For many small and medium-sized business owners in Australia, the decision to close down their company can be tricky and time-consuming. One avenue is Members Voluntary Liquidation (MVL). This article explains MVL, its benefits, and how it can be initiated.
What is Members Voluntary Liquidation (MVL)?
Members Voluntary Liquidation, commonly known as MVL, is a legal process that allows solvent companies to wind up their affairs and distribute their assets among shareholders in an orderly manner.
Unlike other forms of liquidation, such as creditors voluntary liquidation (CVL), MVL is initiated when the directors and shareholders agree that the company has served its purpose and wish to close it down voluntarily.
The Benefits of MVL
Tax Efficiency: One of MVL’s significant advantages is its tax efficiency. Under Australian tax law, distributions made to shareholders through MVL can be treated as capital distributions, attracting concessional tax rates, which can result in significant tax savings compared to other methods of winding up a company.
Controlled Process: MVL allows directors and shareholders to maintain greater control over the liquidation process compared to other forms of liquidation. This means that they can choose the liquidator and oversee the distribution of assets according to their preferences, provided it complies with legal requirements.
Creditor Protection: Since MVL is only available to solvent companies, it ensures that creditors are paid in full before any surplus assets are distributed among shareholders. This protects creditors’ interests and provides a fair and transparent winding-up process.
Initiating Members Voluntary Liquidation
Step One
The first step in initiating MVL is for the directors to convene a board meeting and pass a resolution recommending the winding up of the company and appointing a liquidator.
Step Two
Once the board resolution is passed, a general meeting of shareholders must be convened to ratify the decision. At this meeting, shareholders must pass a special resolution approving the liquidation and appointing the liquidator nominated by the directors.
Step Three
Upon passing the special resolution, the appointed liquidator takes control of the company’s affairs, realising its assets, paying off creditors, and distributing any surplus among shareholders according to their entitlements.
Step Four
Once all assets have been realised, creditors paid, and surplus assets distributed among shareholders, the liquidator will formally lodge the necessary documents with the Australian Securities and Investments Commission (ASIC) to dissolve the company.
Members’ Voluntary Liquidation (MVL) can be a good option for small—to medium-sized business owners in Australia who want to wind up their solvent company in a tax-efficient and controlled way.
By understanding the process and seeking professional advice, business owners can navigate MVL smoothly, ensuring a fair and orderly closure of their company while maximising tax benefits and protecting the interests of all stakeholders involved.
Reach out today for a confidential discussion to see how we can help.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.