Companies 043-04010000

A company is set up as follows:

• The company name is reserved and accepted by the Australian Securities and Investments Commission (ASIC). If a company carries on a business in a name which is different to its company name, it must register the business name with the appropriate State/Territory authority
• The Company Constitution, if there is to be one, will be drawn up
• The consent of all members, directors and secretaries must be obtained
• The company lodges an application for registration and pays all relevant fees. The application includes:
• the proposed company name
• the Australian Company Number, (ACN), if there is no company name
• the registered office details
• the principal business office details
• director and secretary details
• members and share details
• The company is given an ACN
• A certificate of incorporation is issued by the ASIC
• The company can now obtain any necessary finance to commence its operations

Prior to a company being wound up, the company may:

• lie dormant
• be listed as strike-off action in progress
• be deregistered
• go under voluntary administration
• enter into a deed of company arrangement
• go into receivership
• be liquidated

Although a company may lie dormant for many years, all other arrangements such as deregistration, receivership, administration and liquidation would generally commence and be resolved within a matter of months.

When winding up a company, creditors are repaid the amount they are owed. If there are insufficient assets to repay creditors, creditors are repaid in the order stipulated under corporations law.

For example, secured creditors are repaid before unsecured creditors. On wind up, if any amount remains after creditors are paid, the residue is distributed to shareholders with an entitlement to capital, in proportion to the number of shares held.

A company that is not trading may be referred to as ‘dormant’. This does not mean the company has ceased to exist or been wound up. It may however, indicate that no tax returns have been lodged with the Australian Taxation Office (ATO) for a number of years. A company that is dormant may still hold assets.

If a customer states they are involved in a private company that is dormant, Services Australia will still need to obtain the documents required to assess a private company before an assessment can be made of the customer’s income and assets in respect of their involvement in that company.

A company may be deregistered by ASIC:

• involuntarily if it believes the company has ceased trading or has overdue fees and penalties owing, or
• the director of the company has applied for voluntary deregistration

For involuntary deregistration the company directors and/or liquidators have two months from this date to remedy the cause of strike-off action. If this is not done, the company is then deregistered by ASIC and all assets become the property of ASIC.

Voluntary and involuntary deregistration can be reversed while the company is listed as strike-off action in progress so the company record must not be wound up.

Where the company has ceased trading, update the income to zero and all remaining assets and liabilities as per the latest available balance sheet. Request the latest available balance sheet where required.

For a voluntary deregistration if the latest available balance sheet has assets, and/or liabilities such as loans from the customer, that may affect the customer’s rate of payment, the Complex Assessment Officer (CAO) should request an updated balance sheet, for example, as at date of the application to deregister the company. The CAO will need to identify what has happened to the assets of the company and have they been realised to repay the company liabilities.

If the customer or partner has a loan to, or from the company, and the loan has been forgiven as part of the application to deregister the company, see Loans.

The CAO must set a review to reassess the company 13 weeks after the date they applied for voluntary deregistration. When the review activity allocates for action, the assessing CAO is to check the company status on ASIC. If showing as Deregistered, the company can be wound up on the TAC system.

A company can apply to be deregistered if all of the following apply:

• All members of the company agree to deregister
• The company is not carrying on business
• The company’s assets are worth less than $1,000
• The company has paid all fees and penalties payable under the Corporations Law
• The company has no outstanding liabilities
• The company is not a party to any legal proceedings

After the Australian Securities and Investments Commission (ASIC) approve the application for deregistration, they publish a notice about the proposed deregistration in the Government Gazette. If the company is deregistered all outstanding property, including land, of the company is controlled by the ASIC. See Coding the T&C Miscellaneous Details (TRMD) screen.

After the date of deregistration the company (or anyone else) may not dispose of or deal with its property. Any disposal of or transfer by the deregistered company (or anyone else) will be invalid. This is an administrative way to ensure that owners of a company which has no assets can terminate the affairs of a company without the very expensive process of liquidation.

ASIC can also deregister companies for a variety of administrative reasons such as non-compliance with Corporations Law.

