What is a members’ voluntary liquidation and how is it arranged?
A members’ voluntary liquidation (MVL) is a tool used to formally dissolve and deregister a solvent company.
Here we show you how to do that, but first, let’s look at some of the benefits…
The benefits of Members’ Voluntary Liquidation
The MVL process is commonly used to:
- Save ongoing compliance costs e.g. preparing and lodging annual tax returns, financial accounts and ASIC documents;
- Allow members access to the company’s equity in a tax effective manner;
- Rationalise a group structure;
- Distribute assets in specie; or
- Resolve disputes between shareholders.
Step 1: Prepare for a simple Members’ Voluntary Liquidation
There are ways to minimise the costs of a members’ voluntary liquidation with a little preparation beforehand. You should ensure the following is in order:
- All liabilities are paid in full;
- All business activity statements are completed and lodged and GST registration cancelled;
- Statutory commitments such as payment of WorkCover, superannuation, payroll tax, PAYG withholding tax and stamp duty have been met and registrations cancelled;
- Accounts and income tax returns are prepared up to the date of liquidation and tax is paid (the company’s accountant will draft this before the liquidation starts);
- The company’s balance sheet is cleaned up prior to the liquidation and the company reserves have been allocated correctly between either pre- or post-CGT assets, as each category of reserve is treated differently for tax purposes;
- The franking account is up to date, in order to determine if all available franking credits are able to be distributed to the company shareholders;
- You have obtained the appropriate tax advice if needed. (NOTE: we do not provide this!)
Step 2: Appoint a Members’ Voluntary Liquidation Liquidator
Once the preparation is complete and the company is ready to be placed into members’ voluntary liquidation, a liquidator must be appointed to draft the necessary paperwork.
This usually involves two meetings
1. A directors meeting to sign the Declaration of Solvency
Here you will need to:
- Prepare a Declaration of Solvency (Form 520);
- Hold a meeting of directors to consider the winding up of the company and approve the Declaration of Solvency for lodgement with the ASIC;
- Lodge the Declaration of Solvency with ASIC.
2. A members meeting
Here you will need to:
- Call and hold a meeting of shareholders to appoint the liquidator;
- Prepare for the liquidation to commence at the conclusion of this meeting.
Step 3: The liquidation process
Upon appointment, the liquidator must generally perform the following to complete the members’ voluntary liquidation process:
- Notify and lodge documents with ASIC confirming the appointment;
- Advertise the appointment on the ASIC published notices website;
- Advertise for any claims against the company on the ASIC published notices website, giving 14 days for claims to be submitted;
- Notify the Australian Taxation Office (ATO) and other statutory bodies of the appointment of the liquidator;
- Take possession of all the company’s assets;
- Ensure the final accounts up to the date of liquidation and a final income tax return are prepared (usually by the company’s tax agent) and the final tax payment is made. Once the final tax payment is made, the liquidator is able to write to the ATO requesting confirmation that all tax commitments have been met and that there is no further liability by the company to the ATO;
- Make distributions to the shareholders and call the final meeting of shareholders (but only after tax clearance is received);
- Lodge a notice and provide an account of the liquidation to ASIC, once the date of the final meeting has passed;
- Dissolve the company – three months after the lodgement of this notice.
Hopefully, you’re a little clearer on the process now.