Members’ Voluntary Liquidations
What is a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation or MVL is a legal process used to formally wind-up a solvent company’s affairs. Only a licensed Insolvency Practitioner may act as Liquidator.
The process allows all outstanding matters to be closed out, net funds and assets to be distributed to shareholders and the company’s dissolution.
A company is solvent if its assets are sufficient to settle all liabilities and costs, including interest, in full within 12 months of the company being placed into liquidation.
By law, company directors are required to make a full inquiry into a company’s affairs. Having done so, a majority of the directors will make a statutory declaration confirming that they are of the opinion that the company will be able to pay its debts in full within the specified period. It is important to note that directors making a declaration without having reasonable grounds for this opinion are liable to imprisonment or a fine, or both.
Once the Declaration of Solvency is made, shareholders are then able to consider passing resolutions to place the company into liquidation and appoint a Liquidator.
Upon the appointment of a Liquidator, the director’s powers cease and the liquidator becomes responsible for winding-up the company’s affairs. Directors have an ongoing duty to cooperate with the Liquidator and can be instructed to assist with the winding-up.
What are the duties of a Liquidator?
Once appointed, the Liquidator’s functions are to realise the company’s assets for best value, agree and settle creditor claims, discharge the costs of the liquidation and distribute surplus funds and/or assets to shareholders.
Because the company is solvent, there is no requirement for a Liquidator to carry out a statutory investigation on the conduct of the directors.
What distributions does a Liquidator make?
Liquidator distributions can be in cash or in specie (i.e. land or property).
A Liquidator’s distribution is capital, not income, so there are potential tax savings for shareholders. In most situations, capital gains tax is comparatively lower than income tax and further savings are available if shareholders qualify for Entrepreneur’s Relief.
The potential tax savings to shareholders far outweigh the Insolvency Practitioner’s fees. In most cases, an MVL is a cost-effective alternative to a company’s striking off application.
When is the liquidation concluded and the company dissolved?
A Liquidator must obtain clearance from HM Revenue & Customs before the liquidation can be concluded. All outstanding pre liquidation tax returns will need to be submitted to HM Revenue & Customs, all liabilities and interest settled and clearance obtained.
Once all liquidation matters have been completed, the Liquidator issues shareholders with a draft final account. Provided shareholders have no further queries, a final account is issued which concludes the liquidation. Once filed, Companies House commence the dissolution process which takes around three months.