Members’ Voluntary Liquidation
A members’ voluntary liquidation is a formal process for winding up a solvent company, paying or providing for its debts and distributing the remaining assets to shareholders.
I am a registered liquidator and Principal at Worrells with more than 27 years’ experience in insolvency, restructuring and formal appointments. I assist shareholders, directors, accountants and professional advisers with solvent company wind-ups, tax and statutory clearances, asset realisation and member distributions.
What is a members’ voluntary liquidation?
A company does not cease to exist merely because it has stopped trading. It may still hold cash, investments, property or other assets and may have tax, employee, contractual or other liabilities that need to be resolved.
A members’ voluntary liquidation, commonly called an MVL, provides a formal process for dealing with those matters. It is available where the company is solvent and the directors can form the opinion that all company debts will be paid in full within 12 months after the winding up begins.
Once appointed, the liquidator takes control of the company, deals with its remaining assets and liabilities, distributes the surplus to members and completes the steps required for the company to be deregistered.
When a members’ voluntary liquidation may need to be considered
An MVL is generally used where a solvent company has reached the end of its useful life but still has assets, liabilities or other matters that need to be formally dealt with before it can be closed.
- A business or substantial company asset has been sold and the company is no longer required.
- The company has completed the purpose for which it was established.
- The owners have retired or the company has ceased trading.
- A corporate group is being simplified and an entity is no longer required.
- An investment or property-holding company has reached the end of its purpose.
- The company still holds material cash, investments, property or other assets that need to be distributed.
- Shareholder loans, related-party balances, historical reserves or other balance-sheet items need to be resolved before the company is closed.
The members’ voluntary liquidation process
Establish solvency
A majority of the directors make an inquiry into the company’s affairs and form the opinion that all company debts can be paid in full within a period not exceeding 12 months after the winding up begins. That opinion is recorded in a declaration of solvency supported by a statement of the company’s affairs.
Resolve to wind up the company
The declaration is lodged with ASIC before notice of the members’ meeting is sent. The members then consider a special resolution to wind up the company and appoint a registered liquidator.
Administer the winding up
The liquidator takes control, verifies the company’s assets and liabilities, completes outstanding taxation and statutory matters, obtains necessary clearances and pays or properly provides for creditor claims.
Distribute the surplus and complete
Once sufficient provision has been made for all liabilities and costs, the liquidator may distribute the remaining surplus to members. After the company’s affairs are finalised, the liquidator lodges the end-of-administration return and the company is subsequently deregistered.
What does an MVL mean in practice?
The work required depends on what remains in the company and how well its affairs have been prepared before appointment. My detailed guide explains the major issues that commonly arise, including:
- the declaration of solvency and the supporting statement of affairs;
- how the liquidator is appointed and when control passes;
- the books, records, information and assistance directors must provide;
- cash, property, investments, debts and other company assets;
- director, shareholder and related-party loan accounts;
- ATO notification, outstanding tax lodgements and tax clearance;
- other statutory, secured creditor and regulatory clearances;
- payment or provision for creditor and contingent claims;
- interim and final distributions to members;
- share classes, reserves, retained profits and the source of distributions;
- what happens if the company is not as solvent as expected; and
- timing, completion and deregistration of the company.
Preparation can reduce the time and cost
An MVL is generally easier to complete where the company’s accounting and taxation records are current and the major assets, liabilities, loan accounts and member entitlements have been identified before the liquidator is appointed.
Other processes may need to be considered
An MVL is only available where the company is solvent and all debts can be paid or properly provided for within the period stated in the declaration of solvency.
Creditors’ Voluntary Liquidation
Where the company is insolvent and there is no realistic restructuring outcome available.
Creditors’ Voluntary Liquidation →Small Business Restructuring
Where an eligible company has a viable underlying business and may be able to compromise historical debts while the directors remain in control.
Small Business Restructuring →Voluntary Administration and DOCAs
Where an independent administrator needs to assess restructuring, business-sale or deed of company arrangement options.
Voluntary Administration and DOCAs →Where a company has no outstanding liabilities, assets worth less than $1,000 and meets the other statutory requirements, voluntary deregistration may instead be available.
Members’ voluntary liquidation FAQs
What does the declaration of solvency require?
A majority of the directors must make an inquiry into the company’s affairs and form the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the winding up begins.
The declaration must be based on the company’s actual financial position and is supported by a statement setting out the company’s property, liabilities and estimated winding-up expenses. A director who makes the declaration without reasonable grounds commits an offence.
How is the liquidator appointed?
The declaration of solvency is lodged with ASIC before notice of the members’ meeting is sent. The members then meet to consider a special resolution that the company be wound up voluntarily and appoint a registered liquidator.
The special resolution must ordinarily be passed within five weeks after the declaration is made, unless ASIC allows a longer period. The winding up begins when the special resolution is passed.
When can money or assets be distributed to shareholders?
Creditors must be paid, or properly provided for, before the surplus can be distributed to members. The liquidator must also allow for winding-up costs, employee entitlements, taxation and statutory liabilities, disputed or contingent claims and the expected cost of completing the liquidation.
Once sufficient provision has been made, one or more interim distributions may be possible. The final distribution is made after the remaining liabilities and costs have been resolved.
How are distributions to shareholders treated for tax?
The amount and character of a distribution depend on the company’s constitution, the rights attaching to each class of shares, the source of the funds and the supporting accounts.
Tax advice should be obtained before appointment, particularly where the company has substantial retained profits, capital reserves, pre-CGT assets or gains, multiple share classes or other material tax issues. The liquidation process does not by itself determine the tax treatment of a distribution.
What happens if the company is not as solvent as expected?
The liquidator must continue assessing solvency throughout the appointment. If the company will not be able to pay or provide for all of its debts within the period stated in the declaration, the Corporations Act requires the liquidator to act as soon as practicable.
Depending on the circumstances, that may involve applying to the Court, appointing a voluntary administrator or convening a meeting of creditors so the winding up proceeds as a creditors’ voluntary liquidation.
How long does a members’ voluntary liquidation take?
The 12-month period in the declaration of solvency is the period within which the company’s debts must be paid or provided for. It is not a deadline for the liquidation itself to be completed.
A straightforward cash-only MVL with current records may be substantially completed within several months. Property or investment sales, outstanding tax returns, complex loan accounts, contingent liabilities, incomplete records, litigation or multiple share classes may extend the timing.
Need to discuss a matter with me?
If you would like to discuss a members’ voluntary liquidation or the closure of a solvent company, use the Contact page to provide a short summary.
If there is a proposed distribution, transaction, tax issue or target closure date, include that information when you contact me.