Members' Voluntary Liquidation
Members' Voluntary Liquidation in Australia
Members' Voluntary Liquidation (MVL) is a process designed for solvent companies that have decided to cease operations and wind up their affairs. This type of liquidation is initiated by the company's shareholders, typically because the company has fulfilled its purpose or the directors wish to retire or restructure. The key distinguishing feature of an MVL is that the company must be solvent, meaning it can pay its debts in full within 12 months of the liquidation commencing.
Initiation of MVL
The process begins with the company's directors making a declaration of solvency. This declaration, which must be supported by a majority of the directors, states that the company can pay its debts in full within a specified period, not exceeding 12 months from the start of the liquidation. This declaration must be made within five weeks preceding the resolution to wind up the company and lodged with the Australian Securities and Investments Commission (ASIC) before the resolution is passed.
Following the declaration of solvency, the shareholders pass a special resolution to wind up the company. This resolution requires at least 75% of the votes cast by shareholders. Once the resolution is passed, the company must appoint a liquidator to oversee the winding-up process. The liquidator is usually an insolvency practitioner registered with ASIC.
Role of the Liquidator
The liquidator's role in an MVL is to take control of the company's assets, realise them, and distribute the proceeds to shareholders. Since the company is solvent, the process is generally straightforward, focusing on ensuring all debts are paid and any remaining assets are distributed to the members.
The liquidator also has a duty to investigate the company's affairs and ensure the declaration of solvency was accurate. If the liquidator finds that the company is insolvent, they must convert the MVL to a Creditors' Voluntary Liquidation (CVL) and notify ASIC and the creditors.
Distribution of Assets
Once the liquidator has realised the company's assets, they pay off any outstanding debts. After all liabilities are settled, the liquidator distributes the remaining assets to the shareholders in accordance with their shareholdings. This distribution can be in the form of cash or, in some cases, the transfer of assets in kind.
Meeting and Reporting Requirements
The liquidator must convene meetings to keep the shareholders informed of the liquidation process. An initial meeting is held to outline the liquidator's plans and provide an estimate of the expected timeline and asset distributions. Regular updates may be provided, and if the liquidation process is lengthy, annual meetings might be required.
The liquidator must also prepare a final report detailing the liquidation process, including asset realisation and distribution, and submit this report to ASIC. Shareholders are given a copy of the final report.
Legal and Ethical Considerations
Directors must ensure that the declaration of solvency is made honestly and based on accurate financial information. If the company is found to be insolvent during the MVL process, directors can face legal consequences, including potential claims for insolvent trading.
Conclusion
Members' Voluntary Liquidation provides a structured and legally governed means for solvent companies to wind up their affairs. It involves careful planning and adherence to statutory requirements, including a declaration of solvency, appointment of a liquidator, and the distribution of assets to shareholders. The process ensures that all debts are paid, and any remaining assets are fairly distributed, providing a clear and orderly conclusion to the company's operations. By following the MVL process, companies can cease operations responsibly, safeguarding the interests of creditors and shareholders alike.