Members’ Voluntary Liquidation
In certain circumstances, it may be appropriate to wind up a solvent company. This is done via a Member's Voluntary Liquidation (MVL) which can be initiated by the directors but must have shareholder approval. It must be administered by a licensed insolvency practitioner.
Circumstances when MVL’s are often used include:
-
The retirement of the owners of the business where there are succession issues.
-
Cessation following a sale of the business assets.
-
As part of section 110 Insolvency Act 1986 reorganisation.
-
As part of a tax planning strategy.
To start the process a Statutory Declaration must be sworn by a majority (or all) of the directors declaring that the company will be able to pay all its debts in full (with interest), within a period of twelve months.
The liquidator can then be appointed at an extraordinary general meeting of the company providing 75% of the members voting are in favour of the liquidation and the liquidator's appointment. Once appointed, the liquidator will realise the company’s assets, settle the claims of any creditors, and distribute the remaining assets to the shareholders in accordance with the rights inferred by their shares.
A MVL ensures that provisions are made for claims against the company before funds are returned to the shareholders. The company can then be struck off the Register of Companies.
We are often asked whether the Section 652A Companies Act 1985 striking off procedures should be used instead of a formal MVL. In some instances this procedure may be appropriate, but there is always the risk that an unforeseen liability may arise and that an application is made to restore the company to the register so this can be dealt with. Where this striking off procedure is used, an application can be made for the company to be restored up to twenty years after the company has been struck off. This can result in funds being recovered from shareholders and directors may face criticism for their actions.
The appointment of a Liquidator in an MVL can be advertised in both the local press and the Edinburgh or London Gazette, with creditors being given a fixed period of time in which to submit claims. At the expiry of this time limit, the Liquidator will consider all claims and settle them as appropriate before passing the balance of funds to the shareholders. The Liquidator in an MVL will also be in a better position to obtain confirmation from the Inspector of Taxes that there are no matters outstanding, as there are no formal clearance procedures under the corporation tax pay and file regime.
Our team have dealt with a large number of MVLs and offer a very cost effective and professional service. As a company we work well alongside existing advisers as we don’t offer competitive services. In fact, we seek to work alongside a company’s existing tax and legal advisers whenever possible.