When the sole director of a company is insolvent and the company is also insolvent with little to no assets, the director does not need to borrow money to fund the cost of the company’s liquidation.
Steps to be taken by the director are:
Inform creditors of the company’s plight and that no funds are available for liquidation of the company.
The director then files for bankruptcy and, once bankrupt, lodges Form 296 with ASIC, giving the date of bankruptcy and bankruptcy number. When ASIC receive this form they will, without cost, remove the person from being a director of the company and subsequently deregister the company as a director-less company.
If the deregistered company has nominal assets, those assets will vest in the Commonwealth, ASIC will take care of that.
If a creditor should subsequently want the deregistered company to be placed into liquidation, the creditor can apply to the Supreme Court for the company to be reinstated and placed into liquidation.
QUICK TIP: Once bankrupt, the director of a company ceases being a director by lodging Form 296 with ASIC. There is no lodgement fee and the completed form is mailed to ASIC at the address shown on the bottom of Form 296.
COMMENT: An insolvent director borrowing money to fund the cost of liquidating a company has inherent risk for the director.
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