What Happens to Debts When You Close a Business in Australia

If you’re winding down a business in Australia, the debts don’t just disappear when you stop trading (especially if you haven’t planned for it). What you owe after that point depends on your business structure. A sole trader, for example, carries personal liability for every dollar, while a company director usually won’t. 

We cover this topic often at AB Mag. And according to the Australian Bureau of Statistics, more than 370,000 businesses called it quits during 2024–25. So if you’re trying to close business debts in Australia, you’re in a very large crowd.

Below, we’ll break down how liability works by structure, what ASIC requires for deregistration, and where to get free help.

What Happens When You Close Your Company With Business Debt?

Your debts don’t close with your business. How much you owe personally after a company closure depends on two things: your business structure and the type of debt.

Here’s how that breaks down by structure.

Sole Trader Debt Is Personal Debt

A sole trader isn’t a separate legal entity under Australian law. You and your business are the same thing. That means creditors can come after your savings, your car, even your home to recover money you owe. 

It doesn’t stop at suppliers, either. The ATO and your bank are just as likely to pursue you. And if those debts become unmanageable, bankruptcy is the formal process for sole traders. It typically lasts three years and will stay on your credit report even longer.

Now, let’s look at how company structures handle debt differently.

How Business Structure Affects What You Owe

A company operates as its own legal entity, so directors and members aren’t personally responsible for company debts in most cases. That’s the upside of running a Pty Ltd.

But we’ve covered enough business closures at AB Mag to know that personal guarantees catch a lot of directors off guard. If you signed one on a business loan or a lease, you’ll still owe that money after the company shuts down. 

Partnership structures also carry similar exposure, since each member can be liable for shared debts under the partnership agreement.

Can You Deregister a Company That Still Has Debts?

No. ASIC won’t approve a voluntary deregistration if your company still has outstanding liabilities (no exceptions). To qualify, an Australian company must meet the following conditions under the ASIC voluntary deregistration requirements:

• Members Must Agree: You can’t file for company closure unless every member signs off in writing.
• No Longer Conducting Business: The company must have ceased trading completely before you apply.
• Assets Under $1,000: If the company’s assets are worth more than $1,000, ASIC will reject the application.
• No Outstanding Liabilities: Unpaid wages, creditor balances, and any remaining debts must all be cleared first.
• No Legal Proceedings Active: ASIC won’t proceed if the company is involved in any ongoing legal proceedings.
• ASIC Fees Fully Paid: Your annual review fee, any penalties, and the application fee for Form 6010 all need to be settled before you lodge.

In practice, that means solvent companies with clean books can apply through the official process for deregistering a company on the ASIC website. Once the company closure goes through, it will no longer exist as a legal entity. You lose your registered status, and the company can’t trade or take on new debts from that point forward.

But if your company is insolvent, voluntary deregistration isn’t an option. You’ll need formal liquidation instead. That process involves a registered liquidator who takes control, distributes what’s left to creditors, and then applies to close the company through ASIC guidance on company winding up.

Once that’s clear, the next question most owners ask is whether there’s a way to restructure instead of shutting down entirely.

When Does Voluntary Administration Make Sense for Business Owners?

If your company is insolvent but the underlying operations are still worth saving, voluntary administration gives you a path to restructure. Instead of closing down completely, it allows you to reorganize and continue operating.

Under the Corporations Act, directors can appoint an independent administrator when they believe the company can’t pay its debts or is heading that way. Once that appointment goes through, all legal proceedings pause, and the administrator takes control. 

From there, the administrator reviews the finances and reports back to creditors with a plan. 

Drawing from what we’ve seen in recent cases, a deed of company arrangement tends to work best when the company is still earning enough to service a reduced debt load. So, if creditors agree to the deed, the company can lower what it owes and continue trading under new terms.

Still, it’s not a guaranteed rescue. The arrangement needs approval from a majority of creditors in both number and value. If that vote fails, the company will move into liquidation instead. 

But for business owners who act early enough, voluntary administration can buy time and protect assets that would otherwise be lost in a wind-up.

Now, losing a business is stressful enough without doing it alone. So, let’s look at the free resources available to you.

Need Help? The Small Business Debt Helpline and Mental Health Support

According to Financial Counselling Australia, 64% of small businesses that contacted the Small Business Debt Helpline in 2025 were dealing with ATO debt. That was the single most common issue, followed by business loans and supplier debts.

If you’re struggling under similar pressures, you don’t have to work through the debt side of a closure on your own. Here are the main services available to business owners across Australia (and they’re all completely free).

Financial pressure from a closure hits your sleep, your relationships, and your ability to think clearly (that’s a weight no one should carry alone). 

Pro Tip: The Small Business Debt Helpline is a good first call if you need advice on where to go from here.

Ready to Close Business Debts in Australia? 

Now that you know how debts work during a business closure, here’s what to do next. 

Talk to an accountant or insolvency adviser who can walk you through the full process. They’ll lay out the cost of winding down your company and how to handle employee entitlements and notice periods.

Before you close your company, give your suppliers proper notice and settle any remaining repayments or expenses. The earlier you act on all of this, the more options you’ll have. 

And for more guidance, our other guides at AB Mag cover topics like company deregistration and how to start a business in Australia when you’re ready to move forward.