Members Voluntary Liquidations Solvent Liquidations
A Members’ Voluntary Liquidation (MVL) is a solvent liquidation which allows a company to finalise its affairs and formally close down the company. The decision to wind up the company is usually internal and not subject outside influence. An MVL allows for all liabilities of a company to be paid and a distribution to shareholders (also called members) of any surplus assets.
There are a number of reasons a company is placed into an MVL, some examples are as follows:
- The business of the company is no longer trading and is solvent;
- It is part of a larger group and the group structure needs to be simplified;
- It no longer serves its purpose;
- It is affected by a family law ruling or family dispute to divide assets;
- It has Pre-CGT profits to distribute which may only be distributed to members tax free through a liquidators distribution – subject to individual circumstances.
The process of an MVL is summarised as follows:
- Directors of the company execute a Declaration of Solvency (Form 520);
- Form 520 is lodged with ASIC within five (5) weeks of the date of the Declaration of Solvency;
- Shareholders resolve to wind up the company by a special resolution;
- During the appointment the liquidator will ensure tax returns are finalised and tax clearance is obtained, realise assets (if any), pay creditors and distribute surplus assets to shareholders;
- The company is deregistered by ASIC three (3) months after the Liquidator lodges notice of finalisation with ASIC.
There are several benefits including tax benefits for an MVL, which include the following:
- Distribution of paid up share capital and pre-CGT capital reserve could be tax free to shareholders, however, shareholders should obtain their own independent tax advice;
- Cost savings as no further accounting taxation or secretarial services required;
- Distribution of assets can be effected “in specie” to allow for assets to be distributed without incurring transaction costs and maintaining the intrinsic value of the asset.
- For single use companies’ e.g. Special purpose vehicles that have completed their function, members may prefer that the company is wound up solvently to allow any interested stakeholders an opportunity to raise any issues or claims at that time before the company is deregistered.
- A transparent process to enable the orderly realisation of assets and distribution of recoveries where there are competing interests.
- It reduces the likelihood of claims being raised against the company at a later date if disgruntled parties are given the opportunity to plead their claims to a liquidator rather than if the company had simply been deregistered.
- If the company subsequently turns out to be insolvent the liquidation can be transferred into an insolvent liquidation.
Should you be a director or a shareholder of company that wishes to formally wind up the affairs of a company, Rodgers Reidy are ready to provide expert advice and discuss the options available.
Ph 02 9262 1944
Disclaimer: This material is intended to provide general information in summary form on legal and accounting topics, current at the time of first publication. The contents do not constitute legal or accounting advice and should not be relied upon as such. You are strongly recommended to seek specific professional advice before taking any action based on the information contained herein. No warranty expressed or implied is given in respect of the information provided and accordingly no responsibility is taken by Rodgers Reidy (International) Pty Ltd or any affiliated Rodgers Reidy firms or any member of any affiliated firm for any loss resulting from any error or omission contained within this material.
Rodgers Reidy is one of the foremost providers of insolvency, forensic and reconstruction services to distressed business throughout Australia, New Zealand and Asia. With a strong commitment to integrity and the community, Rodgers Reidy provides a professional and quality service, offering innovative, cost effective solutions. Please contact any of our directors for an initial consultation free of charge.
Joanne joined Rodgers Reidy in August 2020 bringing with her in excess of 18 years of experience in corporate insolvency at national accounting firms within both the UK and Australia. Joanne has worked on various types of formal and informal corporate insolvency appointments including voluntary administrations, deed of company arrangements, receiverships, liquidations, investigative accountant reports and solvency reports.