A members voluntary liquidation (MVL) is a process undertaken by a solvent company to close down and distribute its assets in an orderly manner.
The process is overseen by a licensed insolvency practitioner, who will ensure that all debts are paid and that the company’s assets are distributed fairly among its shareholders.
The decision to liquidate a company is not taken lightly, and shareholders must approve the MVL in order for it to proceed. However, if the company is no longer viable and shareholders are seeking to exit the business, an MVL can be an ideal solution.
It allows the company to be wound up in an efficient and structured manner, ensuring that all creditors are paid and that shareholders receive a fair return on their investment.
In order to begin an MVL, the directors must first make a declaration of solvency. This means that they have to swear that they believe the company will be able to pay its debts in full within 12 months.
Once this has been done, a meeting of shareholders must be held in order to vote on the proposal.
If it is approved, the company will be put into liquidation and a liquidator will be appointed. The liquidator’s job is to wind up the affairs of the company and distribute its assets amongst the members and settle any creditors claims in full.
An MVL can be a useful tool for solvent companies, but it is important to ensure that all procedures are followed correctly in order to avoid any legal problems.
What is members voluntary liquidation?
Members’ Voluntary Liquidation is a formal process that allows solvent companies to close down their operations and distribute their assets and funds to shareholders. It is typically used when the company directors and shareholders have decided to retire, move on to other ventures, or dissolve the company for other reasons.
The MVL process is initiated by the company’s directors, who pass a resolution to begin the liquidation process. A liquidator is then appointed to oversee the process, and they must ensure that all creditors are paid in full before any assets or funds are distributed to the shareholders.
Once all creditors have been paid, the liquidator will distribute any remaining assets and funds to the shareholders and file the necessary documents to formally dissolve the company. The MVL process can provide a tax-efficient way to distribute assets and funds to shareholders and can help to ensure a smooth and orderly closure of the company.
What is a ‘member’?
A member, often referred to as a valued shareholder, holds a significant position within a company. Their role extends beyond mere ownership, as they actively contribute to the decision-making process and play an integral part in shaping the company’s direction. Moreover, members enjoy a close affiliation with the organization, considering themselves an essential component of its overall structure.
In matters pertaining to formal insolvency processes, such as a Members’ Voluntary Liquidation, the consensus of members becomes paramount. A harmonious agreement among members is required before proceeding with such a course of action. This collaborative approach ensures that all stakeholders are duly involved and in accord, fostering a transparent and cooperative environment throughout the insolvency process.
Why is an MVL used?
A members’ voluntary liquidation is the formal process to bring a solvent company to a close. MVLs are only available for solvent companies and the directors are required to make a sworn declaration that the company:
They are only used if:
- is solvent
- can pay all its taxes
- can pay all its creditors
- can meet all its contractual obligations
This includes its future liabilities that have yet to crystallise and will normally include closing the company’s accounts with HMRC by preparing and filing any PAYE/NIC, VAT and Corporation Tax returns and paying any outstanding balance. It may also include settling any long-term contractual liabilities, such as leases and finance agreements.
Once the directors are reasonably certain that the company will be able to meet all obligations before proceeding with an MVL, a shareholders/members’ meeting is convened to appoint a licensed insolvency practitioner as liquidator.
The liquidator will then:
- realise the company’s assets
- settle any legal disputes
- pay any outstanding creditors
- distribute the remaining surplus funds to the company’s shareholders/members
Once the liquidator has completed these formalities and received clearance from HMRC, the company will be dissolved and formally removed from the companies register.
When to use an MVL
An MVL, comes into play exclusively when a company remains financially viable, capable of meeting contractual obligations, settling debts, and resolving any legal disputes that may arise. It is imperative that the company’s affairs are meticulously organized, and all necessary documents are prepared in advance to facilitate a seamless transition under the guidance of the insolvency practitioner.
There are various compelling reasons behind members’ endorsement of liquidating a solvent company, which include:
- Smooth Transition into Retirement: Business owners may find themselves desiring retirement without a suitable successor to pass on their company to, making the liquidation process a viable solution to their personal goals.
- Pursuing New Ventures: Entrepreneurs with a penchant for embarking on fresh ventures may opt for liquidation as a means to dissolve their current company and explore new opportunities.
