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A Guide to Members’ Voluntary Liquidation

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Liquidation is a word that can strike fear into the heart of business owners and employees alike. There is no getting away from the fact that if you are considering liquidation then it is unlikely that your business is thriving. Sometimes there is no choice; in others it really is the best option and if handled efficiently and sensitively it can ease a lot of the stress associated with a struggling business. In the end it could be the best thing you ever do. There are two types of voluntary liquidation: creditors’ and members’. This guide looks at the latter.

What is members’ voluntary liquidation?

A members’ voluntary liquidation occurs when the directors of a company which is still solvent chooses to wind up the affairs of the business. The Corporation Act defines ‘solvent’ to mean that the company directors believe that the company will be in a position to pay off its debts within the next twelve month period. If the directors are unable to make a declaration to this effect, then the company cannot be wound up using this method. The directors may then seek other avenues such as creditor voluntary liquidation or voluntary administration.

Why choose a members’ voluntary liquidation?

First and foremost, if you are certain that you want or need to wind up the affairs of your company and it is still solvent, a member’s voluntary liquidation is the only process available to you. That said, it has several notable advantages over allowing the company to become insolvent before being wound up. Creditors receive payment in full and members’ interests are protected. With this type of liquidation, members also retain some degree of control of the process. They can choose the liquidator that will take control of the company, agree the remuneration and supervise the process.

How does the liquidation process start?

The process begins with the declaration by the directors that the company debts can be paid off and that the company is therefore still solvent. This formal declaration must then be lodged with the Australian Securities and Investment Commission (ASIC), after which a meeting of the members is called. At this meeting, the members may resolve to call in the liquidators to get the process underway.

What happens next?

Once the liquidators have been brought in, they will take care of the process. Essentially your only remaining job as a director of the company is to offer assistance to the liquidators including, but not limited to, offering up all company books and records. The liquidators will realize any remaining assets, manage any outstanding tax affairs, pay any outstanding creditors, distribute any remaining funds to the members and then organise a final meeting of the members.

What is the effect of the liquidation on the company?

Once the company is placed into liquidation all control of its affairs passes to the liquidators. The business may continue to trade if the liquidator sees it as being in the best interests of the members. There is no prescribed time limit for this trading period, but ultimately the purpose of the liquidation is to wind up the affairs of the company completely and the liquidators will use their discretion to choose the appropriate time.

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