Guide to Members Voluntary Liquidation for solvent companies or directors that want to retire

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.

The process of Members 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.

Members Voluntary Liquidation (MVL) – FAQ’s

Who can propose a Members Voluntary Liquidation?

An MVL is proposed by the directors and shareholders of a solvent company who no longer wish to continue with the company. The directors must make a statutory declaration of solvency and produce a full statement of company affairs, confirming that the company can meet its liabilities in full together with interest costs within 12 months.

What are the costs?

An expert adviser d will initially review your case free of charge, every case is different and therefore we need to understand your circumstances before providing appropriate advice. It is only when you are happy with our advice we will look at your specific needs and the complexity of the case before outlining and agreeing our fees.

What needs to be considered for a MVL?

Members must be completely certain about the financial stability of the company and its state of solvency. The company must be viable to meet all liabilities within 12 months of the MVL being accepted. A Creditors Voluntary Liquidation would be considered if the company was ultimately declared insolvent. Full tax implications need to be considered and understood by all members.

Will an MVL affect my status as a director?

There should be no stigma attached to an MVL because all creditors are paid in full. It is only in the case of insolvent liquidation that director’s conduct is examined for possible disqualification proceedings.

Can the company’s auditors carry out the MVL?

No. By law all insolvency procedures including Members Voluntary Liquidation must appoint a licensed Insolvency Practitioner to act as liquidator.

How is the liquidator appointed?

A meeting of shareholders will vote to approve and appoint a liquidator. If 75% of the shareholders pass the necessary resolutions, a liquidator will be appointed and take control of the company’s’ assets and liabilities.

What is the role of the liquidator?

The liquidator will notify all creditors of the MVL within 28 days of being appointed inviting them to make a claim. In most cases company assets will then be sold at market value leaving the assets in the form of cash. However where appropriate the assets can be distributed to members which is referred to as a distribution in specie. Once creditor claims are agreed the funds will be distributed to all creditors before any remaining assets are distributed amongst shareholders.

How long will it take to pay creditors?

The liquidator, after advertising for claims in the London Gazette, must ensure the creditor’s claims have been agreed and that the available assets can cover those liabilities. This can take time depending on the complexity of the company’s liabilities and the types of assets it holds.

When will members receive payment from the MVL?

Once all creditors are paid in full any remaining assets will be released to members.

What is the difference between an MVL and striking off?

An MVL procedure releases the members from all accrued liabilities and provides a clean end to the company which will be dissolved 3 months after the final meeting is held by the liquidator. For a company to use the striking off procedure it must have been inactive for at least three months and any accrued liabilities can be pursued for up to 12 years. However, under an MVL only the liquidator or an individual sufficiently interested can restore the company which must be within two years of the date of dissolution.

How will employees be affected?

Any employees of the company at the date of the MVL will be dismissed. As the company will be deemed solvent, the employees will have to claim for any outstanding liability due to them from the liquidation. The redundancy payments agency will only process claims for employees who have been made redundant from a company deemed insolvent.

What happens if the company cannot pay its debts in full within 12 months?

If it appears the company is in fact insolvent the liquidator will convert the MVL into a Creditors Voluntary Liquidation and a meeting of creditors will be held. The liquidator has a responsibility to submit a report to the Department of Trade and Industry on the directors’ conduct. There are serious implications for directors’ who swear a Declaration of Solvency without good grounds for doing so.