has no outstanding liabilities or involvement in legal proceedings.
As an application for deregistration is not available for companies with liabilities, the only proactive procedure to dissolve a dormant company with liabilities is the first alternative – through the appointment of a liquidator. However, from time to time directors achieve deregistration by not paying annual registration fees following which, after two or three years, ASIC deregisters the company. While this approach is sometimes taken, non-compliance with the corporations law, including non-payment of annual fees, may constitute an offence under the legislation by the directors.
Upon deregistration of a company any residual assets held become the property of ASIC. It is therefore important to ensure all assets are identified and accounted for, to minimise the risk of these assets being forfeited to ASIC. We are periodically retained to reinstate companies when clients discover one of their former companies has retained assets which have been overlooked.
We would be pleased to advise you further in relation to whether to deregister a dormant company and the appropriate method of doing so having regard to your circumstances.
You are a valued Kinneally Miley contact, for more information related to this Legal Update please contact us.
[contactsbox] [leftcolumn]Contact Partner: Francesca Petroccitto
Direct Telephone : 07 3210 5771
Mobile Telephone : 0402 293 644
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