Closing or selling a business that owes the ATO

A company that owes the ATO cannot simply be deregistered: ASIC’s conditions for voluntary deregistration include having no outstanding liabilities. If the company cannot pay, the usual route is liquidation, which deals with the ATO and other creditors in an orderly way. Selling the business does not remove the company’s ATO debt, and directors can remain personally liable for unpaid PAYG withholding, GST and super through director penalty notices.

Your options for closing a company with ATO debt

Why voluntary deregistration is not an option

ASIC’s conditions for voluntary deregistration include that all members agree, the company is not carrying on business, its assets are worth less than $1,000, it has no outstanding liabilities, and it is not a party to legal proceedings. A company with an ATO debt does not meet the “no outstanding liabilities” condition.

Selling the business when the company owes the ATO

• The sale proceeds belong to the company, not the directors, and creditors including the ATO have a claim on them.
• Sales at an undervalue can be reversed. A liquidator can recover assets sold for less than their value, or transferred to defeat creditors.
• Illegal phoenix activity is a serious offence. Moving a business to a new company to leave the debts behind can expose directors to penalties.
• A properly valued sale can still be the right step, often handled by an administrator or liquidator so creditors can see the value obtained.

What directors stay liable for

Closing the company does not close a director’s personal exposure:

• unpaid PAYG withholding, GST and super can be recovered from directors under a director penalty notice, and that liability survives liquidation and deregistration (see liquidation and DPNs);
• personal guarantees given to lenders, landlords or suppliers remain; and
• a liquidator can pursue insolvent trading claims and director loan accounts.

Common questions

Can I deregister a company that owes the ATO?

Not through voluntary deregistration. ASIC’s conditions for voluntary deregistration include that the company has no outstanding liabilities. A company with debts it cannot pay is usually closed through liquidation instead.

Can I sell the business and keep trading under a new company?

Only with great care. Selling assets for less than their value, or moving the business to avoid creditors, can be reversed by a liquidator and can amount to illegal phoenix activity. Get advice before any sale.

What happens to the ATO debt if the company is liquidated?

The company’s debt is dealt with in the liquidation and the ATO claims as a creditor. Directors can remain personally liable under a director penalty notice for unpaid PAYG withholding, GST and super.

Does closing the business stop director penalty notices?

No. Director penalties relate to the period when you were a director, and liability survives the company being liquidated or deregistered.

What is simplified liquidation?

A streamlined liquidation process for smaller companies. Eligibility conditions apply, including liabilities of $1 million or less and up-to-date tax lodgements.

Sources: Corporations Act 2001 (Cth) sections 601AA and 588FDB, and Part 5.5 Division 3; Taxation Administration Act 1953 (Cth) Schedule 1, Division 269; Australian Taxation Office, Director penalty regime (last updated 16 April 2026). This page is general information, not advice about your circumstances. Last reviewed: 9 October 2026.