Members’ Voluntary Liquidation

Table of Contents

1. What Is Members’ Voluntary Liquidation?
2. When Should You Consider Members’ Voluntary Liquidation?
3. How a Members’ Voluntary Liquidation Is Initiated
4. Declaration of Solvency
5. The Members’ Voluntary Liquidation Process
6. How Does Members’ Voluntary Liquidation Affect Directors?
7. Deregistrations vs Members’ Voluntary Liquidation

What Is Members’ Voluntary Liquidation?

Members’ Voluntary Liquidation (MVL) is a procedure that is used to wind up a solvent company. During a Members’ Voluntary Liquidation, the company’s assets are distributed to its members (such as shareholders), and the company is deregistered with ASIC.

A Members’ Voluntary Liquidation is usually conducted by an independent Liquidator. Professional input makes it easy to wind up the company in an orderly fashion and ensures assets are distributed fairly amongst the members.

When Should You Consider Members’ Voluntary Liquidation?

Commencing MVL is a serious decision. It results in the company being wound up and deregistered, at which point it ceases to exist. But, it’s the right decision in some situations. For example, Members’ Voluntary Liquidation is useful when:

• The company has achieved its purpose. Some businesses are established with a single goal in mind. Once that goal is achieved, the business may have little or no activity. MVL can allow you to wind up the business, simplify your accounting and reduce annual fees generated by a company that no longer needs to exist.
• Owners can’t agree on what to do next. This is common for family owned businesses. If the owners of a company can’t agree on how to run the company, or if some members want financial independence from the business, an MVL allows for the assets to be distributed fairly.
• Taking advantage of tax exemptions. Certain tax exemptions apply to the distribution of company assets by a Liquidator (such as pre-CGT assets acquired before 20 September 1985). These exemptions cannot be accessed in any other way. 
• Distributing assets to shareholders. While it’s possible to wind up a company and distribute its assets without a Liquidator, professional input ensures the process is handled fairly and legally. Working with a Liquidator prevents claims of unfair dealings and makes it easy to keep track of how assets are distributed.

How a Members’ Voluntary Liquidation Is Initiated

A Members’ Voluntary Liquidation is commenced by special resolution of the shareholders of the company. Prior to the shareholder meeting, the directors must also agree to wind up the company.

At the meeting of directors, the majority of directors must:

• Make a Declaration of Solvency;
• Attach a Statement of Affairs to that declaration;
• Resolve to convene a meeting of the shareholders to consider winding up the company, and;
• Obtain written consent from the proposed Liquidator.

The directors can then convene a meeting of the shareholders. The majority of shareholders must agree to the special resolution to wind up the company. If passed, the shareholders will also appoint the Liquidator.

Declaration of Solvency

In order to commence a Members’ Voluntary Liquidation, the directors of the company must make a Declaration of Solvency. This declaration signifies that the directors have inquired into the company’s financial affairs. If the directors feel that the company will be able to pay all its debts within 12 months of commencing the MVL, the company is considered solvent.

It’s important to note that the company needs to be able to meet all its debts within that 12 month period. That includes liabilities that are due, liabilities that will become due within that period, and liabilities that may fall due if certain events or contingencies occur.

Directors should only make a Declaration of Solvency if they feel the company is genuinely able to meet all its obligations in the 12 month period. If the company fails to meet its obligations, it may be presumed that the director who made the declaration had no basis for the opinion, and the director may be considered guilty of an offence.

You can read ASIC’s Regulatory Guide to Solvency Declarations for more information.

The Members’ Voluntary Liquidation Process

Members’ Voluntary Liquidation offers an orderly framework you can use to wind up your business. But, it’s still a formal liquidation process, and it comes with several distinct phases:

1. The Liquidator investigates the company’s affairs. As soon as the Liquidator takes control of the company, they begin investigating its finances and confirm its assets and liabilities.
2. The Liquidator lodges final tax returns. The Liquidator will work with state and federal tax authorities to lodge tax returns and sort out any remaining taxation obligations.
3. Gathering and selling assets. The Liquidator is responsible for distributing the company’s assets to its shareholders. In most cases this involves gathering and selling assets so that the money can be distributed as a dividend.
4. The final shareholders’ meeting. Once distributions have been made, the Liquidator will arrange a final meeting of the shareholders to complete the process.

Following the last shareholder meeting, ASIC will deregister the company and it will cease to exist. The full process typically takes between 6-12 months to complete.

How Does Members’ Voluntary Liquidation Affect Directors?

Control of the company passes to the Liquidator as soon as they are appointed. That means the powers of the directors cease. Additionally, the company must cease trading, unless the Liquidator decides otherwise. Just like other forms of liquidation, company directors are expected to comply with Liquidators and support their efforts in winding up the company.

Deregistrations vs Members’ Voluntary Liquidation

Deregistration is a common alternative to Members’ Voluntary Liquidation. Although both allow you to wind up a solvent business, the two processes have vastly different requirements. To quality for deregistration:

• All company shareholders must agree to deregistration
• The company cannot be carrying on any business
• The company must have assets valued at less than $1,000
• The company must have paid all fees and penalties under the Corporations Act 2001
• The company must not have any outstanding liabilities
• The company must not be involved in any legal proceedings

Most companies that opt for deregistration have been dormant for some time. It’s difficult for a business that was traded recently to meet the above criteria, in which case Members’ Voluntary Liquidation is often the better option.

Wind Up Your Company with Help from Business Savers

Entering into Members’ Voluntary Liquidation can allow you to wind up a business that is no longer needed. Engaging professional help makes it easy to gather and distribute assets, and it ensures all your obligations are met, including exploring options like personal solvency agreements where appropriate.

The team at Business Savers has vast experience in liquidation proceedings, such as Creditors Voluntary Liquidation and Simplified Liquidation. We’ve helped businesses of all sizes to navigate liquidation, insolvency and deregistration. We take a tailored approach to financial advice that allows you to make informed decisions and stay in control of your company’s future.

If you are considering Members’ Voluntary Liquidation or a service to assist with Small Business Restructuring, or if you’d like to find out more, you are welcome to contact us online at any time.