Members Liquidation which is also know as Members Voluntary Liquidation is the winding up and liquidating of a company that is actually solvent. This means that the business has assets to cover its debts. As the business is solvent its decision to liquidate is a voluntary one. Businesses usually decide to enter Members Liquidation in order to cease trading, pay off their debts in full, restructure the company or withdraw their investments.
No matter what the reasons for entering into Members Liquidation, the Directors must make a Declaration of Solvency which states that the business is able to repay its debts within 12 months.
Because the process is voluntary and the business is solvent, the process is relatively straightforward and often costs less than a creditor’s liquidation.
Once the Directors have made a Declaration of Solvency, a meeting is called with the shareholders, to explain the situation and chosen plan of liquidation. Once the shareholders have reached an agreement to liquidate the company they must appoint a qualified Insolvency Practitioner to carry out the liquidation process.
The liquidator’s role is to turn all of the company’s assets into cash and then distribute these funds to the creditors in the correct order. Once the company’s debts have been settled, the liquidator can then distribute the remaining funds minus their fees between the shareholders. The shareholders are then free to go their separate ways or set up a new business if they choose to do so.
During the process if the liquidator finds that the company is not solvent, that is that its assets do not cover its debts then the process must be converted to the Creditors Voluntary Liquidation process. If this is the case, this can be very serious and could result in the Directors being investigated and prosecuted for wrongfully making a Statutory Declaration of Solvency. Such action could result in a fine or a prison sentence.
If you think Members Liquidation is the right option for you, your shareholders and your business then it is worth getting some advice from the professionals before you enter into the process. Although the process is reasonable straightforward the consequences of making a wrongful declaration of solvency are serious, so you need to ensure that this is the correct route before entering it.
As your business is solvent, there may be other options available to you, so it is worth taking some time and getting expert advice before you make any big decisions.