Members' Voluntary liquidation

Members’ Voluntary Liquidation (MVL) is a formal process to close a solvent company, when the assets exceed its liabilities and its capable of settling its debts within a 12-month period.

An MVL procedure ensure an orderly distribution of the company’s assets, often in a tax-efficient manner.

An MVL is suitable for a company that:

• Has achieved its purpose or come to the end of its useful life, and shareholders no longer want the corporate entity

• Is part of a group that is being restructured

• Is an unwanted subsidiary in a group and needs to be removed, for example, to reduce compliance costs

• Has shareholders who wish to recover their investment as tax-efficiently as possible

An MVL is not appropriate if the company is insolvent and unable to pay its debts. If this is the case, then a Creditors’ Voluntary Liquidation process could be one solution

The MVL process starts with the directors deciding to convene a meeting of shareholders with a view to passing a special resolution to place the company in an MVL, and an ordinary resolution to appoint an insolvency practitioner as liquidator.

Prior to passing the resolutions, a majority of the directors must make a declaration of solvency, attesting that the company can pay its debts in full within 12 months.

The shareholders then pass the resolutions at the meeting (or this can be done by written resolutions).

Once appointed liquidator, the insolvency practitioner must publicise their appointment by publishing it in the London Gazette and delivering a notice of appointment to the Registrar of Companies. The insolvency practitioner handles the conduct of the winding up. In basic terms, this involves securing and realising the company’s assets, settling the claims of creditors and paying the surplus to shareholders. Assets can also be distributed in specie to shareholders.

Once the liquidation is complete the insolvency practitioner will issue a final account. Once this is filed with the Registrar of Companies, the company will be automatically dissolved after three months.

• Tax Efficiency: MVLs can offer significant tax benefits, not least as generally distributions by the insolvency practitioner as liquidator are treated as capital rather than income
• Expert Guidance: Experienced insolvency practitioners provide expert guidance throughout the MVL process, ensuring compliance with all legal requirements
• Lower Risk: The insolvency practitioner handles the process, and the directors cease to be responsible. The insolvency practitioner is able to utilise a formal claims process for creditors under the legislation, which is not available to directors
• Structured Closure: The MVL provides a clear and structured method to wind up a company, reducing stress and allowing stakeholders to focus on future plans. An MVL can be particularly useful if directors have changed over the years and there is a lack or gap in the corporate knowledge
• Convenience: The directors and shareholders decide when the process begins