- Completion of Purpose or Contracts: In cases where a company has fulfilled its original purpose or completed significant contracts, members may find it appropriate to initiate the liquidation process, enabling them to close this chapter and venture into new endeavors.
- External Factors and Redundancy: External changes in the business landscape or the company’s sector may render it redundant or unnecessary, prompting members to choose liquidation as the most prudent course of action. This decision allows them to adapt to evolving circumstances and redirect their resources effectively.
How does an MVL work?
The MVL process finds frequent utilization among shareholders who have diligently accumulated substantial reserves within their business and have reached a point where the company no longer serves their purposes. In essence, the MVL process entails shareholders collectively passing the requisite resolutions to designate a Liquidator, facilitating the orderly conclusion of the company’s affairs.
The procedure for initiating a member liquidation is typically straightforward, necessitating the consent of at least 75% of the shareholders in terms of value to reach an agreement. This course of action is commonly advised by company accountants, who assume responsibility for handling the final tax returns. It is highly recommended to carry out the MVL process efficiently, ensuring the dissolution of the company within a reasonable timeframe of 12 months, thus bringing closure to its operations.
The MVL process
Upon engaging the services of an Insolvency Practitioner (IP) to oversee the liquidation process, directors, shareholders, and company accountants will receive a comprehensive information request list. This list serves as a guide to gather the necessary data and documentation essential for a smooth and efficient liquidation procedure.
The information request list typically encompasses key details, including but not limited to:
- HMRC References: The IP will require relevant HMRC references to ensure accurate communication and compliance with tax obligations throughout the liquidation process.
- Comprehensive Asset and Liability Information: A thorough disclosure of assets and liabilities is crucial. This includes a comprehensive inventory of all company-owned assets, as well as a detailed breakdown of outstanding debts and financial obligations.
- Bank Details: In order to facilitate the smooth handling of funds and financial matters, the IP will request specific bank details pertaining to the company. This ensures seamless coordination during the liquidation process.
- Identification Documents: To establish the identity of individuals involved in the liquidation process, the IP will request appropriate identification documents. This ensures compliance with legal and regulatory requirements and helps maintain the integrity of the proceedings.
By providing the requested information, directors, shareholders, and company accountants contribute to the effective execution of the liquidation process, enabling the IP to navigate the intricacies of the procedure with confidence and precision.
Declaration of solvency
To initiate the MVL process smoothly, a vital step involves the preparation and affirmation of a Declaration of Solvency, carried out in the presence of a qualified solicitor. This declaration serves as an updated statement that meticulously presents the company’s assets and liabilities, thereby substantiating its solvency. In cases where multiple directors are involved, it is typically required that all or a majority of them affix their signatures to the document.
The Declaration of Solvency signifies the company’s unwavering commitment to meeting its financial obligations within the subsequent 12 months. By making this affirmation, the company essentially asserts its capability to repay creditors within the specified timeframe, ensuring the preservation of its solvency throughout the MVL process. Failure to adhere to this obligation may result in significant disruptions that can jeopardize the company’s overall stability and progress. Therefore, it is imperative for the company to diligently fulfill this obligation, fostering an environment of financial accountability and ensuring a seamless MVL process.
Appointment of a Liquidator
Following the solemnization of the Declaration of Solvency, shareholders convene in meetings where crucial resolutions are passed and the appointment of a Liquidator is confirmed. These meetings serve as pivotal moments in the MVL process, ensuring the orderly transition and effective administration of the liquidation proceedings.
During the MVL, it is important to note that creditors hold the entitlement to receive statutory interest at a rate of 8% above the base rate from the moment the company enters the liquidation phase until the liquidator satisfies the outstanding debts. In light of this, it is commonly advised for the company to settle its debts prior to the liquidator’s appointment to avoid incurring this interest burden, thereby preserving valuable financial resources.
Upon the liquidator’s official appointment, they promptly initiate an advertisement inviting additional claims from creditors. This process provides creditors with a minimum period of 21 days to furnish relevant details pertaining to their claims. Once this deadline elapses, the liquidator proceeds with the necessary evaluations, and subsequently, distributions can be made to the shareholders, ensuring a fair and equitable resolution of the company’s assets.
