When a solvent company permanently stops trading and shuts down, it begins the process of Members’ Voluntary Liquidation, a formal process that allows a solvent company to wind up affairs. Many businesses opt for this option, and in this article, we’ll explore the various benefits involved and the steps that company’s need to take in the process. If the company is no longer serving its useful purpose or not needed, the company can enter voluntary liquidation decided by its members. This ensures the protection of its members interest while dismantling the company structure.
What is a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation 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 creates for a more cost-effective and tax efficient option for members.
During a Members’ Voluntary Liquidation, the business assets will be distributed, shareholders and creditors are paid prior to the closure of the business, and the assets are realised (sold) or distributed.
The company must meet the criteria of being solvent in order to enter a Members’ Voluntary Liquidation. If it doesn’t adhere to the criteria, the liquidation will automatically convert to a creditors voluntary liquidation. A solvent company is defined by the ability to repay all debts and creditors to be paid in full within 12 months.
Why do businesses opt for Members’ Voluntary Liquidation?
As mentioned, there are various benefits for entering into a Members’ Voluntary Liquidation. A Members’ Voluntary Liquidation is an efficient and cost-effective method of winding up the company’s affairs. It is 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: The company may have little opportunity for growth, is deemed solvent however it is no longer viable, or the directors might opt to discontinue trading.
- Lifestyle changes: 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.
- Company undergoes sale or transfer: The company’s assets have been purchased or transferred to a third party can result in the company not being needed. If the company doesn’t meet the criteria for voluntary deregistration it can be wound up via a Members’ Voluntary Liquidation.
- Company undergoes a restructure: During the restructuring process, a subsidies company may no longer be needed. A Members’ Voluntary Liquidation can offer the best option for closing the subsidiary.
Want to know more about business restructuring? Take a look at our article on “How to conduct a successful business restructure”
How long does Members’ Voluntary Liquidation take?
A Members’ Voluntary Liquidation can take anytime between 3-6 months to complete. This is a great option for those who are wanting to quickly wind up the affairs of the business as opposed to other forms of liquidation such as creditors voluntary liquidation that can take 6-12 months to wind up the company’s affairs. Due to the short term nature of a Members’ Voluntary Liquidation, this also decreases costs associated during liquidation, proving a Members’ Voluntary Liquidation to be both time and cost effective.
What is the process of a Members’ Voluntary Liquidation?
The process of a Members’ Voluntary Liquidation is quick and short in comparison to other types of liquidation. It is the quickest method to wind up the business. This is one of the many reasons why Directors opt for this method.
The 7 steps of a Members’ Voluntary Liquidation
- Company Wind Up: Directors agree to call a meeting of members to wind up the company.
- 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.
- Lodgement with ASIC: The Declaration of solvency is lodged with ASIC before the formal notice of the meeting with members.
- Formal Remuneration Report: The Liquidator provides members with a formal remuneration report.
- Wind Up Meeting: This meeting is held to wind up all resolution of members. The members need to meet to pass several resolutions, and the meeting should end with all members in agreement that the company will be wound up, a liquidator appointed, a set amount for liquidators’ remuneration is confirmed. Subject to obtaining the approval of ASIC, at this meeting the books and records of the Company and Liquidator will be disposed six months after the dissolution of the Company. In order for the Members’ Voluntary Liquidation to proceed, 75% of members must vote in favour of winding up the company.
- Appointment of Liquidator: A liquidator will be appointed to 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, distributing surplus to shareholders.
The liquidator also must fulfil other obligations such as, advertising appointment, notifying the ATO and interested parties at relevant stages and providing all information of the process to members.
- Final Meeting of Members’ Voluntary Liquidation: Once affairs have been dealt, 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 resolved, and any surplus distributed to members.
What happens at the final meeting of a Members’ Voluntary Liquidation?
Once all assets are realised and dividends are paid, the process ends with the liquidator calling the final meeting of a Members’ Voluntary Liquidation. This final meeting can only be held once creditors are satisfied, issues are resolved, and surplus is 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.
Learn more about Members’ Voluntary Liquidation via our liquidation page or how we can help you by contacting one of our experts on 02 9220 7100.