There are two circumstances where a liquidator can be voluntarily appointed by a company. Both of these appointments are made by special resolution of a company’s members and can be distinguished by the appointment to a solvent or insolvent company. A voluntary liquidator appointed to a solvent company is made when a company resolves for a members’ voluntary liquidation (MVL). The appointed liquidator under a MVL does not have to be a registered liquidator or independent. The other types of appointment if a voluntary liquidator occurs when a voluntary liquidator is appointed to an insolvent company under a creditors’ voluntary liquidation (CVL). The voluntary liquidator appointed under a CVL, unlike a MVL, must be both a registered liquidator and independent.
When is a voluntary liquidator appointed?
There are two circumstances where a liquidator can be voluntarily appointed by a company. Both of these appointments are made by special resolution of a company’s members and can be distinguished by the appointment to a solvent or insolvent company. These types of appointments are governed by Part 5.5 of the Corporations Act 2001 (Cth) are known as either:
- A members’ voluntary winding up (MVL) (Division 2); or
- A creditors’ voluntary winding up (CVL) (Division 3).
The distinction between these two types of voluntary winding up procedures is misleading in that they are both commenced by the members of a company passing a special resolution (75% of members voting in favour), however whether it is a “members” or a “creditors” winding up will depend on whether the directors of a company have made a declaration regarding the solvency of the company.
In both circumstances a voluntary liquidator is appointed however, the status of the voluntary liquidator is directly affected by the type of voluntary winding up process that a company has chosen to undertake.
Members’ voluntary winding up (MVL)
A MVL occurs when the members of a solvent company resolve by special resolution (75% of members who attend the meeting voting in favour) to wind up a company: see section 491 of the Corporations Act 2001 (Cth).
Some of the reasons why MVL’s are initiated include:
- Sale of business through the sale and purchase of assets (as opposed to the sale of business through the acquisition of shareholding) and the existing company no longer trades.
- The purpose for the existence of the company ceases.
- A restructure of a group of companies whereby a subsidiary is voluntarily wound up.
A key component of a MVL is that a “declaration of solvency” must be made before the meeting is convened that considers the proposed MVL. Pursuant to section 494 of the Corporations Act 2001 (Cth) the “majority” of directors of a company, before the date that the notice of the meeting to consider the MVL are sent, must make a written declaration that they have made an inquiry into the affairs of the company and they have formed the opinion that the company will be able to pay all of its debts within 12 months of the commencement of the winding up.
Attached to the declaration must be a copy of the company’s statement of affairs and the declaration is required, pursuant to section 494(3) of the Corporations Act 2001 (Cth), to be:
- Made at the meeting that considers the MVL;
- Lodged with ASIC before the notice of the meeting is given; and
- Made within 5 weeks of the date of the resolution to give effect to the MVL.
If these requirements are not met, the declaration of solvency will be ineffective and therefore the wind up of the company will not be a MVL.
If the above requirements are met and a company is successful in passing a resolution for a MVL to take place, a voluntary liquidator will be appointed. Normally, pursuant to section 532 (1) and (2) of the Corporations Act 2001 (Cth), an appointed liquidator of a company must be a registered liquidator and be independent of the company. However, pursuant to section 532(4) of the Corporations Act 2001 (Cth), if a company is a proprietary company and the winding up is a MVL, the appointed voluntary liquidator is not required to be a registered liquidator and can be an officer of the company or other professional with the necessary expertise.
Creditors’ voluntary liquidation (CVL)
A CVL, unlike a MVL, occurs when a voluntary liquidator is appointment to an insolvent company. Although a CVL is described as a ‘creditors’ winding up, the creditors of a company are in fact unable to commence a CVL and they are usually instigated by the company director(s).
If a director forms the opinion that the company is insolvent (i.e unable to pay debts as they become due and payable, see section 95A) and no declaration of solvency can be made, they can convene a meeting of members and resolve to pass a special resolution (75% of members after quorum is needed) to wind the company up. Creditors are not required to attend the meeting where it is resolved to wind up a company.
At the meeting the company will appoint a voluntary liquidator. The appointed creditors’ voluntary liquidator in these circumstances, as referenced above, must comply with section 532 (1) and (2) and be a registered liquidator and independent from the company.
Although the appointment of a creditors’ voluntary liquidator through the determination of insolvency by a director is the most common type of CVL, there are other ways that the liquidator can be appointed. These include:
- The members’ voluntary liquidator appointed under a MVL determines that the company is actually insolvent and the appointment of a creditors’ voluntary liquidator is required;
- Transition from voluntary administration to a CVL; and
- ASIC appointment.
The key takeaway between the types of voluntary liquidator that can be appointed to a company is that there is a difference between the qualification requirements of a liquidator appointed to a company under a MVL and CVL. A members’ appointed voluntary liquidator does not have to be a registered liquidator and independent from the company, whereas on the other hand a creditors’ voluntary liquidator is required to be both.