What is Members' Voluntary Liquidation (MVL)?
Posted on 20th October 2021 at 14:51
In the context of finance and business, the term 'liquidation' is often assumed to have negative connotations. It is a technical word that is commonly associated with processes of bankruptcy, and the steps are required to meet the needs of creditors. While that is certainly true, liquidation enacted as part of a Members' Voluntary Liquidation (MVL) is a very common, tax efficient method of winding down a solvent company with a view to the cessation of commercial operation.
A company is deemed solvent when its accounts and assets are confirmed as meeting all liabilities. The subsequent tax efficiency of a Members’ Voluntary Liquidation relates largely to shareholders because the process affords them payments that are considered to be capital distributions as opposed to conventional dividends, and capital distributions are received at a lower rate of tax.
When is a Members' Voluntary Liquidation appropriate?
There is a range of circumstances in which Members’ Voluntary Liquidation would be the appropriate course of action.
Ceasing to trade - There are all sorts of reasons why a solvent company may wish to cease trading, including the retirement or amicable exit of a Director or CEO, a change of direction for the leadership, or a change in personal circumstances for one or more of the business leadership team.
Closure of a subsidiary and the subsequent re-structuring of a group of companies - It is not uncommon for a group of companies to find that one of its subsidiaries is under-performing or is surplus to requirements, and for its leadership to decide that the subsidiary should be wound down before negatively impacting the rest of the group.
Distribution of company assets - On occasion, shareholders may wish to split, divide, or distribute company assets in order to generate financial gain.
It is also the case that Members’ Voluntary Liquidation is often the option that is chosen in order to avoid insolvency that is perhaps anticipated further down the line. This makes it a pro-active choice in terms of business management and, to that end, MVL can provide significant peace of mind to shareholders and business leadership by ensuring that all legal and financial requirements are being met in the winding down of the company.
How does the Members’ Voluntary Liquidation process work?
In broad terms, there are six stages to the Members’ Voluntary Liquidation process. Each stage is designed to ensure that all legal requirements are met in the winding down of a solvent company.
1. Declaration of Solvency
In order to move forward with a Members’ Voluntary Liquidation, the company must be proven to be solvent, so a Declaration of Solvency is required. This is a statement that details an accurate picture of both the assets and liabilities of the company and must be signed by the number of Directors that are appropriate for the business. It will also be filed with Companies House and should be completed and signed up to five weeks before a resolution to wind down the company is agreed.
2. Board of Directors Meeting
To get the ball rolling on the process, the Board of Directors must meet to discuss the winding up of the company, and to agree a resolution to that effect. The nature and content of the resolution will depend on the Articles of Association held by the business. Once the resolution has been passed, the Directors should make the arrangements for a Shareholder’s meeting and agree on the appointment of a licensed Insolvency Practitioner.
3. Shareholder's Meeting
The agreement of a minimum of 75% of the shareholders must be secured for the Members’ Voluntary Liquidation to proceed, and this process is initiated using the resolutions resulting from the Board of Directors Meeting.
The company is in liquidation once the shareholders pass the resolutions. It is at this point that the professional person in the role of Liquidator will begin the necessary administrative tasks, including the filing of paperwork with Companies House, dealing with the payment of dividends, and requesting the submission of claims from any potential creditors.
5. Deed of Indemnity
The distribution of payments to shareholders is likely to happen very quickly once the liquidation process has begun, so it is important to obtain a signed Deed of Indemnity. This is intended to provide a guarantee that shareholders agree to fulfil any legitimate claims made by a creditor that are received at a later date.
6. Final Meeting
When the professional person acting as Liquidator has confirmed that the first five stages are complete, they will move forward with ending the process.
An important point to note is that a Members’ Voluntary Liquidation can be switched to be a Creditors Voluntary Liquidation if at any point it becomes clear that the company is unable to meet its liabilities. This would require a meeting of creditors and an agreement going forward.
The need for expert advice
The solvent winding down of your company is a big decision to make, both individually and collectively as leadership. Your company may well represent many years of hard work, and a significant investment in terms of time, energy, and money. Dealing with processes of such weight and consequence is not something you should rush through, therefore, and it is certainly not something on which you should consider trying to reduce costs. A Members’ Voluntary Liquidation is something that requires expert advice and guidance from licensed professionals.
Our Smith & Barnes Insolvency Practitioners team boasts highly qualified and experienced professionals, who are able to consult on your situation and help signpost your options. We can also act as Liquidator, should MVL be your preferred course of action. Our approach is to provide assistance that is tailored to your needs, delivering a fast, efficient, and low cost service that respects the hard work you have undertaken in building your company, and the challenging time you will have had in deciding to cease trading.
Call us today for a free consultation and find out how we can help you with winding down your solvent company.
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