Members’ and creditors’ voluntary liquidation – purpose and liquidator powers

Company shareholders are able to resolve by special resolution (75%) that their company be placed into voluntary liquidation pursuant to section 491 of the Corporations Act.

This may occur because the company is insolvent, and directors wish to avoid any potential insolvent trading claims against them personally, or the business of the company has ceased and the company has no further purpose.

Section 494 of the Corporations Act sets out the option for the directors to provide a Statutory Declaration declaring that the company is solvent and able to pay its debts for a period not exceeding 12 months from the date of liquidation.

If the Statutory Declaration is not provided by directors, such as when an ATO Director Penalty Notice is received, the liquidation is identified as a creditors voluntary winding up, as opposed to a members voluntary winding up. Alternatively, if the Statutory Declaration is provided and is not correct, the members’ voluntary liquidation converts to a creditors’ voluntary liquidation under section 496(8) of the Corporations Act.

There is no longer a mandatory requirement to convene a creditors meeting on the voluntary appointment of a liquidator (the former section 497(1) of the Corporations Act). The removal of the creditors meeting requirement follows the increase in creditors’ rights to call meetings at any time as a result of the Insolvency Practice Rules. Creditors with at least 10% in value of all creditor claims can direct the liquidator in writing to convene a meeting, provided the creditors provide security for that meeting.

The rights and obligations of a liquidator voluntarily appointed pursuant to a members’ or creditors’ voluntary liquidation are, in effect, the same as a liquidator appointed by way of Court Order in an insolvent liquidation, being to ascertain the company assets, investigate and report to creditors (if any exist) about company affairs and report any offences to ASIC, and apply to ASIC to deregister the company.

A liquidator appointed by directors voluntarily retains the powers under Part 5.7B of the Corporations Act – namely the investigative examination and recovery powers, which can be issued for the benefit of creditors or shareholders.

Regardless of the purpose of the voluntary appointment of a liquidator, a liquidator, once appointed, independently investigates and makes his or her own decisions in respect of the conduct of the company’s external administration.

If the liquidator’s conduct is carried out for a proper purpose, there can be no adverse inference on the liquidator as a result of the prior conduct of the directors and/or the company external advisers, or their reasons for appointing a liquidator, which could be perceived as an improper purpose on the part of the liquidator’s conduct. (Hong Kong Bank of Australia Limited v Murphy (1992) 28 NSWLR 512 at 518-9).