How to Close a Company: Liquidation vs Deregistration
Closing the doors is a business decision. Closing the company is a legal process, and the two are often confused.
When a director stops trading, the company still exists. Its debts, its tax and ASIC obligations and its creditors' rights all carry on, and so can the director's personal exposure.
How to close a company properly depends on what it still owes. A company with no debts that meets ASIC's other conditions can apply for voluntary deregistration. One that still owes money can't. Where an insolvent company can't continue, a creditors' voluntary liquidation is usually the orderly way to close it: an independent liquidator takes control, deals with creditors and employees, and reports on what happened.
For an adviser, the useful question is not whether the client can lock the doors. It is what the company still owes, and who that debt could fall on.
What happens when a company simply stops trading
A company that stops trading is still a company. It stays on ASIC's register, its annual review fee keeps falling due, and its directors remain directors, with the same duties.
Its debts don't go anywhere either. Suppliers, landlords, lenders and the ATO keep their rights to recover what they are owed. A creditor can serve a statutory demand and, if it isn't met, apply to the court to wind the company up. The company ends up in liquidation anyway, but on a creditor's timetable rather than the director's.
Where a company has simply been abandoned, ASIC can order it wound up itself. It mainly uses that power so unpaid employees can claim through the Fair Entitlements Guarantee.
Meanwhile the director's own position can get worse, not better:
Unpaid PAYG withholding, GST and superannuation can become the director's personal liability through a Director Penalty Notice (DPN). Resigning doesn't remove liability for amounts already due.
If lodgements stop when trading stops, unpaid amounts can pass the point where the penalty "locks down". From then on, only payment clears it.
If the records go missing with the business, that can count against the director later. A failure to keep proper books can support a presumption that the company was insolvent.
Why deregistration isn't a shortcut
Voluntary deregistration is for companies that have finished cleanly, not for companies that still owe money. ASIC sets six conditions:
All members agree to deregister.
The company isn't carrying on business.
Its assets are worth less than $1,000.
It has no outstanding liabilities, such as unpaid wages.
It isn't a party to any legal proceedings.
It has paid all fees and penalties owed to ASIC.
A company with unpaid creditors fails the fourth test. Creditors can also ask ASIC to defer or stop a deregistration. A solvent company that doesn't meet the conditions can be wound up through a members' voluntary liquidation instead.
Deregistration isn't always the end, either. A deregistered company can be reinstated, and is then treated as if it was never deregistered: its directors become directors again. Any assets left in the company usually vest in ASIC or the Commonwealth.
The practical point for advisers: a client who wants the company "gone" because it has debts is describing a liquidation, not a deregistration.
Walking away, deregistration or liquidation: how they compare
A creditors' voluntary liquidation (VL) is the formal way to close an insolvent company. The members resolve to wind it up and appoint an independent registered liquidator, who takes control from the directors.
OPTION: | Walking away | Voluntary deregistration | Creditors' voluntary liquidation |
|---|---|---|---|
Who is this right for? | Nobody in a financially difficult situation | A solvent company with no debts and assets under $1,000 | An insolvent company that can't continue |
What about the company's debts? | Stay enforceable against the company | Must already be nil | Creditors lodge claims with the liquidator |
Who is in control? | The director, on paper | The director, until deregistration | An independent registered liquidator |
What happens to employees? | Entitlements unresolved until a creditor or ASIC acts | Must already be paid | The liquidator deals with claims; the Fair Entitlements Guarantee may be available |
What is the Director's personal exposure? | Unchanged, and can grow | Unchanged | Unchanged, but a non-lockdown DPN can be remitted if the winding up begins within 21 days of the notice |
Is there an investigation? | None until someone appoints a liquidator | None | The liquidator investigates and reports to ASIC |
What must the director do? | Keep meeting a director's duties | Confirm the company meets ASIC's conditions | Hand over books and records, and complete a report on the company's activities and property within five business days |
How does it end? | Court or ASIC winding up, at someone else's timing | The company ceases to exist | The company is deregistered once the winding up is complete |
Liquidation isn't a failure in itself. Where the business is no longer viable, an orderly closure lets an independent person deal with creditors and employees, and draws a line under the company's affairs. Where the underlying business is still viable, a restructure may be worth assessing first.
