Members Voluntary Liquidation
A Members Voluntary Liquidation (otherwise known as a Solvent Liquidation) is used when a company is solvent and does have the ability to pay its liabilities in full, along with statutory interest and the costs involved with winding up the company.
An MVL can be used when a company has come to the end of its life for a variety of reasons, and needs to be wound up. For example, the business owners and operators may want to retire and wish to convert the company assets into their own private assets. It can also be used where the directors of the company have decided they can no longer work together, entering liquidation and dividing the assets between them.
If a company is to initiate an MVL it must make a declaration of solvency 5 weeks before a resolution to dissolve the company is passed. As well as outlining the intention to pay debts within 12 months, the declaration is required to outline details of the company’s assets and liabilities.
A general meeting of the company needs to be held by the shareholders that passes a resolution for voluntary winding up and appoints liquidators.
It is not appropriate for a company that is insolvent to use an MVL. If a company declares themselves as solvent without having the ability to pay creditors and debts, this is a criminal offence.
If the liquidator decides that a company’s debts cannot be paid within the agreed time period, an MVL must be converted into a CVL. This process is initiated by the meeting of the creditors and company representatives, which is required to be carried out within 28 days. From the date of the meeting onwards, the MVL becomes a CVL.
A guide to Members Voluntary Liquidation
A business that is in financial difficulty broadly has three options: to sell the business to someone who believes they can fix it, dissolve the business, or turn it around.
If you are a business owner facing debt, you may at some point choose to go through a Members Voluntary Liquidation. This article will briefly outline what an MVL is, and in which circumstances you would use it.
What is an MVL?
An MVL is the liquidation or winding up of a solvent company that is no longer a going concern. It is one of two options available if undertaking a voluntary liquidation and provides a method of formally ending a business and offering payment to creditors. The process takes place when the directors of a business believe that the company is solvent but the business is no longer viable to trade.
When is an MVL used?
An MVL is appropriate when the solvent company needs to be wound up as it has reached the end of its life. This could be as a result of the business owners wanting to retire, a breakdown in relationship between directors, overwhelming debt or new market developments which render the business ineffective.
What are the benefits?
Offering a number of benefits, an MVL is regarded as a less formal option that a Creditors Voluntary Liquidation (CVL) and successfully ends the life of a company, leaving no outstanding matters. There is no report on the director’s conduct and a liquidator is charged with distributing funds and assets amongst creditors. Additionally, there is potential for shareholders to benefit from a tax efficient exit route as a result of an MVL.
What happens during an MVL?
The process as a whole is quite straightforward and could be completed in a matter of weeks. After company directors and shareholders agree that voluntary liquidation is the best way forward, the directors must make a statutory declaration that outlines that the company will be able to pay its debts within 12 months of the commencement of the process.. An insolvency practitioner is then appointed and is responsible for ensuring that the creditors are repaid and assets are distributed and dealt with properly. If the company cannot pay its debts in full, the liquidator will recommend that the MVL becomes a CVL.
If you want to know about Members Voluntary Liquidation, contact us as soon as possible