Liquidation for Solvent companies

This type of liquidation can only be instigated by the directors and shareholders of a solvent company and the correct term for this type of liquidation is a 'Members Voluntary Liquidation'.

Members Voluntary Liquidation should be used to wind up companies which have ceased to trade and in circumstances where;

• There are capital gains tax issues or profits to distribute to the members (shareholders); or
• It is necessary to access stamp duty roll-over relief;

Prior to putting a company into Members' Voluntary Liquidation it is prudent to review the company's financial and tax position to ensure it is appropriately structured for a straight forward liquidation.

The steps involved in initiating a Members' Voluntary Liquidation include;

• Directors meeting - held immediately - this meeting calls the necessary Special General meeting of members/shareholders that will appoint a liquidator and also authorises the signing of a Declaration of Solvency.
• Consent to Short Notice - this notice is required to be signed by 95% of members/shareholders if they are to shorten the usual convening period for an Special General Meeting of members/shareholders from 21 days to being able to be held immediately.
• Special General Meeting of Members/Shareholders - this meeting passes a resolution appointing the liquidators.

As a Members Voluntary Liquidation is specificially for the winding up of solvent companies, it follows that there will be a surplus of assets to liabilities. Further, the excess assets need to be distributed.

Ordinarily the liquidator will wait for clearance from the Australian Taxation Office before making a final distribution to the members.

Once the assets are distributed to the members by way of an in-specie dividend, the liquidator will convene a final meeting of members. There is no requirement for the members to attend this meeting, and typically they choose not to.

Once the liquidator lodges the final meeting return with the ASIC, the company is automatically deregistered three months after the lodgment.

There is a provision under the Corporations Act that anticipates occassions where a company commences a voluntary solvent liquidation when in fact, the company is insolvent. In these cases, if the company cannot repay its debts within 12 months, the winding up becomes an insolvent liquidation.