Winding Up the company
Upon successful passage of the MVL, achieved through a consensus of at least 75% in value of the members/shareholders, the process of winding up the company commences. This encompassing procedure involves several key steps to bring about the orderly conclusion of the company’s affairs:
- Advertisement and Claims: The appointed Liquidator carries out the necessary step of advertising their appointment in the prestigious London Gazette. This advertisement serves as an open invitation to any individuals who believe they have legitimate claims against the company, requesting them to submit their details in writing within a 21-day period.
- Dealing with Creditor Claims: If creditor claims are indeed received, the diligent Liquidator assumes the responsibility of addressing and resolving these claims in an appropriate manner, ensuring fairness and adherence to legal requirements.
- Asset Disposal: The liquidator proceeds with the sale of company assets in an efficient manner. This involves assessing the value of assets, which may include property, land, or other non-cash assets. Once assessed, a fair distribution is executed, ensuring equitable treatment among shareholders.
- Completion of Paperwork: The Liquidator meticulously completes all pertinent paperwork and documentation to effectively conclude the company’s business proceedings. This includes fulfilling legal and administrative obligations to ensure a comprehensive closure of all aspects related to the company.
- Removal from Official Register: Upon fulfilling all necessary requirements and obligations, the company is removed from the official register of companies, affirming its dissolution and formal termination.
Furthermore, the Liquidator possesses the authority to distribute assets that are not in cash form (referred to as “in specie”) among the shareholders. These assets, such as property or land, are assessed for monetary value, and a fair distribution is made to the shareholders accordingly.
Once all assets have been realized, distributed, and necessary clearances obtained, the IP/Liquidator seeks clearance from HMRC to progress with the final steps of closing the MVL process. Ultimately, these actions lead to the dissolution of the company, marking the finalization of the MVL process.
How long does a Members’ Voluntary Liquidation take?
Assuming that all liabilities have been settled prior to the appointment of an IP and all required information provided, distribution of company assets to shareholders can take place in as soon as 21 days (the minimum time given for creditors to submit claims following liquidation).
The time estimated for case closure and subsequent dissolution is more uncertain however, as it is dependent upon HMRC clearance. As a guide, we have historically estimated 3 months from appointment, but recently it has taken longer.
How to speed up the MVL process
To ensure a seamless liquidation process, marked by efficient asset distribution and closure, it is highly beneficial to have completed the following tasks prior to appointing an Insolvency Practitioner:
- Full Compliance with Information Request: It is imperative to diligently respond to the information request list provided by the IP, addressing all the necessary details in a comprehensive manner. This proactive approach facilitates a smoother flow of the liquidation process.
- Fulfillment of HMRC Obligations: Calculate, submit, and settle all HMRC returns and liabilities, leaving no loose ends. By meticulously attending to these obligations, you pave the way for a more streamlined liquidation process.
- Settlement of Other Liabilities: Prioritize the settlement of any outstanding liabilities apart from HMRC obligations. Clearing these debts before engaging the IP contributes to a more favorable environment for the liquidation proceedings.
- Solicitor Appointment for Declaration of Solvency: Arrange an appointment with a solicitor to formally swear the Declaration of Solvency. This declaration serves as a testament to the company’s solvency status and plays a crucial role in the liquidation process.
- Transfer of Company Bank Balance: Upon engaging the IP, promptly transfer the company’s bank balance to the IP’s designated client account. This step is crucial as banks can often take an extended period to process such transfers once they are notified of the impending liquidation. By proactively handling this transfer, potential delays can be minimized.
By addressing these tasks prior to the appointment of an IP, you enhance the efficiency and effectiveness of the overall liquidation process, setting the stage for a more seamless asset distribution and closure of the company’s affairs.
How much does an MVL cost?
The cost for a Members Voluntary Liquidation usually range from £1,500 + plus VAT and disbursements, this is dependent upon the level of work required to be done by the appointed liquidator.
Costing for an MVL has a pricing structure which is based on a three-tiered system, designed to suit the individual requirements of each company.
The members voluntary liquidation costs are split into two different sections, the liquidator fees, which involves all the work and duties carried out by our insolvency practitioner.
The secondary part involved in the cost is the disbursements, which are a mandatory part of the MVL process.
Benefits of an MVL
An MVL for limited companies offers numerous advantages that make it an appealing option.
