Author
David HillChief Operating Officer
0403 037 664
When a solvent company permanently stops trading and shuts down, it begins the formal process of Members’ Voluntary Liquidation to wind-up affairs. Many businesses opt for this as it ensures the protection of its members interest while dismantling the company structure.
Let's explore the various benefits and steps involved in the Members’ Voluntary Liquidation process.
What is a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation (MVL) is when the members agree to shut down the business and cease trading, giving solvent companies a way to wind-up quickly in an orderly manner. By removing the need for creditors’ during the liquidation process, it is more cost-effective and offers tax benefits for members.
During a Members’ Voluntary Liquidation, shareholders and creditors are paid prior to the closure of the business, and the assets are realised (sold) or distributed. Assets could also be distributed in specie, meaning they’re distributed in their actual form rather than in the form of post-sale cash proceeds.
The company must meet the criteria of being solvent in order to enter a Members’ Voluntary Liquidation. A company is considered solvent if it can repay all its debts and fully satisfy its creditors within 12 months.
If it doesn’t adhere to the criteria, the liquidation will automatically convert to a creditors' voluntary liquidation.
What is the process of a Members’ Voluntary Liquidation?
The MVL process is the quickest liquidation method to wind up a business. This is one of the many reasons why Directors opt for this method. The 7 steps of a Members’ Voluntary Liquidation are outlined below.
1. Company Wind-Up
Directors agree to call a meeting of members to wind up the company.
2. Declaration of Solvency
Directors complete a Declaration of Solvency, which states that the company is solvent and can pay its debts within a 12-month period.
3. Lodgement with ASIC
The Declaration of Solvency is lodged with ASIC before the formal notice of the meeting with members. Members usually should be given 21 days’ notice of the meeting.
4. Formal Remuneration Report
The Liquidator provides members with a formal remuneration report at the same time as the extraordinary meeting of shareholders is convened.
5. Wind-Up Meeting
The members then need to meet to pass a number of resolutions. The resolutions must:
- Establish that the company will be wound up.
- Agree that a liquidator will be appointed.
- Set an amount for the liquidator’s remuneration.
- Establish a date when the books and records of the company can be destroyed.
Then the resolutions should be lodged with ASIC. For the liquidation to go ahead, at least 75% of members present must vote in favour of winding up the company via a special resolution.
6. Appointment of Liquidator
A liquidator will be appointed for the Members’ Voluntary Liquidation. The liquidator will then notify interested parties before finalising affairs of the company. This includes tax returns, realising assets, paying creditors, and distributing surplus to shareholders.
The liquidator must also fulfil other obligations like advertising their appointment, notifying the ATO and keeping members informed throughout the process.
7. Final Meeting of Members
Once affairs have been dealt with, the liquidator will call a Final Meeting of Members, with one month’s notice. The appointed liquidator lodges a Final Return and Final Liquidator’s Account of Receipts and Payments with ASIC. The meeting can only be held after all creditors’ claims are satisfied and other issues are resolved, and any surplus assets are distributed to members.
It is a statutory process and members’ attendance is optional. After this meeting, the liquidator of the company resigns as liquidator, and the company is automatically deregistered by ASIC three months after the final meeting is held.
How long does Members’ Voluntary Liquidation take?
Members’ Voluntary Liquidation can take anywhere between 3-6 months to complete. This is a great option for those who want to quickly wind up business affairs. Other forms of liquidation, such as the creditors' voluntary liquidation process can take 6-12 months to wind-up.
The short-term nature of a Members’ Voluntary Liquidation helps reduce associated costs, making it both time- and cost-effective.
Why do businesses opt for Members’ Voluntary Liquidation?
There are various significant benefits of entering into a Members’ Voluntary Liquidation. An MVL is an efficient and cost-effective method of winding up the company’s affairs. It's also a quick process that removes the involvement of creditors, which can often cause delays in liquidation.
There are other reasons as to why one would enter a Members’ Voluntary Liquidation, which we’ve outlined below.
- Viability: While the company is solvent, it may no longer be viable due to limited growth prospects, prompting directors to cease trading.
- Lifestyle changes: The Director’s lifestyle may change such as moving overseas, wishing to change their career path, or planning to retire.
- Tax purposes: Entering a Members’ Voluntary Liquidation could offer a tax-effective way to distribute assets to shareholders.
- Sale or transfer: If the company’s assets have been sold or transferred to a third party, it may no longer be required. If the company doesn’t meet the criteria for voluntary deregistration, it can be wound up via MVL.
- Restructure: Large corporate groups might go through a restructuring process where subsidiary companies are no longer needed. In this case, MVL can be the best option for closing down the subsidiary.
Get Professional Guidance
If you're considering a Members’ Voluntary Liquidation, it's important to understand the legal requirements and ensure the process is handled correctly. Speak to our experts at Mackay Goodwin for professional advice tailored to your business. Our experienced team can guide you every step of the way, helping you make informed decisions and manage the process with confidence.
Get in touch
Speak to one of our experts now for a free consultation. Enter your details below or call 1300 750 599.