What is a Members’ Voluntary Liquidation (MVL)?
Members’ Voluntary Liquidation, otherwise known as an MVL or Solvent Liquidation is a process designed to help directors and shareholders formally wind up the affairs of a company when there is no further use for that business or entity.
The first step in the process involves the company’s directors executing a declaration that the company is solvent and will be able to pay all of its liabilities within twelve months. Shareholders then appoint an independent liquidator to realise company assets, manage stakeholders, deal with liabilities and distribute surplus assets (if any).
Once the liquidation process is complete, the Australian Securities and Investment Commission (ASIC) will then proceed to strike the entity from its business registers within three months of finalisation.
When would I use an MVL for my company?
There are several situations where an MVL can provide significant benefits to business owners and shareholders.
1. Corporate streamlining / simplification:
A large conglomerate or group may use the Members’ Voluntary Liquidation process to reduce ongoing compliance costs or simplify its group structure.
It is also an effective way to dispose of dormant entities that have accrued through acquisitions and restructures, which no longer have any purpose within the overall group structure.
2. Retirement / exit planning:
Business owners often utilise the MVL process as a useful retirement planning tool. A liquidator can assist directors and shareholders by winding down operations or dissolving residual corporate entities following the sale of their business.
A multinational business may see the need to exit a particular market, region, or divest a specific business unit as a result of shifting market conditions.
3. Risk mitigation:
This is particularly relevant where an entity is seeking to manage its exposure to a potential contingent creditor claim, legal proceeding or external review.
There are significant difficulties and costs associated with reinstating an entity which has gone through liquidation. This includes the requirement for a formal application to court. These obstacles may draw out claimants to ensure they are dealt with during the liquidation.
An MVL also requires a formal tax clearance process with the Australian Taxation Office. This ensures outstanding taxation liabilities are dealt with in real time, avoiding non-compliance issues after the liquidation is complete.
4. Tax benefits:
There are also added tax benefits for distributions to shareholders which are made by a liquidator.
Generally, where a liquidator can accurately determine the origin of funds held by a company from its records; those assets maintain their character for the purposes of distribution.
As a result, the MVL process allows shareholders to access special tax benefits such as Small Business CGT (Capital Gains Tax) Concessions and Pre-CGT Reserves.
Ultimately, an MVL should be used when a company feels it is the right time to exit their business or an entity no longer has utility. Meticulous planning is essential for the success of an MVL to ensure directors and shareholders reap the benefits of the process.
If you would like to have a confidential discussion on whether an MVL might be suitable for your business, please contact your local William Buck Restructuring and Insolvency expert.
