COVID-19: closing a company and where to get help
- If your company has been impacted financially by the COVID-19 pandemic, this article provides information on closing, winding-up or restructuring a company.
- Advice and support are available for small business owners.
- Mental health resources – where to get help.
The COVID-19 pandemic has led to financial stress for many Australian small businesses.
ASIC has information available to help small business owners who operate through a company or who are seeking to close down a small business and information about signs your company is in financial difficulty.
What should I do if my company is struggling financially?
Seek business advice from people you trust, such as an accountant, lawyer, financial adviser, mortgage broker, business adviser or registered liquidator.
Unless it’s possible to promptly reorganise your business, refinance or obtain equity funding to recapitalise the company, and if you want to take action, generally your options are to start one of the following processes:
- Director-initiated liquidation: The purpose of a director initiating a liquidation of their insolvent company is to have an independent and suitably qualified person (the registered liquidator) take control of the company so that its affairs can be wound up in an orderly and fair way for the benefit of its creditors.
- Voluntary administration: Directors can initiate a voluntary administration process if they think they may be able to restructure or turn around the company as an alternative to liquidation. An independent and suitably qualified person (the voluntary administrator – who must be a registered liquidator) takes full control of the company and recommends to creditors whether a restructure proposed by the directors (or others) is better than the immediate winding up of the company. However, it is not always possible to save a business especially if the director cannot propose a restructure plan which gives a better return than a liquidation.
Beware of illegal phoenix activity
It is important small business owners act appropriately when closing down their business.
Illegal phoenix activity often involves directors shifting the assets of a company with financial problems to another company without paying the market value for those assets.
They then continue to operate the business through the new company. The directors leave the debts with the financially stricken company so when the company is placed in external administration there are no assets to sell to pay the debts.
Ensure you understand the difference between legal and illegal phoenix activity.
ASIC is working with other government agencies to monitor, detect and deter illegal phoenix activity.
Help is available
ASIC’s Moneysmart website has resources and information to assist business owners to consider and manage their own personal finances and financial wellbeing.
You can also call the free National Debt Helpline on 1800 007 007 to be connected with a free financial counsellor in your State or Territory. The helpline is open Monday to Friday, 9:30am to 4:30pm (AEST).
Mental health resources
- Heads Up (supported by Beyond Blue) resources for small business
- Business.gov.au: How to manage risks to mental health in your business
ASIC is Australia’s corporate, markets and financial services regulator.