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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.
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
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 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
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
Stage 5 – Deed of Indemnity
Stage 6 – Conversion of an MVL into a CVL
Stage 7 – Final Meeting