Members Voluntary Winding Up

A members voluntary winding up (MVWU) is implemented in circumstances where the company’s members no longer wish to retain the company’s structure because its existence is no longer required or useful. It is only available if the company in question is solvent.

A MVWU is the only way to fully wind up the affairs of a solvent company. All outstanding creditors are paid in full, and any surplus assets are distributed to its members. A MVWU also ensures that the interests of the company’s members are protected while the company structure is dismantled.

The strict definition of solvency in a company, being that it is able to pay all of its debts when they fall due, does not apply to MVWU as the appointment lasts for 12 months. The liquidator needs to consider whether creditors will be paid within the 12-month period or, if not, the MVWU must convert to a creditor’s voluntary winding up administration.

The MVWU process starts when directors call a meeting of members to wind up the company. The majority of directors must complete a written declaration of solvency that states the company is solvent and can pay its debts in 12 months, pursuant to section 494(4) of the Corporations Act 2001 (Cth) (Act), which is to be lodged with ASIC before the meeting. The company is then wound up on the special resolution of the members at the meeting, pursuant to section 491(9) of the Act. This resolution must be passed within five weeks of the making of the declaration in order for the declaration to be effectual. If the directors fail to provide a declaration, then the company members may still appoint a voluntary liquidator, but the liquidation will take the form of a creditor’s voluntary liquidation.

Many of the investigations required under a creditor’s voluntary or court liquidation not required under a MVWU, and the liquidator may continue to trade the company if it is in the interests of the creditors. Additionally, as the company is solvent there is no need for recovery actions to be initiated, such as recoveries for preferential payments or insolvent trading.

The process ends when the liquidator calls a final meeting of the company’s members. Any surplus will be redistributed to the members.

Company then deregistered three months after the final meeting by ASIC.

If the liquidator at any time forms the opinion that the company will not be able to pay its debts in full within the requisite period, then, pursuant to s496(1) of the Act, they must do one of the following:

1. Convene a meeting of the company’s creditors;
2. Appoint an administrator of the company under pt. 5.3A of the Act; or
3. Apply to the Court pursuant to s459P for the company to be wound up in insolvency.

In a MVWU of a proprietary company, the liquidator does not need to be a registered liquidator, and may be an officer or employee of the company, or the company accountant or lawyer pursuant to section 532(4) of the Act.

This article was prepared with the assistance of Matthew Theophile.

 

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