Winding Up Solvent Companies

Members Voluntary Liquidation

A Members Voluntary Liquidation is the process of winding a solvent company up, which may be summarised as follows:

• Pre-liquidation planning and preparation to ensure the best tax outcome for the company and its shareholders;
• Declaration of Solvency completed by the directors and lodged with ASIC;
• The resolution passed by 75% of members to wind the company up;
• Liquidator appointed by members of the company;
• Affairs of company finalised;
• Distribution of surplus to shareholders;
• End of administration return filed with ASIC by Liquidator; and
• The company was deregistered within 3 months of lodgement of the end-of-administration return.

Tax Benefits

When a liquidator distributes profits where tax exemptions (e.g. pre CGT) or concessions (e.g. small business CGT concessions) have been applied at the time the profits were derived, the distribution from these profits retains its original tax exempt or concessional status in the hands of the shareholders. This may result in considerable tax benefits when compared with paying an ordinary dividend to shareholders.

Voluntary Deregistration

In some cases, voluntary deregistration is a simple and appropriate method of ceasing the life of the company. This option is only available if the company meets the following conditions:

• All members of the company agree to deregister the company;
• The company is not conducting business;
• The company's assets are worth less than $1,000;
• The company has no outstanding liabilities;
• The company is not involved in any legal proceedings, and
• The company has paid all fees and penalties payable to ASIC.

To deregister the company, a 6010 Application for voluntary deregistration must be completed and lodged with ASIC, and the prescribed fee must be paid to ASIC.

Which Option Is Best?

The best option for the company depends on its circumstances. The following matters should form part of the consideration:

• The company's trading history;
• Whether historical matters are known due to a change in structure and/or directorship;
• Extent and details of outstanding liabilities;
• Whether contingent liabilities or potential unliquidated claims exist;
• Adequate books and records;
• Recent cessation of business;
• Outstanding tax and statutory obligations; and
• Potential tax impact on shareholders.