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Members Voluntary Liquidation


A Members Voluntary Liquidation (MVL) is a process that enables shareholders’ to appoint a Liquidator in order to formally close down a solvent company.  Once the Liquidator has realised all company assets and ensured that there are no outstanding company liabilities, a capital distribution will be paid to shareholders either in specie or from funds held in the company.

A solvent company must be differentiated between insolvent companies as there will be sufficient assets to not only repay all creditors in full but also make a distribution to the company’s shareholders.

Whilst a Members Voluntary Liquidation is initiated by the company’s Directors, it still requires 75% of shareholders who have been given notice of the meeting of members to pass the winding up resolution.

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Why might a company be placed into Members Voluntary Liquidation?

Here are the reasons why a company might be placed into Members Voluntary Liquidation:

  • The company is looking to cease to trade and for shareholders this may be an appropriate exit strategy since they may be able to obtain a tax-efficient release of their capital under entrepreneurial relief. The distribution as a capital, through an MVL may be more tax beneficial compared to a distribution under income tax.
  • There might be several shareholders that are looking to split the company’s assets and a section 110 IA86 reorganisation through Members Voluntary Liquidation might provide the strategy to facilitate this process. The assets (e.g. properties) are distributed in specie for the benefit of shareholders.
  • The company’s Directors or Shareholders may wish to retire, move overseas or alternatively they are an IR35 company which is no longer required as they are now reverting to full time employment.
  • A Members Voluntary Liquidation might be used as a tool to re-organise a group of companies for example if a subsidiary company is no longer required or may have become dormant and this is a way to close this company down.

What is the process of a Members Voluntary Liquidation?

Stage 1 – Board of Directors’ Meeting
Depending on the Articles of Association a winding up resolution can either by passed at a meeting of the company’s shareholders or alternatively by written resolution.

Most companies incorporated after the Companies Act 2006 will allow for the conduct of meetings to be resolved by written resolution.

The first meeting held, is the Board of Directors’ meeting which will resolve to appoint AABRS to deal with the formalities of convening a shareholders meeting; appoint any agent where necessary; and to propose a nominated Insolvency Practitioner from AABRS to act as Liquidator.

Stage 2 – Declaration of Solvency
The Declaration of Solvency is a statement of the company’s assets and liabilities and is signed either by the sole director; if two directors both are required to sign; or alternatively by the majority of directors’ if there are more than two.

The Declaration of Solvency must reflect a true position of the company’s financial position and must be signed in the five weeks prior to the winding up resolution being made.

Included in this declaration is the fact statement the directors’ have made a full enquiry into the affairs of the company and in doing so, have formed the opinion that the company will be able to pay its debts in full together with interest within a period of twelve months.

The Declaration is in a prescribed format and following the appointment of the Liquidator will be filed at Companies House.

It is therefore essential that cessation accounts are prepared in advance of the MVL and that current financial information is up to date in order to facilitate the ease of preparing the Declaration of Solvency.

Stage 3 – Shareholders Meeting
If the Directors’ prefer to wind up the company by virtue of written resolutions, then the shareholders will be sent notice of the proposed resolutions. The notice will request that shareholders vote in favour or against the proposed resolutions.

The resolutions will include the formal winding resolution; the appointment of a liquidator; the agreement to distribute certain assets in specie and the agreement of the Liquidator’s costs and expenses.

Once 75% of shareholders have consented to the proposed resolutions, by returning the notices, the effective date of the liquidation will be immediate.

Alternatively, if a formal meeting of the shareholders a minimum period of 14 days is required to convene this meeting, unless there is a majority of 90% of shareholders agreeing to short notice.

At this physical shareholder’s meeting resolutions are passed and the company is placed into voluntary liquidation.

Stage 4 – Company in Liquidation
Once the company is in liquidation, the liquidator will need to deal with the formalities of appointment for example filing of various forms at Companies House, advertising to all creditors to submit claims; and declaring and paying dividends to all creditors in full.
Stage 5 – Deed of Indemnity
Shareholders are likely to want to receive their distribution within a few days of the winding up resolutions being passed.
Stage 6 – Conversion of an MVL into a CVL
In certain circumstances, matters can arise whereby the Liquidator forms the opinion that the company is unable to repay its debts in full together with interest. The company is technically insolvent and therefore the Members Voluntary Liquidator will convene a creditors’ meeting under s95 of the Insolvency Act 1986 to convert the MVL into a Creditors Voluntary Liquidation.
Stage 7 – Final Meeting
Once the liquidator has obtained tax clearances from all government departments and ensured that there are no further claims from any other creditor, the Liquidator will take steps to close the case.

 

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