Members Voluntary Liquidation is the process of winding up a solvent company, carried out when the members no longer wish to retain the company structure. This is the only process available for fully winding up the affairs of a solvent company; as opposed to simply selling the company’s assets and paying its debts. Having an independent party act as Liquidator protects the interests of all creditors, directors and members and ensures all outstanding creditors are paid in full while the company structure is broken down and dismantled.
Members Voluntary Liquidation can be used if a company has ceased trading and is no longer required, to resolve disputes between directors and shareholders, or to finalise the affairs of a company should any previous director/s be unable (or unwilling) to continue as director/s – it is a simple and cost effective way to finalise a company and distribute any assets and/or surplus funds, in addition, it can be a tax effective way of disbursing assets of the company to its shareholders.
Frequently Asked Questions About Members Voluntary Liquidation
How to start the process?
The directors will resolve to call a meeting of the members to wind up the company. The directors must complete a ‘declaration of solvency’ stating that the company is solvent and that the company can pay all its debts within 12 months. This declaration is lodged with ASIC prior to the members meeting. At the meeting the resolution is passed to place the company into liquidation. The solvent company is wound up on the resolution of its members at the duly convened meeting.
What are the effect on the company?
The company structure itself survives the appointment, but not the liquidation. The control of all assets, the conduct of any business and other financial affairs are transferred to the liquidator. The directors cease to have any authority. All bank accounts are frozen, any employment can be terminated, but necessary labour may be engaged by the liquidator. At the end of the liquidation, the liquidator will apply to ASIC for the company to be de registered, after which the company will cease to exist.
Can the company trade whilst in Liquidation?
The liquidator may continue trading a business if they believe that it will be in the best interest of creditors. This is usually done if there is a prospect to sell the business as a going concern or to complete and sell any work-in-progress. The liquidator has the obligation to end trading and wind up the affairs of the company as quickly, but as commercially, as practical.
What must the directors do to help the Liquidator?
The directors must supply to the liquidator all of the information about the company’s financial affairs and provide a Report as to Affairs (detailing the assets and liabilities of the company as at the date of appointment of the liquidator) and a Director’s Questionnaire. The directors must also deliver all company books and records to the liquidator, and co-operate with the liquidator throughout the liquidation. There are various offence provisions that relate to directors who do not co-operate with liquidators.
How long does the process last?
The liquidation lasts for as long as is necessary. Selling assets and paying creditors will usually occur within the first few months. The process of completing the company’s financial statements and final tax returns could potentially delay the distribution to members, particularly if there is a dispute between the members. Clearance from the ATO is essential before a member’s voluntary liquidation can be finalised.