Members Voluntary Liquidation

To commence a members' voluntary winding-up, the majority of the directors must make a written declaration that they have made an inquiry into the affairs of the company and that at a meeting of directors they have formed the opinion that the company will be able to pay its debts in full within 12 months after the commencement of the winding-up. This is often referred to as a solvency declaration.

After the solvency declaration there must be a special resolution by the members of the company. A special resolution requires at least 21 days notice in writing to all members and a 75% majority of eligible members who vote at a meeting.

Where the company has been under no other form of external administration, the winding-up commences from the time of passing the special resolution. The advantage of a members' voluntary winding-up is that the members can choose the liquidator to take control of the affairs of the company, fix the remuneration of the liquidator, and in general terms, supervise their conduct.

In the case of a proprietary company, the liquidation can be carried out by a person who is not a registered company liquidator.

What Forms Are Required:

In a members' voluntary winding-up, the following forms must be lodged with ASIC and are available from the ASIC website www.asic.gov.au

Form 520 Declaration of Solvency must be lodged before the date on which notices are sent out of the meeting at which the resolution for the winding up of the company is to be proposed. The resolution must be passed within five weeks of the date of making of the declaration.

Form 205 Notification of Resolution must be lodged within seven days of the resolution being passed and must contain or annex a printed copy of the resolution (NOTE: Notice of the resolution must be published in the Commonwealth of Australia Business Gazette within 21 days from the date of the resolution being passed.)

If at any time during a members' voluntary winding-up the Liquidator forms the opinion that the company will be unable to pay its debts in full, then they must either apply to the Court for the company to be wound up in insolvency, appoint an administrator or convene a meeting of creditors.

If a director makes a declaration of solvency, and it is later found that he or she did not have reasonable grounds for making the declaration, then they may face a penalty of a $5,500 fine or one year in jail, or both.

This information should not be considered as legal advice.