What is an MVL and what does it stand for?

what is an MVL what does it stand for

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MVL – 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.

A majority of the company’s directors will make a statutory Declaration of Solvency confirming the company’s financial position.

Once the declaration is made, shareholders are then able to consider passing resolutions to place the company into liquidation and appoint a Liquidator. This process can be dealt with by way of a general meeting of shareholders or shareholder written resolutions.

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.

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.

What are the benefits of a Members’ Voluntary Liquidation?

  • Tax efficient distributions to shareholders
  • Shareholders can get quick access to funds
  • Distributions can be in cash, in specie or both
  • A cost-effective legal process to bring the company’s affairs to an orderly conclusion
  • Saves accounting fees as requirement to file statutory accounts ends on a company entering liquidation
  • An independent licensed Insolvency Practitioner is appointed to complete the process for you
  • Companies House commence the dissolution process once the liquidation ends

What does members voluntary liquidation mean (MVL)?

A Members’ Voluntary Liquidation or MVL is a legal process used to formally wind-up a solvent company’s affairs.

The board of directors agree a course of action and propose to shareholders that the company is placed into liquidation and a Liquidator be appointed.

The Liquidator performs his statutory function and completes the administration of the winding-up.

Once all the company’s affairs are in order, the liquidation is completed and Companies House commence the dissolution process.

How long does a members voluntary liquidation (MVL) take?

A company can be placed into Members’ Voluntary Liquidation very quickly. There are two legal processes which can be used, either a general meeting of shareholders or shareholder written resolutions. The process will be in accordance with the company’s Articles of Association and the Companies Act 2006. Generally, the minimum notice period of a general meeting is 14 days. If 90% of shareholders agree, this notice period can be waived.

The written resolution procedure requires all eligible shareholders to receive notice of the proposed resolutions. The resolutions are deemed passed or rejected upon receipt of the requisite votes.

For the purposes of an MVL, either procedure can be used. However, the shareholder written resolution option tends to be the preferred option for small companies as it offers both speed and convenience.

Prior to the passing of shareholder resolutions, a majority of the Directors are required to make a statutory Declaration of Solvency before a Solicitor or Commissioner of Oaths.

A company will need to instruct a licensed Insolvency Practitioner to assist and ultimately act as Liquidator of the company.

Once the Insolvency Practitioner’s firm is instructed, this process, known as the ‘pre appointment’ phase, can happen quickly and could be completed in a matter of days.

The administration of the winding-up is where the bulk of the work is completed. This is carried out by the Insolvency Practitioner. This varies from case to case and is completely dependent on the scope of work.

Cash assets can be dealt with quickly, but non-cash items may take longer.

From our experience, the main delay to concluding an MVL quickly is caused by HM Revenue & Customs providing tax clearance on the company’s pre liquidation position. If all outstanding pre liquidation tax returns are submitted quickly, it can still take months for HM Revenue & Customs to confirm that all outstanding liabilities have been settled and that the liquidation can be concluded. It is therefore difficult to provide an accurate timescale for this part of the process to be completed.

Once clearance is obtained, provided no further actions are required by the Liquidator, the administration of the winding-up can be completed.

To conclude the MVL, the Liquidator is required to issue shareholders with a draft final account for a period of eight weeks. This period can be reduced if shareholders have no concerns regarding the conduct of the liquidation, including fees and expenses incurred by the Liquidator.

Upon the receipt of the required consents or at the end of the eight week period, the Liquidator issues the final account and concludes the administration of the winding-up. A notice is sent to Companies House updating the company’s records which commences the Companies House dissolution process. The company is dissolved approximately three months later.

What is voluntary liquidation?

A voluntary liquidation is a self-imposed process to formally wind-up a company’s affairs. The board of directors will consider the company’s financial position and propose to shareholders that it be placed into liquidation and a Liquidator is appointed.

There are two types of voluntary liquidation

  • Members’ Voluntary Liquidation (solvent)
  • Creditors’ Voluntary Liquidation (insolvent)

Compulsory liquidation is where a company is placed into liquidation upon the making of a winding-up order which is issued by court following the presentation and service of a winding-up petition.

What is the difference between members’ voluntary liquidation and creditors’ voluntary liquidation?

The distinction between these two types of voluntary liquidation is the company’s solvency. A Members’ Voluntary Liquidation is a legal process to formally wind-up a solvent company’s affairs.

In an MVL, 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
  • distribute surplus funds and/or assets to shareholders

A Creditors’ Voluntary Liquidation is a legal process to formally wind-up an insolvent company’s affairs.

In a CVL, the Liquidator’s functions are to:

  • Realise company assets for best value;
  • Carry out a statutory investigation regarding the conduct of the directors and report to the Insolvency Service’s Director Disqualification Unit;
  • Identify and recover antecedent transactions;
  • Discharge the costs of the insolvency process;
  • Agree creditor claims and distribute surplus funds in accordance with the statutory order of priority;
  • Where creditor claims are settled in full together with interest, distribute remaining funds to shareholders or members;
  • Report to creditors and/or shareholders within 2 months of each anniversary on the progress of the case;
  • Report to creditors and/or shareholders when the case is ready to be closed.

Summary

In the right circumstances, a Members’ Voluntary Liquidation is the perfect tool to formally wind-up a company’s affairs. Not only does it provide a formal legal process to conclude all outstanding matters, it enables shareholders to obtain capital gains tax treatment on a liquidator’s distributions.

If you are a director or shareholder of a company which is considering an MVL, you should obtain independent advice from a licensed Insolvency Practitioner. It is essential that the Insolvency Practitioner is authorised and licensed by a recognised professional body.

Many IPs offer a free initial consultation and Approved Recovery are no different. Approved Recovery specialises in providing Members’ Voluntary Liquidations to small companies nationwide. We service trading, contractor, consultant and dormant companies. We also have experience in dealing with special purpose vehicles and corporate group simplification. We offer a simple Members’ Voluntary Liquidation service called Solvent Solutions.

Contact Approved Recovery for a free no obligation consultation.

Marcus Tout

Marcus Tout

Marcus is a qualified Insolvency Practitioner with a passion for delivering exceptional client service. He's focussed on providing MVL's to small companies across the UK.

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