Liquidation, also referred to as winding up, is a process whereby a Liquidator is appointed to collect and realise the assets of a company and then distribute those funds in accordance with the Corporations Act.  There are three different types of liquidations – Court Liquidation, Creditors’ Voluntary Liquidation and Members’ Voluntary Liquidation.

Here we consider Members’ Voluntary Liquidation.

A Members’ Voluntary Liquidation is the process of winding up a solvent company.  A company is solvent if it can pay its debts as and when they fall due.

The circumstances in which this type of appointment is appropriate

The objective of a Members’ Voluntary Liquidation is to:

§         realise the assets of the company and distribute the proceeds to the shareholders in accordance with their rights after satisfying any creditor claims; and

§         free shareholders of a corporate structure which they no longer require.

How the Liquidator is appointed

A directors’ meeting is held to execute a Declaration of Solvency stating that the company will be able to pay all its debts within 12 months and attaching a Statement of Assets and Liabilities.  The Declaration of Solvency is lodged with the Australian Securities and Investments Commission (“ASIC”) at least one day prior to notices convening a general meeting being sent to shareholders.

The general meeting for shareholders to vote on a special resolution to wind up the company must be held within five weeks of the date the Declaration of Solvency is signed.

The winding up commences when the general meeting passes a special resolution to wind up the company and appoint a Liquidator.

Liquidator’s powers

The Liquidator takes control of the company and its assets and has power to realise those assets, pay any creditor claims and distribute the surplus to shareholders in accordance with the company’s Constitution.

The Liquidator is empowered to carry on the business of the company to enable the beneficial disposal or winding up of that business.

Points to note

For this type of appointment to proceed it is essential that the company is able to pay its liabilities in full within 12 months of the commencement of the winding up.

Taxation and stamp duty issues, which can impact the shareholders upon the distributions, should be considered prior to commencing the winding up.

If, during the winding up, the Liquidator forms the opinion that the company will not be able to pay all its debts in full, then the Liquidator must either:

§         apply to the Court for the company to be wound up in insolvency;

§         appoint a Voluntary Administrator; or

§         convene a meeting of creditors for the purpose of converting the liquidation to a Creditors’ Voluntary Liquidation.

Deregistration

Deregistration of a company is the process of its removal from the ASIC register of companies.  It will follow a Members’ Voluntary Liquidation where the liquidation is complete.

A company may also be deregistered without going through the process of a Members’ Voluntary Liquidation where:

§         all of the members agree to the deregistration;

§         the company is not carrying on business;

§         its assets are worth less than $1,000;

§         it has paid all fees and penalties (if any) pursuant to the Corporations Act;

§         it has no liabilities; and

§         it is not party to any legal proceedings.

In these cases the deregistration process involves:

§         A director or secretary making application to ASIC stating that all of the company’s shareholders agree to the deregistration;

§         Paying an application fee to ASIC;

§         ASIC giving notice of the proposed deregistration in the ASIC database and in the Commonwealth Government Gazette; and

§         Two months after publication of that Gazette notice, ASIC deregisters the company and gives notice of that deregistration to the applicant.

 

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