fbpx
Restructuring

What is Members’ Voluntary Liquidation?

Share

Have you encountered the term Members’ Voluntary Liquidation (MVL)? It is a formal process that a solvent company can undertake to close down its operations in a structured and orderly manner. 

The Members’ Voluntary Liquidation process enables the company to sell off its assets, pay creditors, and distribute any remaining assets to the shareholders. This option is considered by many to be the “least drastic” type of liquidation.

However, you can only proceed with an MVL if the company is “solvent”. Directors must be prepared to pass a resolution that the company is solvent and can pay all debts within 12 months. 

If the company cannot pay all its debts within 12 months, the directors must consider creditors’ voluntary liquidation.

We have constructed an easy flow chart to show the MVL process. Download below.

Why choose Members’ Voluntary Liquidation?

There are several reasons why a company may choose to go through the Members’ Voluntary Liquidation process. Some of these reasons include the following:

  • Retirement: When the shareholders or members of a company decide to retire, they may choose to liquidate the company to extract the value of their investment.
  • Restructuring: A company may liquidate as part of a restructuring process, such as a merger or acquisition.
  • Dissolution: If a company has completed its purpose or has become obsolete, its shareholders may choose to dissolve it and distribute its assets.
  • Tax purposes: Entering a Members’ Voluntary Liquidation could offer a tax-effective way to distribute assets to shareholders.

Who conducts a Member’s Voluntary Liquidation?

Members’ Voluntary Liquidation applies to all public, proprietary, and foreign companies. 

A special resolution of the shareholders of the company commences an MVL.  

However, before the meeting of shareholders, the company’s directors must meet, and a majority of the company’s directors must declare solvency and attach a current statement of affairs.

The shareholders must then approve and enlist the services of a registered liquidator.

Once a liquidator is appointed to a company, the powers of the company’s directors cease. 

The liquidator then enacts the process of the liquidation per the state of affairs the directors presented. They calculate to what degree business needs to be wound down to slow production and use existing resources until all debts are paid, and assets have been sold off. 

What is the Members’ Voluntary Liquidation process?

MVL is a complex process that must be conducted by the Corporations Act 2001 (Cth). Here is a summary of the process:

  • Directors’ meeting: The company’s directors must pass a resolution to wind up the company and call a shareholders’ meeting to approve the resolution.
  • Shareholders’ meeting: The shareholders must pass a special resolution to wind up the company and appoint a liquidator to conduct the process.
  • Appointment of a liquidator: The liquidator must be a registered liquidator with experience conducting MVLs. The liquidator will take control of the company and commence the liquidation process.
  • Notice to ASIC and creditors: The liquidator must notify the Australian Securities and Investments Commission (ASIC) and advertise the liquidation in a newspaper. The liquidator must also inform the company’s creditors of the liquidation.
  • Sale of assets: The liquidator will sell the company’s assets and use the proceeds to pay off any outstanding debts owed to creditors.
  • Distribution of remaining assets: Once all debts have been paid, the liquidator will distribute any remaining assets to the shareholders.
  • Final meeting: The liquidator must call a last meeting of the shareholders to report on the liquidation and the distribution of assets.

Download flowchart:

The MVL process can take several months to complete, depending on the complexity of the company’s affairs. 

The liquidator will regularly update the shareholders and creditors throughout the process.

Are you considering Members’ Voluntary Liquidation?

Members’ Voluntary Liquidation can be a complex process. Still, it can also provide a practical and effective way for shareholders or members to extract value from a company that has fulfilled its purpose or is no longer viable. 

By understanding the MVL process, you can make an informed decision about whether it is the right option for your company. Suppose you are considering Members’ Voluntary Liquidatio. In that case, it is vital to seek professional advice to ensure that the process is conducted under the law and that all parties’ interests are protected. 

Clout Advisory is a specialist in insolvency, liquidation, restructuring and turnaround. Contact us today to discuss how we can help you either wind things down or start running your business like a well-oiled machine.

Share this

Subscribe for more insights

Need more?
Check out more insights

Insolvency

How Do I Avoid Insolvent Trading?

Insolvency

Navigating Employee Rights in Times of Company Insolvency

Business Advice

Financial Recovery: Negotiating Payment Plans With Creditors