The shareholders of a solvent company can place it in liquidation by way of a members’ voluntary liquidation.  This can help distribute the company’s funds in a tax effective manner or for certain other reasons.  After a members’ voluntary liquidation is completed the ASIC will deregister a company.

Commencement of a Members’ Voluntary Liquidation

To commence a members’ voluntary liquidation, the majority of a company’s directors must resolve that the company will be solvent (that is able to pay its debts in full) within 12 months after the commencement of the liquidation. This resolution is commonly referred to as a Declaration of Solvency.

Once a company’s directors have made the declaration of solvency, the company’s members may wind up the company.  This is done by way of a members’ voluntary liquidation by passing a special resolution at a meeting of members that the company be wound up in this manner. The company’s members must be given at least 21 days’ notice in writing of the meeting. For a special resolution to be passed at least 75% members entitled to vote and be present at the meeting must vote in favour of the resolution.

A special resolution can also be passed if all members sign a written resolution resolving that the company be wound up. If this is able to occur, it avoids the necessity to convene and give notice of a meeting of members.

Whichever way a members’ voluntary liquidation is able to be commenced, we will assist with preparing all necessary appointment documents and if a meeting of members is required, we can prepare all necessary documents for the meeting attend the meeting as well.

The winding up of the company will commence upon the making of the special resolution by members.

What Should You Do Prior to a Members Voluntary Liquidation

Certain steps should be taken prior to placing a company into a members voluntary liquidation, or that may be taken so as to simplify the liquidation process.  These include:

Confirm the Company Is Solvent

A members’ voluntary liquidation is only available to a company that can pay all its debts in full.  Therefore, before proceeding with any liquidation appointment a company’s director should:

• Review all of a company’s liabilities and seek verification where necessary including tax debts, employee entitlements, loans, leases and trade creditors.
• Where feasible pay all outstanding liabilities as this will both ensure liabilities are paid and also simplify the liquidation process.
• Obtain professional advice from the company’s accountant and/or a registered Liquidator.

This is also required as a director must sign a Declaration of Solvency prior to proceeding with a members’ voluntary liquidation and there can be certain legal consequences if this document is signed when a company cannot pay its debts, particularly if this was done intentionally.

Prepare Up‑to‑Date Financial Accountants and Make ATO Lodgements

Prior to proceeding with a members’ voluntary liquidation it is important to get a company’s financial accounts up to date and also ensure that all tax lodgements have been made.  If a company has ceased trading it can also be beneficial to cancel any necessary tax registrations, such as GST and PAYG Tax as this will make the liquidation process go smoother.

It is possible that a final income tax return (or in some cases other lodgements) will need to be lodged during the liquidation process and the Liquidator will work with your current accountant to make these lodgements.

Simplify the Company’s Affairs

The more you clean up a company’s affairs and simplify matters the less cost there will be with the members’ voluntary liquidation process and the quicker the process will be.  Things that can be done prior to commencing a members’ voluntary liquidation to simplify the process include where appropriate:

• Selling or transferring assets
• Collecting outstanding debts
• Closing bank accounts
• Taking down a company’s website and removing social media
• Ending leases or contracts
• Terminating the employment of employees and paying employee entitlements
• Paying creditors
• Distributing funds to shareholders via loans or dividends (if appropriate and after obtaining necessary advice)

Role of the Liquidator

The role of the liquidator is to:

• Make necessary ASIC lodgements in respect of the appointment, ongoing matters and the finalisation of the liquidation;
• Realise the company’s assets;
• Pay the company’s liabilities;
• Ensure the company’s tax lodgement and payment obligations are discharged; and
• Make a distribution to the company’s shareholders of any surplus funds.

Possible Benefits of a Members’ Voluntary Liquidation

Winding up a solvent company through a members’ voluntary liquidation may have the following benefits:

• It avoids the directors taking the responsibility of attending to the finalisation of the company’s affairs which can be a legalistic and time consuming process; and/or
• It can be a means of deregistering a company if not all shareholders agree, as to voluntarily deregister a company with ASIC all shareholders must be in agreement; and/or
• It can provide tax benefits to the company’s shareholders. For example distribution of a company’s paid up share capital and pre-CGT reserves may be distributed to members tax free; and/or
• It is a more formal procedure to end a company’s affairs, particularly where they company is unable to be voluntarily deregistered.  In this regard ASIC has strict criteria as to when a company is able to be voluntarily deregistered.

Finalisation of a Members’ Voluntary Liquidation

Once all of a company’s creditors (if any) have been paid and surplus funds distributed to shareholders a liquidator will make necessary lodgements with ASIC to finalise the liquidation.  ASIC will deregister the company within three months of the liquidation being finalised.

Information and Advice

We have conducted many members’ voluntary liquidations and can provide advice and assistance in regards to carrying out the process. We generally provide this service for a fixed fee except in the most complicated matters.

If you wish to obtain advice regarding members’ voluntary liquidations, or appoint any of the qualified staff members of Pearce & Heers as liquidator of a members’ voluntary liquidation please contact our Brisbane or Gold Coast office.