Considering a corporate restructure?
When a company is no longer required as a result of a restructure, merger, asset sale, or when the business has ceased to operate, Directors and or their advisors of a solvent company may decide to wrap it up through a Members Voluntary Liquidation.
If you are, a Members’ Voluntary Liquidation may provide the answer.
When a Company is no longer required as a result of a restructuring, merger, asset sale, or when the business has ceased to operate, Section 491 of the Corporations Act 2001 enables members to wind up a solvent Company utilising a Members’ Voluntary Liquidation (MVL).
The MVL process is initiated by the management of the Company and then a Liquidator appointed.
A Liquidator will realise the Company’s assets, pay its creditors in full and distribute the surplus assets amongst the shareholders according to the Company’s Constitution.
Purpose of Members’ Voluntary Liquidation
Solvent Companies are usually wound up because they no longer have any commercial use or the members perceive some benefits can be realised. There are several reasons for winding up a solvent Company:
• To save on-going compliance costs of administering a Company no longer operating
• To streamline the overall group structure so as to promote greater operational efficiency and minimise the overall tax liability of the group
• Available tax losses have been fully utilised
• To distribute normal property assets with no stamp duty implications (Note: Motor Vehicles are not exempt from stamp duty)
• To distribute tax free capital gains
• The subsidiary may no longer required
Before commencing a Members’ Voluntary Liquidation
The following should be considered prior to placing a Company into MVL:
• The Company must be solvent
• Legal issues and any other outstanding matters must be resolved prior to appointment
• Preferably, all employees are terminated and all creditors paid in full if the Company has ceased to trade
• Legal issues and any other outstanding matters are resolved prior to appointment
• All Income Tax Returns, BAS, PAYG, FBT and any other statutory returns are lodged and paid up to the date of appointment. In order for the Liquidator to obtain taxation clearance and consequently distribute the remaining assets to the Company’s shareholders this must be undertaken
• The financial statements are prepared up to the date of appointment. The franking account must be up to date and the franking credits available to be distributed to the Company’s shareholders
The directors are required to convene a meeting of directors to resolve that the Company is solvent, complete the Declaration of Solvency and call a shareholders’ meeting within 5 weeks of the directors’ meeting.
The Liquidation process usually takes in the order of 3 to 4 months to complete. After the final distribution payment and the final meeting, the Company will be deregistered within 3 months. Additional complexities such as production of new titles upon the distribution of the land to individual shareholders or the transfer of shares in specie may extend the liquidation.
Directors’ Meeting
The directors of the Company must officially form the opinion at the meeting that the Company will be able to pay its debts within a period not exceeding 12 months after commencement of the winding up.
The Directors make a statement to this effect by way of a Declaration of Solvency.
• The declaration must be lodged with the Australian Securities and Investment Commission (ASIC) prior to sending out notices for the members’ meeting
• At the directors’ meeting, the Board will formally propose to convene a meeting of members to pass a resolution placing the Company in liquidation. The decision of the Board should be noted in the minutes of the meeting
• Notices in writing must be given for the members’ meeting.
Members’ Meeting
At this meeting a special resolution of the members is passed which initiates the winding up of the Company. The members appoint the Liquidator who has supervisory powers over the conduct of the liquidation and the members determine the Liquidator’s remuneration
The Liquidator must then:
• Realise the assets in an orderly manner and pay all outstanding creditors
• Seek taxation clearance once all returns have been lodged with the ATO. Clearance is required before the Liquidator can distribute the assets to the Company’s shareholders
• Make a distribution to shareholders once all matters have been addressed.
Liquidators rely on the Archer Brothers principle when distributing the assets of the Company as they can nominate the source of funds which are being distributed and choose the order in which the distribution is made to be the most tax effective.
The Liquidator will account to the shareholders showing payments and receipts throughout the liquidation period and provide a statement of the Liquidator’s distribution to the shareholders.
With the end of financial year approaching, NOW is a good time to review your existing Corporate Structure.
For more information, contact Macks Advisory on 08 8231 3323 or visit our office at Level 8 West Wing, 50 Grenfell Street, Adelaide SA 5000.
