ASIC deregistration of insolvent companies can be a deliberate strategy.
ASIC Deregistration of Insolvent Companies
In episode 364 of Tax Talks, Ben Sewell of Sewell and Kettle in Sydney mentions the option of letting ASIC just deregister an insolvent company. In this episode, we drill deeper into that.
When you got insurmountable debts and need to close your business, to what extent could you avoid a costly external administration? Fees often exceed $10k for a liquidator. To what extent could you avoid those fees by just letting ASIC deregister the company?
Here is what we learned but please listen in as Ben explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
ASIC Deregistration of Insolvent Companies
The deregistration of an insolvent company through ASIC is often called a ‘strike-off’.’ A strike-off is ASIC removing your company from the ASIC register and canceling your ACN.
For small companies, these so-called ‘strike-offs’ are the most prevalent way to walk away from a business.
According to Ben Sewell the ratio between strike-offs and liquidations is 5:1. So for every company that goes into liquidation (both solvent and insolvent), there are five companies that just don’t pay their ASIC fees and let ASIC deregister the company.
So deregistration by ASIC for non-payment of ASIC annual fees is a common backdoor to closing a company without paying for a liquidation process
ASIC Deregistration of Insolvent Companies
Just letting ASIC deregister your company could be a way out of your tax debts if you meet four criteria:
1 – You have no personal assets, for example, because they are all held in your spouse’s name. If you do have personal assets, then the risk is higher than the ATO might go for them.
2 – The only substantial liability left in your company is the ATO debt. If you also still owe substantial amounts to other creditors, then there is the risk that those other creditors might still pursue you.
3 – There is no tax loss carryforward in the company. Or you want to get out of business anyway so you won’t have any income that could run against those tax debts. So in other words, tax loss carryforwards are of no relevance to you.
If your company meets those three criteria, then just letting ASIC deregister the company might be an option.
There is a fourth criterion. Your company needs to have lodged its BAS and company tax returns on time. On time or within three months of the due date. If BAS were late or still outstanding, the ATO could issue a DPN due to late or non-lodgement. But if you have no personal assets, then a DPN won’t worry you anyway. But in theory, this is another criterion to consider.
So this is a short summary of what we learned. But please listen to the episode, since Ben Sewell explains all this much better than we ever could.
MORE
When Your Business Can’t Pay Its Bills
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 26 October 2022
Tax Talks spoke to Ben Sewell - Principal at Sewell & Kettle - for more details.