Some key benefits include:
- Expedited Process: Members’ Voluntary Liquidation can be carried out swiftly, enabling a prompt closure of the company’s operations. This streamlined procedure saves time and allows shareholders to move forward efficiently.
- Tax Advantages: One of the significant advantages of an MVL is the favorable tax treatment it provides to shareholders. By distributing assets as capital rather than income, shareholders can benefit from potential tax savings, maximizing their financial gains.
- Appropriate Closure by Independent Liquidator: Opting for an MVL ensures that the company is wound up in a proper and legally compliant manner. An independent Liquidator oversees the process, guaranteeing a fair and impartial handling of the company’s affairs, instilling confidence in stakeholders.
- Effective Resolution of Creditor Claims: In cases where problematic creditor claims arise, the Liquidator possesses the authority and expertise to address these issues. They navigate the complexities of creditor claims, ensuring they are dealt with in a manner that protects the interests of the company and its shareholders.
- Timely Distributions to Shareholders: Through an MVL, shareholders may have the opportunity to receive distributions quickly. As the liquidation process progresses and assets are realized, shareholders can potentially access their entitlements sooner, providing them with financial relief or allowing them to reinvest in new ventures.
In summary, the advantages of an MVL encompass expediency, tax benefits, appropriate closure overseen by an independent Liquidator, resolution of creditor claims, and the potential for swift distributions to shareholders. These factors contribute to a favorable outcome for limited companies opting for an MVL.
MVL or CVL?
The key distinction between an MVL and a CVL lies in the financial status of the company. While an MVL is specifically applicable to solvent companies, a CVL is pursued when a company is insolvent. These processes are voluntarily undertaken, with the former initiated by the company’s members and the latter initiated by its creditors. Consequently, the distribution of funds differs significantly between the two.
In an MVL, funds generated from asset sales and company profits are allocated primarily to settle any outstanding debts owed to creditors. Once these obligations are fulfilled, the remaining funds are distributed among the company’s shareholders or members. Conversely, in a CVL, the insolvency practitioner promptly distributes the funds collected among the creditors as a collective body.
Essentially, an MVL serves as a means for company members and owners to liquidate a solvent company while preserving funds whenever feasible, leveraging asset sales and tax reliefs. On the other hand, a CVL focuses on safeguarding the interests of creditors, ensuring that they receive the amounts owed and assisting in recouping their losses. By understanding these contrasting objectives, stakeholders can select the appropriate process that aligns with their specific circumstances and goals.
Members Voluntary Liquidation (MVL) Explained
Frequently asked questions
What is a members voluntary liquidation
Members Voluntary Liquidation (MVL) is often used where a company has come to the end of its natural life, and the directors and shareholders wish to wind up its affairs in an orderly manner. The members voluntary liquidation timeline requires the involvement of a licensed insolvency practitioner, as it is a solvent winding up process
How long does a members voluntary liquidation take ?
The time it takes to complete a MVL is as follows In order to initiate the whole process, directors need to send statutory declaration of solvency to the Registrar of Companies. This needs to state that after reviewing finances, the company will feasibly be able repay all existing and contingent debts, plus interest, within 12 months. Within 5 weeks of issuing the declaration, you and any other directors of the company need to pass a resolution. This will officially start the winding up process. An advert will then be placed in the London Gazette within 14 days of the resolution being passed. The resolution must also be lodged with the Registrar within 15 days too. A creditors’ meeting is then held, which any creditor must be notified about at least one week before it takes place.
Can I do my own members voluntary liquidation
No you need to be a licensed Insolvency practitioner to carry out a Members Voluntary Liquidation in the UK
Need further help
If you’re considering a Members Voluntary Liquidation for your company, it’s important to seek professional help from a qualified insolvency practitioner. An insolvency practitioner is an expert in the field of company liquidation and can guide you through the process, ensuring that everything is handled correctly and efficiently. They will also ensure that all legal requirements are met, such as complying with the Companies Act and other relevant regulations.
An insolvency practitioner can also help you to maximise the return to creditors and shareholders, as well as minimise the stress and workload involved in the process. They can provide a comprehensive and professional service, giving you peace of mind that your MVL will be handled in the best possible way.
We have helped hundreds of business owners over the past ten years with solvent liquidations, to get started make an enquiry today.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.