Members Voluntary Liquidation
A members voluntary liquidation is available only to solvent companies. The primary reason for a liquidator being appointed to a solvent company is to return capital to shareholders and finalise the company’s affairs. Such appointments are commonly made as part of the simplification of a group of companies.
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In a members’ voluntary liquidation, a liquidator is appointed to sell the assets of the company, to pay all creditors and then distribute any surplus assets to the shareholders.
A members’ voluntary liquidation is only applicable when a company is solvent – the legislation details this to mean that the directors believe that the company will be able to pay all of its debts within 12 months. If the directors cannot make that declaration, and they still wish to wind up the affairs of the company then they will need to consider another form of administration designed for insolvent companies, most commonly creditors voluntary liquidation or voluntary administration.
From the date of liquidation, control of the company is passed to the liquidator. After the liquidation has commenced, it is extremely difficult to undo the process. A liquidator will advertise the liquidation and call for any creditors of the company to notify the liquidator of their claim by a specific date. This will allow the liquidator to assess all potential claims against the company and settle them. It will also ensure that any creditors that do not respond to the notice will find it extremely difficult to enforce their claim at a later date.
Before a company can be wound up voluntarily by its shareholders, the directors are required by the Corporations Act to make a written declaration that they have looked into the company’s affairs and that, at a meeting of directors, they decided that the company would be able to pay all of its debts in less than 12 months. After that, a number of procedures must be complied with, including formal meetings, forms to be lodged with ASIC, notifications to government authorities, advertisements in newspapers and the Commonwealth Government Gazette. In a practical sense, the affairs of the company must be wound up, including the disposal of all assets, and payment of all liabilities.
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