Why Members’ Voluntary Liquidations are back on the agenda

The Federal Budget’s proposed tax reforms have prompted many business owners and advisers to revisit long-held company structures, putting Members’ Voluntary Liquidations (MVLs) firmly back in the spotlight.

At Jirsch Sutherland, we’re already seeing an increase in enquiries from accountants and business owners reviewing long-held company structures and exploring whether an MVL could provide a tax-effective way to release funds to shareholders, simplify legacy entities and reduce ongoing compliance obligations.

While the legislation is still evolving, the debate around the reforms is prompting many advisers and business owners to take a fresh look at structures that may not have been reviewed for years.

For some clients, that review will confirm their existing structure remains appropriate. For others, it may raise a more fundamental question: does the company still serve a purpose?

Why businesses are reassessing long-held structures

The common theme emerging from conversations with clients and advisers is straightforward: if the tax settings that helped justify a structure are changing, does the structure still make sense?

Across Australia, there are countless family investment companies, passive investment entities and legacy corporate structures holding significant wealth. Many hold assets acquired before the introduction of Capital Gains Tax on September 20, 1985, and were established decades ago for succession planning, asset protection or tax efficiency reasons.

Many of these companies are financially healthy. They’re not distressed businesses.

In fact, some have become highly successful repositories for investments, retained earnings and assets acquired before September 20, 1985.

I’ve often described these companies as warehouses for investments and retained profits.

Business owners are now taking a fresh look at those structures and questioning whether the ongoing compliance costs, administration and complexity are still justified.

For some, the answer will be yes. For others, the review may uncover opportunities to simplify their affairs, release capital and reposition their structures for the future.

Why MVLs are attracting attention

An MVL allows a solvent company to be wound up and its surplus assets distributed to shareholders. Where a company has fulfilled its original purpose, an MVL can provide a structured and tax-effective mechanism to release funds, simplify group structures and remove ongoing compliance obligations.

Importantly, this isn’t about tax avoidance. It’s about ensuring structures remain fit for purpose and continue to deliver value for the people behind them.

For companies holding pre-CGT asset reserves, retained earnings or passive investments, an MVL may provide an effective pathway to unlock capital and transition away from structures that no longer provide the same benefits they once did.

That’s why I expect MVLs to feature in far more conversations between accountants and clients over the coming months.

While the proposed reforms have triggered many of these discussions, the issues we’re discussing with clients extend well beyond tax.

Once advisers start reviewing older structures, broader questions quickly emerge.

• Does the company still serve a genuine commercial purpose?
• Does the structure still align with succession plans?
• How will wealth transfer to the next generation?
• Are there simpler ways to achieve the same outcome?

For many families, what starts as a tax discussion quickly becomes a broader conversation about succession planning, estate planning, governance and intergenerational wealth transfer.

In many cases, the proposed reforms are simply accelerating reviews that should have happened years ago.

Don’t leave planning until the last minute

Whatever the outcome of the reforms, I expect many business owners and advisers to continue reviewing legacy structures over the coming months. Where changes are ultimately implemented, activity is likely to accelerate as commencement dates approach.

We’ve seen it before. Significant tax changes often bring forward decision-making as business owners and advisers seek to act before implementation dates.

I expect that activity will include restructures, valuations, succession planning reviews and, increasingly, MVLs

The clients who start planning now will have more flexibility, more time and more options.

Those who leave it too late may find themselves competing for the attention of valuers, lawyers, tax advisers and insolvency practitioners as demand increases.

The legislation may still evolve, but the trend is already emerging.

Business owners are questioning long-held structures. Accountants are reviewing legacy entities. And enquiries about MVLs are increasing.

For many clients, the question is no longer whether they should review their structure. It’s what action they should take once that review is complete.

Peter Moore
Partner
Jirsch Sutherland