De-registering a company? Avoid these potential pitfalls!

April 4, 2024

Failing to perform the necessary steps before deregistering a company can have significant consequences. These include:

Legal Issues: If you don’t notify stakeholders or fulfill your obligations, you may face legal repercussions. Creditors, employees, or shareholders might take legal action against the company’s directors for not following the proper procedures, especially if it leads to financial losses or damages.

Outstanding Liabilities: If you don’t clear all debts, taxes and outstanding payments before deregistering, the responsibility for these liabilities might fall on the directors or shareholders. This could lead to personal financial liabilities, penalties, or even legal actions from creditors or tax authorities.

Corporate Trustees: If your company was acting as trustee for a trust, assets held in the name of the company might become legally or practically ownerless, leading to complications in asset ownership and control. Deregistration without proper arrangements may lead to a breach of trust or fiduciary duties. The trustee has a legal responsibility to act in the best interests of the trust beneficiaries, and failure to do so could result in legal consequences.

Loss of Assets: Without properly distributing or transferring company assets, there might be disputes among shareholders or potential losses. In some cases, failing to follow the correct procedures could lead to assets being frozen, claimed by the government or vested in the Australian Securities and Investments Commission (ASIC).

Tax Consequences: Not filing the final tax return or settling outstanding tax liabilities can result in penalties and interest charges from the Australian Taxation Office (ATO).

Regulatory Issues: If licenses, permits, or registrations are not properly cancelled, the company might still be considered active in the eyes of regulatory authorities, leading to compliance issues, ongoing annual registration fees being payable and potential fines.

Personal Liability: Directors may become personally liable for the company’s debts and obligations if the deregistration is not conducted in accordance with the law.

Reinstatement Costs: If the company is not correctly deregistered, there may be additional expenses and administrative efforts required to rectify the situation or reinstate the company.

Company defaults in borrowings: If the company has borrowed funds from a financial institution (or otherwise provided the company assets as security to a financial institution for other borrowings) not ensuring that these borrowings have been repaid in full before deregistering registering a company will likely put the company in default of the terms of any mortgage or loan agreement. This is particularly problematic where the company’s directors or shareholders have personally guaranteed the company’s borrowings, offering their personal assets as security. These personal assets are then also at risk in the event of the company’s default.

Not following the proper steps before deregistering a company can lead to legal, financial, and regulatory complications. You should contact a member of our Business Services team today to ensure a smooth and compliant deregistration process for your company.