Lately, there has been media coverage surrounding the liquidation and external administration of many insolvent companies. However, it is important to note that liquidation is not solely applicable to insolvent companies. At times, solvent companies can also benefit from this option.
Our Restructuring & Recovery experts has recently achieved success in efficiently resolving a shareholder dispute, ensuring cost savings for the shareholders and a continuation of the business.
We were approached by two individual shareholders of a company which operated a successful courier business. The shareholders were experiencing a dispute about the management and day-to-day operations of the business. Despite attempts at mediation, the shareholders had been unable to reach a mutually acceptable agreement and were reluctant to commence court proceedings given the costs involved.
Both shareholders wished to retain ownership of the business, and neither was willing to sell their shares to the other party. Additionally, they had been unable to agree on the current fair market value of the business.
With an estimated annual turnover of approximately $1 million, the business consistently achieved impressive revenue figures which met and exceeded industry benchmarks. It had been successfully operating for several years, specialised in providing efficient and reliable delivery services to a wide range of clients. It operated across multiple sectors, including e-commerce, retail, healthcare, and professional services. Its services encompassed both local and regional deliveries, offering timely and secure transportation of goods and documents.
Outcome
In the circumstances, we recommended the adoption of a Members’ Voluntary Liquidation in order to resolve the dispute, whilst safeguarding the profitable business. A Members’ Voluntary Liquidation allowed for the true value of the business to be independently obtained and a sale for the highest possible amount to be achieved, which in turn maximised returns to shareholders.
Benefits of a Members’ Voluntary Liquidation
1. Realised assets
After the commencement of the voluntary liquidation, we identified the need for having the business valued as we planned to sell the business to one of the shareholders. Our business valuation specialists conducted an analysis of the current market trends to determine the fair market value. This allowed us to proceed with the sale of the business, ensuring that it was sold to the highest bidder who offered the most favourable sale terms and conditions.
2. Ensuring due process is followed to identify creditors and maximise returns to shareholders
This approach not only protected the interests of the creditors but also maximised the returns to the shareholders. By properly addressing and settling all outstanding liabilities, we were able to distribute the remaining funds among the shareholders in a fair and equitable manner, optimising their financial gains from the liquidation process.
3. Gaining confidence arising from finalising and deregistering the company
Through the successful resolution of the dispute, we were able to preserve the profitable courier business and optimise returns for the shareholders. As part of the process, we meticulously carried out all necessary tasks to finalise the company’s affairs, which eventually led to its deregistration by the Australian Securities and Investments Commission (ASIC). This step effectively reduced ongoing compliance costs while ensuring the efficient closure of the company’s business operations.
4. Obtaining concessional treatment of certain tax liabilities and distributions
Capital distributions were not deemed as income in the hands of the shareholders and accordingly are tax-free, whereas dividends were taxable in the hands of the shareholders as income at personal tax rates. Companies must be careful to separate their Pre and Post-CGT reserves in their capital accounting.
Shareholders could also obtain the benefit of franked dividends in respect of Retained Earnings and Post-CGT reserves, however this was subject to the company holding sufficient franking credits.
5. Utilising expertise from independent third parties
Vincents’ Lending Solutions Team provided valuable assistance to the successful buyer of the business by facilitating the refinance of its working capacity facility to fund the purchase. At Vincents, we provide straight-forward cost-effective insolvency and restructuring and other accounting and finance services. Our services are delivered with clarity, transparency and accountability.
