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Members Voluntary Liquidation Process

Introduction to Members Voluntary Liquidation (MVL)

Members Voluntary Liquidation (MVL) is a formal process for winding up a solvent company, allowing directors to distribute assets to shareholders and dissolve the business.

This process is often chosen when a company is no longer needed but remains solvent, meaning it can pay off its debts within 12 months.

Step-by-Step Members Voluntary Liquidation Process

Step 1: Declaration of Solvency

The process begins with the directors signing a Declaration of Solvency, confirming that the company can pay its debts within 12 months. This document must include:

  • A statement that the directors have assessed the company’s assets and liabilities.
  • The directors’ belief that the company can repay its debts within the specified time.
  • Details of the company’s assets and liabilities.

For a detailed guide see our Declaration of Solvency post.

Step 2: Passing a Resolution

Within five weeks of making the Declaration of Solvency, the company must hold a general meeting to pass a special resolution to wind up the company. The resolution must be passed by at least 75% of the shareholders.

Step 3: Appointing a Liquidator

At the same meeting, an authorised insolvency practitioner must be appointed as the liquidator. The liquidator takes control of the company, manages the sale of its assets, and oversees the distribution of the proceeds to creditors and shareholders.

Step 4: Notification and Advertisement

At the same meeting, an authorized insolvency practitioner must be appointed as the liquidator. The liquidator takes control of the company, manages the sale of its assets, and oversees the distribution of the proceeds to creditors and shareholders.

Step 5: Creditors' Meeting

Although the company is solvent, a meeting of creditors may still be required. Creditors must be notified of the liquidation and given the opportunity to submit claims.

Step 6: Realisation of Assets and Distribution

The liquidator will sell the company’s assets and use the proceeds to pay off any remaining debts. The remaining funds are then distributed to the shareholders. This process includes:

The liquidator will sell the company’s assets and use the proceeds to pay off any remaining debts. The remaining funds are then distributed to the shareholders. This process includes:

  • Collecting and valuing company assets.
  • Settling any claims from creditors.
  • Distributing the remaining assets to shareholders according to their shares.

Step 7: Final Meeting and Dissolution

Once the company’s affairs are wound up, the liquidator will prepare a final report. A final meeting of shareholders is held, and the liquidator presents the report. The final step involves submitting the report to Companies House, after which the company is officially dissolved.

Benefits of Members Voluntary Liquidation

Tax Efficiency

One of the significant benefits of MVL is its tax efficiency. Distributions to shareholders are treated as capital rather than income, often qualifying for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which reduces the tax rate to 10%.

Clean Exit

MVL provides a clean exit strategy for directors, ensuring all debts are paid and the company is properly dissolved. This method prevents any future liabilities and protects the directors’ reputations.

Common Pitfalls and How to Avoid Them

Incorrect Solvency Declaration

An incorrect solvency declaration can lead to severe legal consequences. Directors must ensure they have accurately assessed all potential liabilities, including contingent liabilities, to avoid personal liability.

Incomplete Documentation

Thorough documentation at each stage is crucial. Any missing or incorrect documents can delay the process and result in legal issues. Directors should work closely with their appointed liquidator to ensure all paperwork is correctly completed and submitted on time.

Conclusion

The Members Voluntary Liquidation process is a structured and efficient way to wind up a solvent company, ensuring that all debts are paid, and assets are distributed to shareholders in a tax-efficient manner. By following the steps outlined above and working closely with a licensed insolvency practitioner, directors can navigate the MVL process smoothly and ensure a successful company dissolution.

For more information on related topics, visit our other articles:

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    Andy Slinger

    Andy is Head of Marketing for Business Helpline with a wealth of experience Marketing in the financial sector. He has a passion for helping business owners struggling with debts.