A company may voluntarily appoint an administrator if the directors believe that the company is insolvent. If the customer states the company entered administration involuntarily then it is likely that the company is insolvent, that is, unable to pay its debts as and when they become due.

An administrator will:

• attempt to maximise the chances of the company continuing business, or if that is not possible
• ensure a better return for the company’s creditors than would result from immediately winding up the company

The administrator will arrange a meeting of creditors. The creditors may resolve to:

• wind up the company, or
• enter a deed of arrangement with the company

If a customer states they are involved in a private company that is ‘under administration’, establish the name and contact details of the administrator.

A deed of company arrangement is a binding agreement between the company and its creditors or members. The deed of company arrangement document will show how the company will provide the payment, in whole or in part, of its debts to creditors.

If the customer is unable to provide this document, obtain the name and contact details of the administrator. The administrator will be able to advise the terms of the agreement.

Creditors of a company consist of two main types: secured or unsecured. Secured creditors hold property of the company as security for, as guarantee of payment of, a debt owing by the company. A Receiver is usually appointed by the secured creditors to protect their interest in the company’s assets.

The Receiver will attempt to sell or realise the assets over which the secured creditors have a charge to recover the monies owed to those creditors. If there is a shortfall between the money owed to the secured creditor and the value of the security, the balance owing to the creditor is treated in a similar manner to monies owed to unsecured creditors. If the amount realised on the sale of the security is more than the amount owed to the secured creditor, the balance reverts to the company.

The unsecured creditors have no protection for their debts and where they wish to, can petition the Court to liquidate the company.

A company may continue to exist and operate a business during receivership and/or after being discharged from being in receivership. Therefore, Services Australia will still need to obtain the documents required to assess a private company before an assessment can be made of the customer’s income and assets in respect of their involvement in that company.

Assets to be maintained - action by Complex Assessment Officer (CAO) only

If a company is in receivership, the assessable asset value of the shares owned, or loans owed, should continue to be assessed as though the company were still managed by the directors. However, consideration should also be given to the circumstances in which a loan no longer exists for social security purposes as outlined in the Guide 4.6.5.65.

When a company is placed into liquidation, the aim is to terminate the company’s existence. The process of liquidation includes realising the company’s assets and using the proceeds to pay out the company’s liabilities in the order required by the law. If there is any amount remaining after this, it is distributed to the members (shareholders).

A solvent company may be placed into liquidation by any of the following:

• voluntarily by a resolution of its members
• involuntarily:
• by its creditors, or
• by an order of the court

The company will normally be dissolved within a few months of the date the liquidator presents an account of the winding up to the Australian Securities and Investments Commission (ASIC).

If the financial statements have not yet been provided by the customer, the means of liquidation, whether voluntary or involuntary, may indicate the extent of return likely to creditors and shareholders. That is, a voluntary winding up of a solvent company may provide a better return to creditors and members (shareholders). If the customer is unable to provide documents to show what creditors and shareholder will receive on wind up of the company, ask the customer for the name and contact details of the liquidator.

What return creditors receive, and what payment, if any, members receive, will depend on the priority of their claim as stated in section 556 of Corporations Law.

For example, the liquidator’s costs and some employee entitlements such as wages, superannuation, compensation and leave entitlements may be considered priority claims. Directors and spouses/partners are excluded employees for the purpose of employee entitlements when a company has been placed in liquidation. This means that the amount which can be paid to them is limited.

Note: a secured creditor is paid before an unsecured creditor.

Assets to be maintained - action by Complex Assessment Officer (CAO) only.

If a company is in liquidation, assets to be maintained should be assessed on the basis of the projected payout to be received as advised by the liquidator.

Possible deprivation

If an income support recipient advises that they have forgone repayment of a loan, or voluntarily agreed to receive a repayment of a lesser proportion of their loan than other unsecured creditors, deprivation provisions may apply. However, consideration should also be given to the circumstances in which a loan no longer exists for social security purposes as outlined in the Guide 4.6.5.65.