Australia: ASIC's powers to wind up abandoned companies


As part of the Australian Government's Protecting Workers' Entitlements Package, amendments to the Corporations Act 2001 (Cth) (Corporations Act) have been implemented through the Corporations Amendment (Phoenixing and Other Measures) Act 2012 (Cth) (Amendment Act). The Amendment Act, which commenced on 1 July 2012, allows, amongst other things, ASIC to:

  1. wind up abandoned companies administratively pursuant to new provisions in the Corporations Act; and
  2. appoint registered liquidators over a company when exercising its power to wind up an abandoned company.

ASIC intends to commence using its new powers from November 2012.


The introduction of the Amendment Act now assists eligible employees of abandoned companies to obtain access to the General Employee Entitlements and Redundancy Scheme (GEERS) in the event that they are owed particular employee entitlements.

Before the Amendment Act, in some circumstances, directors would abandon their companies without putting the company into liquidation and furthermore, there would be no incentive for creditors (other than employees) to fund the winding up of the company. As it is a prerequisite for employees who are employed by a corporation that the employer be in liquidation before being able to obtain payments from GEERS, the Amendment Act seeks to facilitate and improve employee access to the scheme.

Summary: Corporations Amendment (Phoenixing and Other Measures) Act 2012 (Cth)

The Amendment Act introduces a new Part 5.4C into Chapter 5 of the Corporations Act. Under the new s 489EA(1) of the Corporations Act ASIC may order the winding up of a company if:

  1. he response to a return of particulars given to the company is at least six months late; and
  2. the company has not lodged any documents under the Corporations Act in the last 18 months; and
  3. ASIC has reason to believe that the company is not carrying on business; and
  4. ASIC has reason to believe that making the order is in the public interest.

ASIC may also order the winding up of a company if:

  1. The company's review fee has not been paid and it has been due for 12 months or more;
  2. ASIC has reinstated the registration of the company in the last six months and considers that ordering the winding up of the company would be in the public interest; or
  3. ASIC has reason to believe that the company is not carrying on a business and ASIC has given the company and its director(s) an opportunity to object to the winding up, at least 20 business days before making the order.

Factors ASIC will consider when exercising its Administrative Winding Up Powers

ASIC has released Consultation Paper 180 entitled "ASIC's power to wind up abandoned companies". The Consultation Paper outlines how ASIC intends to exercise its new powers and how it will prioritise matters for winding up. ASIC Commissioner John Price has stated that "When using this power, our first consideration will be if an order to wind up the company would facilitate employee access to GEERS".

Once this is established, in line with the provisions of the Act, ASIC will apply a public interest test which considers:

  1. whether there is a creditor capable of winding up the company and whether sufficient time has passed to enable the creditor to proceed with their own winding up application;
  2. whether the cost of liquidation (including ASIC's costs) would exceed the amount of employee entitlements owed;
  3. how many employees are affected by the company's abandonment;
  4. whether there are any current business or operations of the company that may have value or incur significant liquidation costs; and
  5. the amount of funds available in the Assetless Administration Fund (AAF) used to pay for the winding up and how the limited funds available would be utilised.

In relation to point 1 above, ASIC has stated that if there is a significant creditor (apart from employees) that will benefit form the liquidation, ASIC would expect that creditor to take action. Furthermore, ASIC will wait until sufficient time has passed to determine that other directors are not going to commence winding up proceedings.

Therefore, it appears that ASIC will need to consider competing policy consideration of assisting employees of abandoned companies to claim unpaid entitlements from GEERS, against the best use and allocation of public resources when delivering government objectives.

ASIC may appoint a Registered Liquidator

If ASIC orders that a company be wound up under s 489EA, ASIC may also appoint a registered liquidator (with the liquidator's written consent) and determine the remuneration of the liquidator.

The registered liquidator will be funded from the AAF. ASIC states that funding from the AAF would promote the Australian Government's aim of identifying and pursuing breaches of directors' duties, including phoenix activity.

Effect of a winding up order under the Amendment Act

If ASIC orders the winding up of a company pursuant to s 489EA, the company is taken to have passed a special resolution under s 491 of the Corporations Act that the company be wound up voluntarily. The company is deemed to have passed the special resolution at the time ASIC made the order under s 489EA.

Obviously, having abandoned the company, the directors will not make a declaration of solvency under section 494 of the Corporations Act and there is no requirement that they do so (see the new section 489EB(b)(ii) of the Corporations Act). Even so, liquidators appointed under the new provisions have to observe the requirements of section 496 of the Corporations Act (see the new section 489EB(c) of the Corporations Act). Section 496 normally only applies to a members' voluntary liquidation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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