Members Voluntary Liquidation
If your company has sold its business or ceased trading, a Members Voluntary Liquidation or MVL could be the best option to return money to shareholders while saving tax. Revive Financial specialises in helping wind up company’s affairs in a straightforward and efficient manner. It starts with a conversation with us.
What is Members Voluntary Liquidation?
MVL is the process of winding up a company that is solvent. This means it has no creditors, or if it does, it can pay its debts from its available assets.
This process is initiated by the company’s directors and shareholders. They appoint a liquidator to the company to take control of the company’s affairs and:
- Collect and sell any remaining assets of the company,
- Pay any creditors in full,
- Arrange for the company’s accountant to finalise the tax affairs, pay any tax debt and obtain a tax clearance from the Australian Taxation Office (ATO),
- Distribute the company’s surplus assets to its shareholders, and
- File forms with the Australian Securities and Investments Commission (ASIC) requesting the company’s deregistration.
The MVL process can take anywhere from three to 12 months, depending on the complexity of your company’s affairs and any difficulties encountered in the process.
When is Members Voluntary Liquidation Right for You?
To wind up a solvent company, there are two options: apply for voluntary deregistration with ASIC or appoint a liquidator to undertake an MVL. If your company has no assets and fits the criteria for voluntary deregistration, this may be the cheaper and simpler way to close the company.
However, if your company does not meet the voluntary deregistration criteria, has assets on its balance sheet and can save tax through a liquidator’s distribution, an MVL is the best option to winding up your company.
Our experts can talk you through your situation and provide detailed advice.
Get in touch for a free consultation today.
What is a Declaration of Solvency?
The Declaration of Solvency is a document that requires a majority of the directors of a company to declare they have inquired into the company’s affairs and decided that the company can pay their debts within 12 months of the start of the MVL. The Declaration of Solvency is a required step to start the MVL process.
- Tax benefits can be realised for shareholders, primarily by accessing the small business CGT concessions or the distribution of pre-capital gains tax reserves,
- It’s cost-effective; a straightforward engagement can cost as little as $4,000,
- An independent professional is responsible for the legal process and dealing with shareholders, avoiding the potential tax and legal risks and disputes, and
- It provides comfort to directors as the company’s affairs have been properly wound up. Therefore, there is a limited risk of any issues later arising.
Can Shareholders Access Company Funds Before Liquidation?
Yes. If there is a cash balance remaining in the company, after paying all creditors and leaving sufficient funds for the liquidator’s costs, costs of finalising the tax affairs and any estimated tax liability, the shareholders can withdraw the funds. The funds should be withdrawn as loans in the same proportion to their shareholding. The liquidator’s distribution would then be an in-specie distribution of the loan accounts to those shareholders.
Steps to Follow for a Members Voluntary Liquidation
The process to commence an MVL is as follows:
Speak to your accountant or a liquidator about whether an MVL is the best option to wind up your company’s affairs.
Agree with any fellow directors and shareholders the decision to proceed with an MVL.
Confirm your intention.
Confirm instructions to the intended liquidator to prepare the necessary documents for their appointment. The liquidator will provide a package enclosing information about the liquidation process, their estimated fees, the directors’ and shareholders’ resolutions and forms to complete.
Call and hold a meeting of directors where they declare the company’s solvency and complete an ASIC Form 520.
A shareholders’ meeting is then called and held where the shareholders pass a resolution to wind up the company and appoint the liquidator. At least 75% of shareholders attending must vote in favour of the MVL for it to proceed.
A liquidator is appointed to:
- Realise any remaining assets and pay any liabilities;
- Finalise the company’s tax affairs;
- Distribute any surplus property to the company’s shareholders; and
- Finalise the liquidation and apply to ASIC to deregister the company.
Your company will be deregistered by ASIC within three months of finalisation.
What is a Declaration of Solvency?
The Declaration of Solvency is a document that requires a majority of the directors of a company to declare they have inquired into the company’s affairs and decided that the company can pay its debts within 12 months of the start of the MVL. The Declaration of Solvency is a required step to start the MVL process. If the directors cannot sign the Declaration of Solvency, the company may be insolvent and instead need to undertake a Creditors Voluntary Liquidation.