What stays with the director
Liquidation deals with the company's debts. It doesn't automatically deal with the director's. These are the exposures worth checking before anyone decides how to close:
Director penalties. The ATO can make a director personally liable for unpaid PAYG withholding, GST and superannuation by issuing a Director Penalty Notice. If the amounts werre reported in time (for PAYG withholding and GST, within three months of the due date), the penalty can be remitted if, within 21 days of the notice, the company pays, appoints an administrator or a small business restructuring practitioner, or begins to be wound up. If they were reported late or not at all, the penalty is "locked down" and only payment clears it. A payment plan doesn't remit either kind.
Superannuation under Payday Super. Since 1 July 2026, super falls due with each payday rather than quarterly, so unpaid super may lock down sooner than it used to.
Personal guarantees. A guarantee on a lease, an equipment finance facility or a supplier account is the director's own promise. Liquidating the company doesn't end it, and the creditor can call on it.
Insolvent trading. If the company kept incurring debts while it was insolvent, a liquidator can pursue the director for compensation. The safe harbour may protect a director who was pursuing a course of action reasonably likely to lead to a better outcome for the company.
Director loan accounts. Money the director owes the company is a company asset. A liquidator can call it in.
Asset transfers before the appointment. Moving property out of the company for less than market value, in a way that keeps it from creditors, can be a creditor-defeating disposition. The prohibition also reaches advisers who help arrange it.
Future directorships. ASIC can disqualify a director for up to five years if, within seven years, they were an officer of two or more companies that were wound up and a liquidator reported to ASIC on each company's inability to pay its debt.
None of this is a reason to avoid liquidation. It is a reason to understand the director's position before choosing how the company closes, because some options are only available within a set time.
What advisers should help a client consider
Before a client closes the doors, these questions decide which process fits and how much time is left:
Is the business finished, or is the problem the debt?
If the underlying business is still viable, a restructure may be worth assessing before a closure.
Can the company pay all its debts, including tax and super? Solvent with no debts and assets under $1,000 points to deregistration. Solvent with more points to a members' voluntary liquidation. Insolvent points to a liquidation or another formal process.
What has been lodged, and when?
Lodgement timing decides whether director penalties can still be remitted. Lodge anything outstanding now.
Has a Director Penalty Notice arrived?
The 21 days start the day the ATO posts it, not the day it's opened. Check the director's address on the ASIC register is current.
What has the director guaranteed?
Leases, equipment finance, bank facilities and trade accounts.
Does the director owe the company money? Look at the loan account and any related-party transactions.
Are employees owed wages, leave or super?
Where are the books and records?
Keep them safe. A liquidator will need them, and anyone holding them, including the accountant, must hand them over on request.
Has anything been sold or transferred recently?
Don't let assets move before an appointment without advice.
The earlier these are answered, the more options there generally are.
FAQs: Closing a company
How do you close a company in Australia?
It depends on whether the company can pay its debts. A solvent company with no liabilities and assets under $1,000 can apply to ASIC for voluntary deregistration. A solvent company that doesn't qualify can be wound up through a members' voluntary liquidation. An insolvent company is usually closed through a creditors' voluntary liquidation.
Can a company with debts be deregistered?
Not voluntarily. ASIC's conditions include no outstanding liabilities, assets worth less than $1,000, no legal proceedings, and all ASIC fees paid. A company that still owes money usually needs a liquidation instead.
What happens if a director just stops trading and walks away?
The company stays registered and its debts stay enforceable. A creditor can apply to the court to wind it up, or ASIC can order an abandoned company wound up. The director's duties and any personal exposure continue in the meantime.
Does liquidation end a director's personal liability?
Not necessarily. Personal guarantees, locked-down director penalties and insolvent trading claims can continue after the company is liquidated. A non-lockdown director penalty can be remitted if the company begins to be wound up within 21 days of the notice.
What does a director have to do once a liquidator is appointed?
Hand over the company's books and records, tell the liquidator where its property is, and complete a report on the company's activities and property. In a creditors' voluntary liquidation that report is due within five business days.
When should an adviser refer a client to a liquidator?
As soon as it's clear the company can't pay its debts as they fall due and the business can't be turned around. Earlier is better if a Director Penalty Notice has arrived, because the 21 days run from the notice's date.
Talk it through before the doors close
If a client may need to close their company, or a director has received a Director Penalty Notice, speak with Thyge before the doors close. He can look at the company's position, explain which processes may apply to the company and to the director personally, and work alongside you on the next step.
Thyge Trafford-Jones is a Registered Liquidator (ASIC 458321), and Registered Trustee (AFSA 1582) and Registered SBR Practitioner with more than 25 years in insolvency.
General information only. Advice should be obtained for each matter.
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