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A Members’ Voluntary Liquidation, or MVL, is undertaken when shareholders of a solvent company decide to voluntary adopt a winding-up resolution to close their business. This can be due to a number of reasons including retirement, they don’t wish to run the business any more, OR THEY WISH TO GET MONEY IN A MORE TAX EFFICIENT WAY. The process is carried out by an appointed liquidator who realises the assets of the business, with the proceeds distributed directly to company members.
To place a company in MVL, the directors are required to produce a statement providing details of the company’s assets and liabilities and that it can pay its debts in full within a period of 12 months. This statement known as a Declaration of Solvency must be ‘sworn’ in front of a solicitor by the directors of the company.
Within 5 weeks of signing the Declaration of Solvency, the shareholders of the company must call a meeting to pass a resolution for winding up and to appoint a Licensed Insolvency Practitioner to act as liquidator.
The liquidators’ duties are to ensure that any liabilities are paid in full and that any remaining assets be distributed to the shareholders of the company.
An MVL can be undertaken if a company is solvent – meaning it can pay any debts in full – and the directors wish to close the business. This can be due to a number of reasons such as retirement, deciding that they don’t wish to run the business any more, or that they want to get money in a more tax-efficient way.
To place a company in MVL, the directors are required to produce a statement providing details of the company’s assets and liabilities, and stating that it can pay its debts in full within a period of 12 months. This statement, known as a Declaration of Solvency, must be sworn in front of a solicitor by the directors of the company.
Within five weeks of signing a Declaration of Solvency, the shareholders of the company must call a meeting to pass a resolution for winding up and to appoint a licensed insolvency practitioner to act as liquidator.
Upon passing the resolution, a copy of the Declaration of Solvency will be filed at Companies House and the resolution will be advertised in the London Gazette.
The liquidators’ duties are to ensure that any liabilities are paid in full, and that any remaining assets be distributed to the shareholders of the company.
Putting your business into a members’ voluntary liquidation means that the company will close at the end of the procedure. However, it provides you with greater tax benefits. Using an MVA as a method of closing your company allows you to extract the value of the business in the form of cash, plus you’ll be charged Capital Gains Tax instead of Income Tax on the funds. This means you’ll save money on taxes compared to extracting the value of the business in the form of dividends, which would be charged as income with higher taxes.
Even though the winding-up petition is advertised in the Gazette, an MVL is not considered an insolvency procedure and therefore will not negatively affect your business reputation, as a Creditors’ Voluntary Liquidation (CVL), would.
A creditors’ voluntary liquidation occurs when an insolvent company enters into voluntary liquidation; it is therefore, the opposite of a members’ voluntary liquidation. While in both scenarios the directors and/or shareholders of the company decide to close their business, in the case of a CVL, the proceeds of liquidation go to the creditors, whereas the company’s members receive the proceeds in an MVL.
The liquidator must ensure that the company remains solvent throughout an MVL procedure. It’s possible that after the MVL is advertised publicly, additional creditors may come forward and submit claims against the company, turning it into a CVL. Alternatively, the valuation of contingent liabilities may reveal that prospective debts will push the company into insolvency. Whatever the cause, if the company does become insolvent or is found to be insolvent by the liquidator, a creditors’ meeting will be held and the procedure could turn into a CVL.
Fines and penalties can occur if the creditors of the company swear a false Declaration of Solvency to enter into an MVL, something that could possibly include them being banned from acting as the director of a UK limited company for up to 15 years. In cases where intentional fraud is indicated, there is the possibility of imprisonment.
If you would like to put a solvent company into liquidation, your first step is to consult a licensed insolvency practitioner, who will be able to assist in placing your company into MVL.
To find out more about the members’ voluntary liquidation or to enquire about placing your business into an MVL, contact our experienced team of insolvency practitioners at Irwin Insolvency by dialling 0800 009 3173. We’ll discuss your situation and recommend the best course of action for you and your business.