Sometimes businesses just come to a natural end. It may not be insolvency that forces a closure but perhaps the retirement of key stakeholders or changing markets.
If, you are a director or member of a solvent company in Australia that has reached the end of its life span, you have probably heard the term ‘members’ voluntary liquidation’ bandied about.
A members’ voluntary liquidation is a formal way of having a company’s affairs brought to a conclusive end. Compared with the option of simply de-registering a company, a members’ voluntary liquidation will mean that the company is permanently shut down and cannot be reinstated with ASIC as an active company through an application made with ASIC.
A members’ voluntary liquidation is often the only way that members of the company can extract valuable tax-free distributions from the company. This can be particularly important if much of the value in the company is tied up in pre-CGT and non-assessable reserves. This option is not available if the company is simply de-registered.
If you are a director and member of a company and ready to shut down your solvent business through a members’ voluntary liquidation, you need to know what the process involves and what your role will be as the voluntary liquidation progresses. Should you stay involved with the company throughout the liquidation process or should you opt out?
Can a director be a liquidator of a company of which they are an officer?
Generally speaking, company officers are not allowed to liquidate a company of which they are an officer. Further, in most circumstances you cannot act as a liquidator unless you are a registered liquidator. The law makes a special exception in circumstances involving a members’ voluntary liquidation.
This means that you can stay involved with the liquidation process in the role of liquidator but not as a director. Some directors like to take this option where their company’s assets or structure is not too complex and the cost of appointing an external liquidator might feel out of reach.
A director that chooses to accept their appointment as a liquidator of the company will become liable to the company (and ASIC) in their role as liquidator. If you are unsure what this might entail for yourself, seek advice before agreeing to an appointment as your company’s liquidator.
What if there are multiple directors – do we all need to be appointed as liquidators?
The law does not prescribe how many liquidators are to be appointed to the company. This means that it is up to the company’s members to appoint the liquidator(s) and therefore they have the choice of how many to appoint. This will mean that one, some or all of the directors may be appointed as liquidator(s).
What about directors that don’t become liquidators? Do they need to resign?
If any directors are not appointed as liquidators in the members’ voluntary liquidation and are still directors of the company at the time it goes into liquidation, they will remain in office. However, the directors’ usual powers as directors are suspended whilst the company is under external administration, which includes any period during which the company has a liquidator appointed to it. The liquidator effectively takes on their powers and steps into their shoes, become responsible for the company during the period whilst it is in liquidation.
What will I need to do if I do choose to accept an appointment as a liquidator?
There are various obligations on a liquidator when they are appointed to a members’ voluntary liquidation. For example, the liquidator must be satisfied that the company is solvent and has funds available to pay out its debts. The liquidator will also be responsible for reporting to the members about the financial affairs of the company and the status of the winding up.
Importantly, there are several documents that must be lodged with ASIC in order to effectively voluntarily liquidate the company. It is critical that these lodgements are filed within the parameters set out by ASIC and the legislation. Time is of the essence here.
Failure to complete lodgements in time can lead to lengthy delays in the voluntary liquidation process and can mean that the liquidator has to attend to additional reporting due to the drawn-out length of the liquidation. There are also serious consequences for a liquidator who provides false or misleading information to ASIC.
You will most likely receive assistance from your company accountant throughout this process, particularly around the financial and accounting aspects of the reporting that you are required to complete.
The documentation required to effectively liquidate the company can sometimes be overwhelming and complex. To correctly prepare and complete the documents that support and evidence the members’ voluntary liquidation (which involves ASIC forms as well as other documents signed by the directors and members for the company’s records), you should engage a solicitor to help you. That’s where we come in.
How can Andreyev Lawyers help?
We have significant experience in assisting members of solvent companies progress through the members’ voluntary liquidation process. We can assist you with preparing all of the documents required, liaise with your accountant about the financials (particularly the tax aspect, which we have specialised knowledge about) and take charge of the lodgements with ASIC. We can also provide you with ongoing advice about the ‘ins and outs’ of the voluntary liquidation process, so that you can feel confident that the company is being shut down in a compliant manner.
We are happy to take the nitty gritty steps out of your hands so you can get on with other aspects of the members’ voluntary liquidation, like dealing with stock, utilities providers and physically shutting up shop.
The information contained in this post is current at the date of publishing – 3 February 2021