What is a Members Voluntary Liquidation?
A Members Voluntary Liquidation (MVL) is used when a company is solvent and the shareholders wish to close down the company. This can be due to a number of reasons including:
- The company no longer having a purpose
As the company in a Members’ Voluntary Liquidation is solvent then there is no requirement for a statutory investigation by the Liquidator regarding the directors conduct.
Since the introduction of the Extra-Statutory Concessions Order 2012 any distribution to shareholders on the closure of a solvent company which has over £25,000 shareholder distributions to make will be treated as income for tax purposes unless an MVL is used. If an MVL is used then these distributions will be classed as capital receipts and will receive a lower rate of tax.
An MVL should also allow for the use of Entrepreneurs’ Relief which is a personal tax relief and can bring the tax rate applied to shareholder distributions down to as low as 10%.
An MVL can also be used as part of a solvent restructuring through a S.110 agreement.
*We always recommend that tax advice is taken if you are considering a Members’ Voluntary Liquidation.
The Members Voluntary Liquidation Process
1) Instruct a Licensed Insolvency Practitioner
To place your company into Members’ Voluntary Liquidation you will need to instruct a Licensed Insolvency Practitioner to act on your behalf in carrying out the correct procedure. Liquidation.co.uk currently has 4 Insolvency Practitioners among their staff.
2) Board Meeting
The Directors of the company will be required to convene and hold a Board meeting at which the Directors, among other things, will resolve to issue notices to the shareholders of the company convening an Extraordinary General Meeting (EGM).
It should be noted that with shareholders’ approval a shareholders meeting can be held on “no notice” and as such to move from the decision to liquidate to appoint the liquidators and distribute the assets can be a very short period of time if required.
3) Declaration of Solvency
The Directors will also resolve to sign a Declaration of Solvency, which is a document showing the assets and liabilities of the company and confirms that the company can pay its debts in full within 12 months including statutory interest. This needs to be signed and sworn in front of a solicitor by the all or a majority of the Directors.
4) Notice to Shareholders
The notices of the EGM must be issued to all of the Shareholders of the company giving at least 21 days’ notice. However with 95% approval, this notice can be shortened.
5) Extraordinary General Meeting
The purpose of the EGM is to enable the Shareholders to pass a number of resolutions in relation to the winding up including; a Special Resolution to place the company into Liquidation and an Ordinary Resolution to appoint the Liquidator.
6) Distribution of Cash and Assets
Immediately upon the signing of the resolutions at the EGM the cash and assets can be distributed by the Liquidator.
7) Appointment Notification
Following the EGM, the appointed Liquidator will notify creditors of their appointment and place an advert in the London Gazette.