Members Voluntary Liquidation (“MVL”) verses Deregistration – which one for you?
I regularly receive calls from accountants and company directors looking to get rid of companies that have lived past their useful time and they need to be disappeared. Usually the caller is looking for a Members Voluntary Liquidation but, 90% of the time, I redirect them to simply applying for a Deregistration through ASIC. Much cheaper for them (and a missed job for me!). So MVL v Deregistration – which one?
So what is a Deregistration?
A Deregistration is a simple process where an interested party, usually the Director but it can be a Shareholder, applies to ASIC for ASIC to strike the company off the Company Register. You can get the Form 6010 from the ASIC website and either fill the form in or make the application online. To make the application, the company must meet certain conditions. In essence, the company needs to have ceased to trade and have no assets and liabilities. Here is the specific list:
- all members of the company agree to the deregistration;
- the company is not carrying on business;
- assets are worth less than $1000 (but I’d expect them to be $nil);
- the company has paid all fees and penalties payable to ASIC;
- there are no liabilities;
- the company is not in any legal proceedings.
If you can say Yes to all of the above then you can apply for a Deregistration. And the fee….$38. No I didn’t forget any zeros.
So what is a Members Voluntary Liquidation?
An MVL is a full liquidation process involving the appointment of a Liquidator, a call for Proofs of Debts from creditors and a distribution of assets to creditors and then shareholders. So an MVL is done where the company is solvent – that is all debts can be paid within 12 months. There are a few good reasons for choosing an MVL rather than a Deregistration:
- If you can’t say Yes to the questions listed above for Deregistration;
- Where the company has pre-CGT Capital Gains in its Reserves – if a Liquidator distributes those reserves to the Shareholders then the distribution is tax free whereas if it is paid as a normal dividend it is taxable;
- Where a company has Small Business CGT concessions available to it – you should obtain advice from your tax accountant to see if you qualify and meet all of the conditions, but in general, where a company is eligible to apply for the concessions, part or all of the capital profits arising from a CGT event may be exempted from tax at the company level.
Our standard fee for an MVL is $3300 including CGT. So if you can do a Deregistration then that is clearly preferable from a cost perspective. But if you can avail yourself of the tax benefits then MVL is the best option.