Can I close a company that owes the ATO?

Why you cannot just deregister

To apply for voluntary deregistration, the directors declare that the company is not trading, has assets under $1,000, has no outstanding liabilities, is not party to legal proceedings and has paid its ASIC fees. A tax debt is an outstanding liability, so the declaration cannot honestly be made. The ATO also watches for deregistration applications from companies on its books and can object to them.

The other shortcut, stopping the annual review fee and waiting for ASIC to strike the company off, does not end the debt either. Any creditor, including the ATO, can apply to have the company reinstated so it can be wound up properly. And a deregistered company's unpaid PAYG withholding, GST and super can still land on you through a director penalty notice.

The proper ways to close a company with ATO debt

• Creditors' voluntary liquidation. The directors and shareholders appoint a liquidator. The company's ordinary tax debt ends with the company. Costs, timing and what the liquidator does are in how much does liquidation cost.
• Small business restructuring. If the business is worth saving and total liabilities are under $1 million, SBR lets you keep trading while creditors, including the ATO, vote on a partial payment.
• Voluntary administration. A bigger, more expensive process for companies that may be saleable or able to offer creditors a deed of company arrangement.
• Pay it out, then deregister. If the debt is manageable, a payment plan followed by deregistration is the cleanest close.

Which one fits depends on whether the business is viable, what the company owns, and what you are exposed to personally. SBR versus liquidation sets out the trade-offs.

What follows you personally

Closing the company ends the company's debt. It does not end yours. Check these before you choose a route:

• Director penalty notices. A DPN for unpaid PAYG withholding, GST or super becomes personal if you do nothing within 21 days. Liquidation or SBR within that window remits a non-lockdown DPN. A lockdown DPN, issued where BAS were lodged more than three months late, can only be remitted by payment, and it can be issued after the company is gone.
• Personal guarantees on leases, finance and supplier accounts.
• Insolvent trading claims by a liquidator, and clawback of some ATO payments made in the six months before liquidation.

What to do next

1. Get the company's BAS and returns lodged today, because lodgement history decides whether any DPN is lockdown or non-lockdown.
2. Check the ASIC address on the company record, since a DPN's 21 days run from posting to that address.
3. Ask a registered liquidator or restructuring practitioner for a written view on liquidation versus SBR before you decide anything.

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